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2024 SOCIAL SECURITY REPORT IS OUT THE MEDIA MISS THE POINT

Summary:
The 2024 Social Security Trustees Report came out on Monday, May 6. You can find dozens of press reports and other commentary online, most of which are written by people who actually know nothing about Social Security except what they read in the papers. Some are written by people who do know what they are talking about but write in a way that is likely to mislead. For today I am just going to look at the May 6 analysis: “Analysis of the 2024 Social Security Trustees’ Report-Mon, 05/06/2024 – 12:00,” Committee for a Responsible Federal Budget. Here are some quotes from CRFB followed my comments. CRFB Social Security faces large and rising imbalances. According to the Trustees, Social Security will run cash deficits of trillion over the

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The 2024 Social Security Trustees Report came out on Monday, May 6. You can find dozens of press reports and other commentary online, most of which are written by people who actually know nothing about Social Security except what they read in the papers. Some are written by people who do know what they are talking about but write in a way that is likely to mislead.

For today I am just going to look at the May 6 analysis: “Analysis of the 2024 Social Security Trustees’ Report-Mon, 05/06/2024 – 12:00,” Committee for a Responsible Federal Budget.

Here are some quotes from CRFB followed my comments.

CRFB Social Security faces large and rising imbalances. According to the Trustees, Social Security will run cash deficits of $3 trillion over the next decade, the equivalent of 2.3 percent of taxable payroll or 0.8 percent of Gross Domestic Product (GDP). Annual deficits will grow to 3.4 percent of payroll (1.2 percent of GDP) by 2050 and 4.6 percent of payroll (1.6 percent of GDP) by 2098. Social Security’s 75-year actuarial imbalance totals 3.5 percent of payroll, which is over 1.2 percent of GDP or nearly $24 trillion in present value terms.

Me: This is all true. But notice the scare language: “large and rising”. The imbalance is quite small and is not “rising,” depending on how you look at it. It is what it has always been (since 1983): a need to increase the payroll tax about 4% (2% for workers and 2% for employers) beginning in about 2035. It looks like it is rising because we look at it through a 75-year actuarial window, and it’s a moving window. Each year, one year that is already paid for falls outside the window into the past, and one year not already paid for enters the window from the future. But nothing important about Social Security has changed.

And notice “cash deficits.” There is no current deficit and will not be one until 2035. The years between now and then are already paid for. In the first place by the existing payroll tax, and in the second place by the Trust Fund that was paid for by the baby boomers in order to pay the extra money that would be needed to pay for their greater numbers, which otherwise would have been an unfair burden on the smaller following generation if paid by the normal pay as you go formula. By “cash deficits” they mean we have now reached the point where total benefits being paid this year will exceed the total cash income that comes from the payroll tax, with the difference being made up by drawing down the Trust Fund, as was always intended.

CRFB tells you the ten, 25, and 75-year deficits. But it is hard to get your mind around numbers that tell the number of dollars needed over tens of years in the future by 200 million to 300 million people whose average wage will rise from about 70,000 dollars per year today to one million 2024 dollars per year (about half of this is inflation).

What this means is while your tax will have increased by 2%, your real wages will have increased about 400%. [Be careful here: I do not intend to mislead you, but because of complications this can be misleading. Rather than go through all the complications now, just take the point that over time your wages are going to increase a lot faster than your payroll tax, so you will not be suffering an unbearable burden.]. But as a way to get a feel for the numbers: the total income of 200 million taxpayers making 60 thousand dollars per year for ten years is 120 trillion dollars. So the 3 trillion dollar deficit could be paid for by 2.5 percent of income. Fortunately for us the Actuaries have done the real arithmetic: the right answer is 2.3%. [Using percents finesses the problems of rising population and rising wages and “present value.”] No one would notice a 2.3 percent increase in the payroll tax, especially if they understood that it is not really a “tax” but a mandatory savings plan and insurance policy to make sure you have enough to live on when you can no longer work. This means you get the money back with effective interest of about three times as much as you pay in. Meanwhile, 8 tenths of a percent of GDP is not a large amount of money to pay for the growing needs of 60 million people (20% of the population). Especially since they paid for it themselves.

This can be thought of as the extra money they will need in order to pay their costs to live about two more years after they can no longer work. Or it can be thought of as the extra money SS will need to collect each year for the larger number of retires that will still be alive each year because they are living longer. This amount will grow over time reaching, a need to raise the tax about 4% of wages (2% from workers and 2% from employers). This can be reached gradually over twenty years, one tenth of a percent at a time while real wages will increase more than 20%. That means that at the end of the day you will have much more “take home” pay than you have today, while at the same time being able to save enough to pay for your needs over a longer lifetime after you can no longer work.

Note: they start with a ten-year deficit, then talk about raising the tax over 75 years, and then the “actuarial deficit” over 75 years. The actuarial deficit is the amount it would take to put in the bank today to pay for SS for the next 75 years. It is less than the amount of tax increase needed by the end of the 75-year period, because that “immediate and permanent tax rate draws down the Trust Fund and will not reach the rate needed to balance income with outgo after that time. While the 4% increase preserves the Trust Fund and reaches the tax rate needed to balance income with outgo for the foreseeable future. We don’t have 20 trillion dollars to put in the bank today to pay for the seventy-five years. But we can rely on our own ability to pay for our daily bread one day at a time.

CRFB Time is running out to save Social Security. Policymakers have only a few years left to restore solvency to the program, and the longer they wait, the larger and more costly the necessary adjustments will be. Acting sooner allows more policy options to be considered, allows for more gradual phase in, and gives employees and employers time to plan.

Me: This is true. But “more policy options” mean Congress will consider cutting benefits, raising the retirement age, privatizing SS, or “making the rich pay.” Other fixes that can be made to look like making SS fairer while in fact making it less fair and destroy Social Security which has worked for over eighty years keeping people out of desperate poverty when they can no longer work. Meanwhile no one would even notice the 2% tax increase if introduced gradually over twenty years raising the payroll tax about one dollar per week in terms of today’s money But this option expires this year. After next year the “gradually” will need to be increasingly less gradual. If we wait until 2033 a 2% increase in the payroll tax for each the worker and the employer would be needed all at once. This still would not really be felt, but it will be noticed, and make it much easier for enemies of Social Security to stampede the people into letting Congress do something stupid that will result in killing Social Security before you even notice they have done it or can remember how you let them get away with it.

In conclusion, CRFB has stuck pretty close to true facts, but in a way that makes the Social Security “problem” sound much worse than it does when you actually know what you are talking about.

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