Sent: Monday, May 14, 2012 11:48 PM
Subject: What the 2012 Trustees' Report Shows About Social Security
Below is an article about Social Security that you may find of interest.
There is a fairly detailed table, which has been interpolated for screen
reader users like me and possibly you. The table is in the middle of the
article. So if you find it boring, just skip to the words
"Recent Events Have Slightly Affected the Program" to continue the main
text.
What the 2012 Trustees' Report Shows About Social Security
By Kathy Ruffing
Center on Budget and Policy Priorities, May 10, 2012
http://www.cbpp.org/cms/index.cfm?fa=view&id=3774
On April 23, the Social Security Board of Trustees issued its annual report
on the program's financial status.[1] The report shows some deterioration in
the program's finances since the 2011 report. While that revision--which
stems chiefly from lingering economic weakness--is not alarming, it reminds
policymakers that they ought to act soon to put the program on a sound
footing for the long run. Although the date when the program can no longer
pay full benefits is still more than two decades away, prompt action would
permit changes that are gradual rather than sudden, and allow people to plan
their work, savings, and retirement with greater certainty.
Several key points emerge from the new report:
* The trustees estimate that, in the absence of policy changes, the combined
Social Security trust funds will be exhausted in 2033--three years earlier
than they forecast in last year's report. That date fluctuates slightly in
each trustees' report depending on economic, demographic, and other
variables; over the last two decades, it has ranged between 2029 and 2042,
but the overall conclusion has been relatively consistent.
* After 2033, Social Security could pay three-fourths of scheduled benefits
using its tax income even if policymakers took no steps to shore up the
program. Those who fear that Social Security won't be around when today's
young workers retire misunderstand the trustees' projections.
* The program's shortfall is relatively modest, amounting to 1 percent of
Gross Domestic Product (GDP) over the next 75 years (and 1.5 percent of GDP
in 2086). A mix of tax increases and benefit modifications--carefully
crafted to shield recipients with limited means and to give ample notice to
all participants--could put the program on a sound footing indefinitely.
* The 75-year Social Security shortfall is slightly larger than the cost,
over that period, of extending the 2001 and 2003 tax cuts for the richest
Americans (those with incomes above $250,000 a year). And the cost of
extending all of the expiring tax cuts dwarfs the Social Security shortfall,
over 75 years, by two-to-one. Policymakers and pundits cannot simultaneously
claim that the tax cuts for people at the top are affordable while the
Social Security shortfall constitutes a dire fiscal threat.
* Policymakers will have to replenish the Disability Insurance trust fund by
2016. Ideally, they would do so as part of a comprehensive solvency package,
because the retirement and disability components of Social Security are
closely woven together. Pending action on a balanced and well-designed
solvency package, it is reasonable to reallocate taxes between the
disability and retirement programs--as policymakers have often done in the
past.
Report Holds Few Surprises
The trustees' report focuses on the outlook for the next 75 years--a horizon
that spans the lifetime of just about everybody now old enough to work. The
trustees expect the program's tax income to climb slightly from today's
levels, remaining near 13 percent of taxable payroll.[2] Meanwhile, the
program's costs are expected to climb to nearly 18 percent of taxable
payroll--up from slightly under 14 percent today. Interest earnings, long an
important component of the trust funds' income, will shrink after the
mid-2020s and eventually disappear. Over the entire 75-year period, the
trustees put the Social Security shortfall at 2.67 percent of taxable
payroll; the shortfall is concentrated in the later decades of the
projection. Expressed as a share of the nation's economy, the 75-year
shortfall is 1 percent of GDP.
