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Of course that's not realistic. But yet everyone who writes or says Social Security will be broke in 2033 is repeating the same sort of unrealistic prediction. Every one of you who advocates removing the cap, expanding FICA to Capital Gains Taxes, raising the retirement age, or whatever.... to fix Social Security is buying into the same thing. Take the jump, here is where I back up that claim:

Each year the Social Security Trustees issue a report on the financial condition of Social Security. Within that report are 4 different projections: low cost, intermediate cost, high cost and a stochastic model. 2033 is only from one of those projections.

As the recovery from the 2000 recession got under way the SS Trustees reported in 2001 that under the intermediate scenario, SS was good thru 2038, from 2037 in 2000. As the economy recovered that date was pushed back to 2042 in the Trustees 2004 report. GDP growth in those years was 2001=1.09%, 2002=1.83%, 2003=2.55%, 2004=3.48%. Not stunning growth, but yet enough to add 5 years to the intermediate assumption.

It is very important to note that the Social Security Trustees have a responsibility to produce a conservative projection. Sort of like a car mechanic who writes an estimate for a car repair.

Your transmission is blown and its going to cost $1,200.

Then you go to pay the bill and it says $1,167.

Well if the bill was $1,500 you might be pissed.

So if the Trustees tell you SS will go broke in 2050, and come 2051 its still fully funded, thats fine. But if they told you SS was broke in 2050 and it went broke in 2047, well you might be pissed. SO I want you to look at the 3 basic scenarios, low cost, intermediate cost and high cost, ok? Heres the link. Notice the part where the Trustees write:

The Trustees estimate that the trust fund will not be exhausted within the projection period.
That projection period ends in 2090.

I'm not going to bore you with all the factors that go into making 2090 possible, but I will list the large order factors:

1) Job creation.
2) Wage growth.

Thats it. Sure its not that simple, workforce growth plays into the calculations, as well as how long people live and other factors, but if we don't create jobs and raise the minimum wage, then the small order factors wont matter. There are by most accounts 22 to 27 million under/unemployed people in the US. Stimulus spending of 1 trillion dollars would put most of them to work, about 20 to 25 million. That's a lot more FICA. And raising the minimum wage, well that's more FICA. GDP growth of at least 2.8% over 20 years can get the trust fund thru 2062, when the Boomers will be dead, then assets grow. Most estimates tells us that the days of 4-5-6-7-8% GDP growth are gone, but that as much as 3.5% is realistic. We just need to see GDP growth average 2.9% and we have a much improved chance of seeing the Social Security Trust Fund able to pay out 100% of benefits thru the magic date of 2062.

The Easiest Way to Improve Social Security

There is only one change to Social Security that I advocate. After the 1983 deal the income cap was set at 90%. Today its @ 84%.

90 percentile today is about $186,000.
84 percentile today is set at $110,100.

Setting the income cap back to 90% would mean, in rough numbers, $2,000 more per year for the average senior, and the senior getting the top benefit of nearly 31k would see about a 4k increase. And SS would see a small net increase in revenues. Who is better than me? I'm improving revenue and giving a nice COLA to seniors and those who are Veterans.

Now in light of the picture I have painted of Social Security how does that Chained CPI thingy look like now? Like the POS idea it is? Good, I'm glad you think so.

The fact of the matter is there is nothing wrong with Social Security that a good economy wont fix. And I would prefer it, if for now, no one touched my Social Security. Ya'll got my back?

To paraphrase Charlton Heston..

Colonel George Taylor: Take your stinking paws off my Social Security, you damned dirty Republican.

9:44 AM PT: When I say SS might go broke on a certain date, I mean not being able to pay 100% of benefits. Sorry for the confusion.

9:55 AM PT: More accurately:

In the current Trustees report under the intermediate assumptions, they state the Trust Fund will be depleted in 2033. In my laymans terms I call that broke. When actually FICA revenues will be enough for something on the order of 75% of benefits to be paid.  But to believe that assumption you have to believe we will have 20 more years of recession. A Mad Max type of scenario.


Originally posted to Social Security Defenders on Thu Dec 20, 2012 at 09:37 AM PST.

Also republished by Daily Kos Economics, The Royal Manticoran Rangers, Keynesian Kossacks, Income Inequality Kos, Progressive Policy Zone, and The Democratic Wing of the Democratic Party.

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Comment Preferences

  •  Recent Trustees reports are found here: (13+ / 0-)

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Thu Dec 20, 2012 at 09:31:43 AM PST

  •  Roger (1+ / 0-)
    Recommended by:
    Roger Fox

    My understanding has always been that it won't go broke, but benefits will have to reduced by as much as 25%

    Why is it that, as a culture, we are more comfortable seeing two men holding guns than holding hands?

    by jsfox on Thu Dec 20, 2012 at 09:40:41 AM PST

  •  These are people who panic over taxes. (3+ / 0-)
    Recommended by:
    Roger Fox, tardis10, ewmorr

    You know, the ones that pay for their wars, etc.

    Trust me, Realism is pretty low on their priority list.

    I don't blame Christians. I blame Stupid. Which sadly is a much more popular religion these days.

    by detroitmechworks on Thu Dec 20, 2012 at 10:03:19 AM PST

  •  Thanks for (0+ / 0-)

    the update,Roger.  It is always helpful to reinforce the numeric facts of programs like SS.

    I am still trying to figure out why SS is in this discussion.
    The impact of a reduction in benefits just extends the projected life of the trust fund,right?
    Now, I guess the desire is to help cash flow from the government to the trust fund in paying off the bonds slower?
     The fed government operates on a cash basis,I presume,so does the slower payout of SS benefits actually somehow reduce the annual deficit as fewer bonds are cashed in by the trust fund to pay benefits?