Both of these widely cited figures include a buffer that allows for a target
trust fund balance at the end of 2086. Without that buffer--which is set at
100 percent of the next year's estimated Social Security outlays--the
shortfall would be 2.5 percent of taxable payroll or 0.9 percent of GDP.[3]
The program's costs will grow steadily for the next 25 years and then
stabilize. The trustees expect its cost to pass 17 percent of taxable
payroll in the 2030s and barely grow thereafter. (As a percentage of GDP,
outlays will rise from 5 percent today to 6.4 percent in the 2030s, and then
modestly subside.) While Social Security provides a safety net to people of
all ages--to young children and their surviving parents who have lost a
family breadwinner, to working-age adults who have suffered a disability,
and to retired workers and elderly widows and widowers--about three-fourths
of its benefits go to people age 65 or older. The share of the population
that is 65 or older will climb steeply through 2035, from one in seven
Americans today to one in five by the 2030s. The growth in Social Security's
cost as a percentage of GDP roughly mirrors that pattern. This reiterates
that Social Security's fundamental challenge is demographic, traceable to a
rising number of beneficiaries rather than to escalating costs per
beneficiary.[4]
The size of the shortfall over the next 75 years is somewhat larger than in
the 2011 report (see Table 1 below). Of the slippage in the new
forecast--which equals 0.44 percent of taxable payroll over 75 years--the
actuaries attribute nearly half (0.21 percentage points) to revisions in
their economic assumptions. They ascribe another 0.05 percentage points of
the slippage to the simple passage of another year; the 75-year valuation
period now spans 2012 through 2086, rather than 2011 through 2085, and thus
adds one remote year of significant deficit. A variety of other factors
accounts for the remaining change.
The projected deficit is the largest shortfall projected in the last 20
trustees' reports, but not dramatically so. In the 1993 to 2012 reports, the
75-year deficit averaged 2 percent of taxable payroll, and it has fluctuated
within a fairly narrow range (see Table 1 below). Those figures are not,
however, strictly comparable, because the period covered by the reports has
shifted. The 1993 report, for example, spanned the period through 2067; this
year's report goes through 2086. Each one-year shift in the "valuation
period" moves the 75-year balance further into the red by a small amount, so
it is not fair to compare today's actuarial deficit with one estimated in
the 1990s. Unlike the program's deficit, the date of trust-fund exhaustion
is not affected by the valuation period, and it has ranged between 2029 and
2042. In short, trustees' reports over the last two decades have told a
consistent story--though they have not yet spurred policymakers to action.
Table 1
Trustees' Estimates Have Fluctuated But Tell a Consistent Story
Change in actuarial balance since previous report due to...
Year: 1993
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.05
Change in actuarial balance since previous report due to All other factors:
0.05
Total change in actuarial balance since previous report: 0
1993 Actuarial balance: -1.46
Year of exhaustion as of 1994: 2036
Year: 1994
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.05
Change in actuarial balance since previous report due to All other: -0.61
Total change: -0.66
1994 Actuarial balance: -2.13
Year of exhaustion as of 1994: 2029
Year: 1995
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.07
Change in actuarial balance since previous report due to All other: 0.03
Total change: -0.04
1995 Actuarial balance: -2.17
Year of exhaustion as of 1995: 2030
Year: 1996
Change in actuarial balance since previous report due to Legislation and
regulations: 0.03
Change in actuarial balance since previous report due to Valuation
period: -0.08
Change in actuarial balance since previous report due to All other: 0.03
Total change: -0.02
1996 Actuarial balance: -2.19
Year of exhaustion as of 1996: 2029
Year: 1997
Change in actuarial balance since previous report due to Legislation and
regulations: 0.03
Change in actuarial balance since previous report due to Valuation
period: -0.08
Change in actuarial balance since previous report due to All other: 0.02
Total change: -0.03
1997 Actuarial balance: -2.23
Year of exhaustion as of 1997: 2029
Year: 1998
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.08
Change in actuarial balance since previous report due to All other: 0.12
Total change: 0.04
1998 Actuarial balance: -2.19
Year of exhaustion as of 1998: 2032
Year: 1999
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.08
Change in actuarial balance since previous report due to All other: 0.2
Total change: 0.12
1999 Actuarial balance: -2.07
Year of exhaustion as of 1999: 2034
Year: 2000
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.07
Change in actuarial balance since previous report due to All other: 0.24
Total change: 0.17
2000 Actuarial balance: -1.89
Year of exhaustion as of 2000: 2037
Year: 2001
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.07
Change in actuarial balance since previous report due to All other: 0.1
Total change: 0.03
2001Actuarial balance: -1.86
Year of exhaustion as of 2001: 2038
Year: 2002
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.07
Change in actuarial balance since previous report due to All other: 0.06
Total change: -0.01
2002 Actuarial balance: -1.87
Year of exhaustion as of 2002: 2041
Year: 2003
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.07
Change in actuarial balance since previous report due to All other: 0.03
Total change: -0.04
2003 Actuarial balance: -1.92
Year of exhaustion as of2003: 2042
Year: 2004
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.07
Change in actuarial balance since previous report due to All other: 0.1
Total change: 0.03
2004 Actuarial balance: -1.89
Year of exhaustion as of 2004: 2042
Year: 2005
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.07
Change in actuarial balance since previous report due to All other: 0.03
Total change: -0.04
2005 Actuarial balance: -1.92
Year of exhaustion as of 2005: 2041
Year: 2006
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.06
Change in actuarial balance since previous report due to All other: -0.03
Total change: -0.09
2006 Actuarial balance: -2.02
Year of exhaustion as of 2006: 2040
Year: 2007
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.06
Change in actuarial balance since previous report due to All other: 0.13
Total change: 0.06
2007 Actuarial balance: -1.95
Year of exhaustion as of 2007: 2041
Year: 2008
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.06
Change in actuarial balance since previous report due to All other: 0.32
Total change: 0.26
2008 Actuarial balance: -1.7
Year of exhaustion as of 2008: 2041
Year: 2009
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.05
Change in actuarial balance since previous report due to All other: -0.25
Total change: -0.3
2009 Actuarial balance: -2
Year of exhaustion as of 2009: 2037
Year: 2010
Change in actuarial balance since previous report due to Legislation and
regulations: 0.14
Change in actuarial balance since previous report due to Valuation
period: -0.06
Change in actuarial balance since previous report due to All other: 0
Total change: 0.08
2010 Actuarial balance: -1.92
Year of exhaustion as of 2010: 2037
Year: 2011
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.05
Change in actuarial balance since previous report due to All other: -0.25
Total change: -0.3
2011 Actuarial balance: -2.22
Year of exhaustion as of 2011: 2036
Year: 2012
Change in actuarial balance since previous report due to Legislation and
regulations: 0
Change in actuarial balance since previous report due to Valuation
period: -0.05
Change in actuarial balance since previous report due to All other: -0.39
Total change: -0.44
2012 Actuarial balance: -2.67
Year of exhaustion as of 2012: 2033
Source: Annual trustees' reports. All figures (except year of exhaustion)
are expressed as a percentage of taxable payroll. Details may not add to
totals due to rounding.
a "All other" changes include effects of economic, demographic, and
disability assumptions and any changes in the actuaries' methods and models.
Some commentators cite huge dollar figures that appear in the report, such
as the estimated $9 trillion shortfall through 2086 (or even the $20
trillion shortfall through eternity, a figure whose validity many experts
question[5] ). Except over relatively short periods, however, it is not
useful to express Social Security's income, expenditures, or funding gap in
dollar terms, which does not convey a sense of the economy's ability to
support the program. Expressing them in relation to taxable payroll or GDP,
in contrast, puts them in proper perspective. Over the next 75 years, for
example, taxable payroll--discounted to today's dollars just as the $9
trillion shortfall figure is--will exceed $340 trillion, and GDP will be
nearly $950 trillion. Thus, the shortfall over that period equals about 2.5
percent of taxable payroll and 0.9 percent of GDP.[6]
Recent Events Have Slightly Affected the Program
The 2010 trustees' report showed a small but significant improvement in
Social Security's finances due to the health reform law, which the actuaries
expect will shift some employee compensation from (nontaxable) fringe
benefits to (taxable) wages. That's no longer new but is worth noting.
Repealing health reform would not only leave many millions of people
uninsured and abandon various cost-saving measures in Medicare, but it would
also harm the Social Security outlook.
No significant legislation that altered the Social Security outlook has been
enacted since last year's report. Legislators extended the payroll tax
holiday--a temporary reduction of 2 percentage points in the tax rate for
employees and the self-employed--for another year, so it will expire at the
end of 2012. However, Social Security's revenue loss from that holiday is
fully offset by a transfer from the Treasury's general fund to the trust
funds, estimated to total about $220 billion, leaving the trust funds
unaffected.
Cost-of-living adjustments (COLAs) have resumed after a two-year hiatus.