    How does the growth projections impact the Medicare Trust Fund?  Right now they say 2024, altho I presume that since the cost of those benefits are not fixed and subject to inflation in healthcare costs,and claims experience rising or falling,it might be hard to project precisely.

    •  Bruce Webb is more knowledgeable on Medicare (0+ / 0-)

      than I am, but my understanding is Medicare is in need of a wee bit of work.

      The impact of a reduction in benefits just extends the projected life of the trust fund,right?
      Right. But widespread job creation would have a much larger impact.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Thu Dec 20, 2012 at 10:24:52 AM PST

      [ Parent ]

  •  Let me get this straight, or at least try (1+ / 0-)
    Recommended by:
    Roger Fox

    Social Security is funded through a dedicated tax and compound interest on surpluses generated by that tax. The formula for calculating that funding is:

     x number of workers generate y total dollars, taxed at z%. Surpluses are then invested at a given percentage return, (I will call the yield on that z1 rather than rename x,y and z, just because I'm lazy)

    Payments out of that pool are calculated as n number of beneficiaries generating m payments (m is based on how much a given beneficiary is owed based on how much he contributed when he was x) giving us the total cost.

    [(yz) + z1] - m

    Now, that means:
    1. x, and therefore y, is heavily vulnerable to change by the unemployment rate. What if high unemployment is permanent? (automation rather than market factors)
    2. A change in the average wage also obviously changes y. (even if the unemployment rate lowers, that gain can be offset by wage erosion) What if wage erosion is stronger or longer than anticipated?
    3. low revenue in a given year has a compound effect on z1, and the earlier that effect occurs the more times that is compounded. In other words, lowering the tax rate during a time of high unemployment, presumably done to provide a stimulus, had better generate more x than less z1. Will it?
    4. Have we accurately calculated the impact of m? Offhand I can think that those who live longer will, because of the income/health care relationship, be those with larger average payments, while those with lower average payments will also be more likely to work into retirement age - especially if the eligibility age is raised - thus adding pressure to wage deterioration.

    And my last question. Listening to the discussion it sounds like people are conflating GDP with what has to be jobs and wages. GDP growth does not have to mean more better paying jobs, in fact the two have become completely disconnected. Are Social Security projections actually being based on GDP and not actual projections of employment and wages?

    •  last question is answered in the diary (0+ / 0-)
      I will list the large order factors:

      1) Job creation.
      2) Wage growth.

      Thats it. Sure its not that simple, workforce growth plays into the calculations, as well as how long people live and other factors,

      GDP growth of at least 2.8% over 20 years can get the trust fund thru 2062, when the Boomers will be dead, then assets grow.
      Of course.
      GDP growth does not have to mean more better paying jobs, in fact the two have become completely disconnected.
      But remember the trustees live in a world where they must pick certain demographics and derive rates of confidence. SO for the SS trust fund to be depleted in 2033, they use things like .2% workforce growth, 2.1% GDP growth. Which is why I included some history from 2000-2004, that very moderate recovery added 5 years to the intermediate assumptions from 2000 to 2004.

      Take it for what it is, its 5 years.

      What if high unemployment is permanent?
      Um, thats sort of like saying what if recession is permanent....

      And lets go there..... a recession lasting from 2008 to 2033 would be the longest economic downturn since the Black Plague killed off half the humans on the planet. If that happens I wont be worried about getting a SS check.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Thu Dec 20, 2012 at 02:20:07 PM PST

      [ Parent ]

    •  great comment (0+ / 0-)

      i'd love to hear your thoughts here.

      Please don't dominate the rap, Jack, if you got nothin' new to say - Grateful Dead

      by Cedwyn on Sun Dec 23, 2012 at 04:40:18 PM PST

      [ Parent ]

  •  If I understand the "chained CPI" thing (0+ / 0-)

    it means that SocSec benefits, in real dollars, will decrease every year. Is that correct? If it's correct, does that mean that benefits would eventually approach zero in terms of present $$?

    Note to Boehner and McConnell: "You don't need a weatherman to know which way the wind blows." --Bob Dylan-- (-7.25, -6.21)

    by Tim DeLaney on Sat Dec 22, 2012 at 10:24:25 PM PST

    •  No, that's not what it means. (1+ / 0-)
      Recommended by:
      Roger Fox

      It means that cost of living increases will be reduced by about .3% from the cost of living calculations that are currently in effect.

      The sh*t those people [republicans] say just makes me weep for humanity! - Woody Harrelson

      by SoCalSal on Sun Dec 23, 2012 at 08:26:52 PM PST

      [ Parent ]

      •  OK, but that means (1+ / 0-)
        Recommended by:
        Roger Fox

        the benefit baseline is multiplied every year by 0.997.  After 10 years, the baseline is at 97%. After 100 years, it's at 74%. Agreed, it takes a long time, but this function

        Benefit = .997 ^ time (in years)

        approaches zero as a limit.

        Now, I suppose that you could say that when when there are no longer ways to substitute cheaper commodities that the function must necessarily flatten out. At that time, the retiree will be subsisting on unprocessed grain.

        Did you hear the tale of the farmer who decided that he could no longer afford oats for his plowhorse? Every day, the farmer would decrease the oat ration, hoping to reach a point where the horse required nothing at all. Eventually, the farmer ruefully observed: "But just when I got the horse down to nothing, the damn animal died on me!"

        Note to Boehner and McConnell: "You don't need a weatherman to know which way the wind blows." --Bob Dylan-- (-7.25, -6.21)

        by Tim DeLaney on Mon Dec 24, 2012 at 01:57:53 AM PST

        [ Parent ]

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