Fueled by high energy prices, the December 2011 COLA was 3.6 percent--higher
than the trustees expected and a small contributor to the deteriorated
outlook. The resumption of COLAs also meant that some other key program
parameters--notably the maximum amount of wages subject to the Social
Security payroll tax, which was frozen at $106,800 for three years--would
start rising again (the "taxable maximum" increased to $110,100 in 2012).
The trustees expect COLAs to hover around 2 percent for several years before
stabilizing at 2.8 percent annually. (The trustees' COLA assumptions are
higher than those of the Congressional Budget Office.[7] ) COLAs would be
slightly lower if policymakers adopted a different measure of inflation, the
so-called chained Consumer Price Index, to adjust benefits.[8]
Key Dates and What They Mean
2033 is the "headline date" in the new trustees' report, because that is
when the combined trust funds are expected to run out of Treasury bonds to
cash in. At that point, if nothing else is done, benefits would have to be
cut to match the program's annual tax income. The program could then pay 75
percent of scheduled benefits, a figure that would slip to 73 percent by
2086. Contrary to popular misconception, benefits would not stop.
Although the exhaustion date attracts keen attention, the trustees caution
that their projections are uncertain. For example, while 2033 is their best
estimate of when the trust funds will be depleted, they judge there is an 80
percent probability that trust fund exhaustion will occur sometime between
2030 and 2037--and a 95 percent chance that depletion will happen between
2029 and 2041. Slightly more sanguine estimates that CBO issued in August
2011 suggest there is an 80 percent probability that the combined trust
funds would be exhausted between 2030 and 2058.[9] In short, all reasonable
estimates show a long-run problem but not an immediate crisis.
Two other, earlier dates also receive attention but have little significance
for Social Security financing:
* 2010 marked the first year since 1983 in which the program's total
expenses (for benefits and administrative costs) exceeded its tax income
(from payroll taxes and income taxes that higher-income beneficiaries pay on
a portion of their Social Security benefits). That so-called cash-flow
imbalance--which equaled $49 billion in 2010 and $45 billion in 2011-was
long expected to happen in the mid-2010s as demographic pressures built; the
economic downturn simply led it to occur sooner. The trust funds are
nevertheless still growing, chiefly because of the interest income they
receive on their Treasury bonds. In 2011, for example, Social Security's
interest income of $114 billion more than offset its cash deficit of $45
billion, leading the trust funds to grow by $69 billion.[10]
* 2021 will be the first year in which the program's expenses exceed its
total income, including its interest income. At that point, the trust
funds--after peaking at $3.1 trillion--will start to shrink as Social
Security redeems its Treasury bonds to pay benefits.
Neither of these dates affects Social Security beneficiaries. Since the
mid-1980s, Social Security has collected more in taxes each year than it
pays out in benefits, has lent the excess revenue to the Treasury, and has
received Treasury bonds in return. That accounts for the $2.7 trillion in
Treasury bonds that the trust funds hold today.
The drafters of the 1983 Social Security amendments purposely designed
program financing in this manner to help pre-fund some of the costs of the
baby boomers' retirement. The interest income from the trust funds' bonds,
as well as the proceeds from eventually redeeming the bond principal, will
enable Social Security to keep paying full benefits until 2033. Of course,
policymakers should restore Social Security's long-run solvency well before
then. Social Security's diminishing cash flow is a concern for the Treasury,
which manages the government's overall financing needs. Nevertheless, the
bonds have the full faith and credit of the United States government,
and--as long as the solvency of the federal government itself is not called
into question--Social Security will be able to redeem its bonds just as any
private investor might do.[11]
What Congress Should Do Soon
The report warns policymakers that they must act reasonably soon to
replenish the Social Security disability fund. Most analyses of the
trustees' report--including this one--focus on the combined Old-Age and
Survivors Insurance (OASI) and Disability Insurance (DI) trust funds,
commonly known as the Social Security trust funds. But these two trust funds
are in fact separate, and the DI trust fund faces exhaustion in 2016. (The
much bigger OASI fund would last until 2035. Combined, the two funds would
be depleted in 2033.)
We strongly urge policymakers to address DI's pending depletion in the
context of action on overall Social Security solvency. Both DI and OASI face
fairly similar long-run shortfalls; DI simply requires action sooner. Key
features of Social Security--including the tax base, the benefit formula,
and cost-of-living adjustments--are similar or identical for the two Social
Security programs, and most DI recipients are near or past Social Security's
early-retirement age. Tackling DI in isolation would leave policymakers with
few--and unduly harsh--options and lead them to ignore the strong
interactions between Social Security's disability and retirement components.
A balanced and comprehensive solvency package that covers both parts of
Social Security would produce sounder policies. It also would provide an
opportunity to make needed changes to the needs-tested Supplemental Security
Income (SSI) program, which is distinct from Social Security but interacts
with it in important ways.
Social Security solvency featured prominently in two recent
deficit-reduction proposals. The Bowles-Simpson plan relied heavily on
Social Security benefit cuts to restore long-term solvency; the Bipartisan
Policy Center plan (more informally known as the Domenici-Rivlin plan)
struck a more even balance between tax increases and benefit cuts.[12]
Historically, however, most major Social Security legislation has moved
through Congress on its own and not as part of big deficit-reduction
packages. That tradition has allowed greater attention to the program's
adequacy, equity, and relationship to other programs such as Medicare and
SSI.
If policymakers are unable to agree on a sensible solvency package in time
to avert DI depletion, however, they should reallocate revenues between the
retirement and disability funds--a traditional and historically
noncontroversial action that policymakers have often taken in the past to
move resources between the two trust funds, in either direction. (For more
on the disability program, see the text box on p. 9.)
Even sooner, Congress must decide whether to extend the Bush income tax cuts
that are scheduled to expire at the end of 2012. Those originally were
slated to end after 2010; in the face of a weak economy, President Obama and
lawmakers agreed to continue them for two years.[13] The President has
proposed to let the tax cuts expire for Americans making over $200,000 a
year (for single persons) or $250,000 (for married couples). If policymakers
went further and let all the tax cuts expire--or paid for the tax-cut
provisions they opted to continue--that step, at a single stroke, would
nearly stabilize the ratio of federal debt to
GDP (a key test of fiscal sustainability) for the next decade.[14]
The revenue loss over the next 75 years from making all of the expiring tax
cuts permanent would be two times the entire Social Security shortfall over
that period. Indeed, the revenue loss just from extending the tax cuts for
couples making more than $250,000 and unmarried people more than $200,000
would itself be almost as large as the Social Security shortfall over the
75-year period. (See Figure 1.) It's true that Congress' upcoming decisions
about the fate of the tax cuts have little direct implication for Social
Security. Letting the tax cuts expire would not "pay for" fixing Social
Security, which has different sources of revenues; conversely, letting them
continue would not directly harm Social Security. But the debate over the
tax cuts provides a vivid opportunity to spot inconsistency and even
hypocrisy among certain politicians and pundits. The high-end tax cuts and
the Social Security shortfall are of similar size. Members of Congress
cannot simultaneously claim that the tax cuts are affordable while the
Social Security shortfall constitutes a grave fiscal threat.
The two-year payroll tax holiday will also expire at the end of December
2012. As we noted, the holiday has not harmed Social Security, because the
general fund of the Treasury compensates the trust funds for the forgone
revenue. But the holiday was meant to be temporary. Gradually returning to
the 12.4 percent tax rate in law--and later increasing it to improve
solvency--ought to be policymakers' goal.[15]
Conclusion
Because Social Security's finances are fairly predictable, it is not
difficult to craft revenue and benefit proposals that would place the
program on a sound long-term footing. The best proposals would protect
vulnerable workers and beneficiaries and give all participants ample warning
of future changes to this vital program.
Although Social Security faces no imminent crisis, policymakers should act
sooner rather than later to restore its long-term solvency. As the Center's
President Robert Greenstein explained in a paper that he co-authored in 2010
with Charles Blahous, one of Social Security's two current public trustees,
the sooner policymakers act, the more fairly they can spread out the needed
adjustments in revenue and benefit formulas, and the more confidently people
can plan their work, savings, and retirement.[16]
Acting sooner will also help the budget as a whole by modestly reducing
federal borrowing in coming years. That will make a contribution to
stabilizing the debt-to-GDP ratio and limit our overall interest costs.
Nevertheless, policymakers need to design Social Security reform carefully
and well. Nearly every American participates in Social Security, first as a
worker and eventually as a beneficiary. The program's benefits--though
modest both in dollar terms (elderly beneficiaries receive an average
benefit of less than $15,000 a year) and in comparison with benefits in
other countries (Social Security benefits replace a smaller share of
pre-retirement earnings than comparable programs in most other western
nations)--are the foundation of income security.[17] Treating Social
Security as just one component of a big deficit-reduction package could lead
policymakers to reach for "off-the-shelf" options without sufficiently
considering the program's adequacy, equity, and relationship to other
programs. Policymakers must design reforms judiciously to ensure that Social
Security remains the most effective and successful income-security program
in the nation's history.
Disability Insurance Isn't In Crisis
In December 2011, 8.6 million people received disabled-worker benefits from
Social Security. (Payments also went to some of their family members:
160,000 spouses and 1.9 million children.) The number of disabled workers
has doubled since 1995, while the working-age population--conventionally
described as people age 20 through 64--has increased by only about
one-fifth. But that comparison is deceptive. Over that period:
* Baby boomers aged into their high-disability years. People are roughly
twice as likely to be disabled at age 50 as at age 40 and twice as likely to
be disabled at age 60 as at age 50. As the baby boomers (people born in 1946
through 1964) have grown older, the number of disability cases has risen.
* More women qualified for disability benefits. In general, workers with
severe impairments can get disability benefits only if they have worked for
at least one-fourth of their adult life and for five of the last ten years.
Until the great influx of women into the workforce that occurred in the
1970s and 1980s, relatively few women met those tests; as recently as 1990,
male disabled workers outnumbered women by nearly 2 to 1. Now that more
women have worked long enough to qualify for disability benefits, the ratio
has fallen to 1.1 to 1.
* Social Security's full retirement age rose from 65 to 66. When disabled
workers reach full retirement age, they begin receiving Social Security
retirement benefits and cease receiving disability benefits. The increase in
the retirement age has delayed that conversion for many workers. In December
2011, more than 400,000 people between 65 and 66 collected disability
benefits; under the rules in place a decade ago, they would be receiving
retirement benefits instead.
The Social Security actuaries express the number of people receiving
disability benefits using an "ageand sex-adjusted disability prevalence
rate" that controls for these factors. Over the 1995-2011 period, that rate
rose from 3.5 percent of the working-age population to 4.5 percent. That's
certainly a significant increase, but not nearly as dramatic as some have
painted (see Figure 2).
Not surprisingly, the rate has crept upward during periods of economic
distress. Anecdotally and statistically, we know that many workers with
physical or other health conditions turn to disability insurance when they
can't find jobs and exhaust their unemployment benefits.
When lawmakers last redirected some payroll tax revenue from OASI to DI in
1994, they expected that step to keep DI solvent until 2016. Despite
fluctuations in the meantime, the current projection still anticipates
depletion in 2016. DI's depletion should not come as a surprise, or be
considered evidence that the program is unsustainable or out of control.
End notes:
[1] The 2012Annual Report of the Board of Trustees of the Federal Old-Age
and Survivors Insurance and Federal Disability Insurance Trust Funds, April
2012, http: //www.ssa.gov/OACT/TR/2012/index.html.
[2] Payroll taxes equal 12.4 percent of taxable payroll, while dedicated
income taxes from higher-income beneficiaries contribute another 0.5
percent, which will rise to nearly 1 percent by 2086. See "Components of
Income Rates" http: //www.ssa.gov/OACT/TR/2012/lrIndex.html.
[3] Trustees' Report, Table IV.B6.
[4] In fact, the scheduled rise in the full retirement age from 66 to 67, to
be phased in between 2017 and 2022, will mitigate the program's cost growth.
For an explanation, see box, "Why Does Raising the Retirement Age Reduce
Benefits?" in Kathy Ruffing and Paul N. Van de Water, Social Security
Benefits are Modest, Center on Budget and Policy Priorities, January 11,
2011, http: //www.cbpp.org/cms/index.cfm?fa=view&id=3368.
[5] See letter from the American Academy of Actuaries to the Trustees of the
Social Security System and the Social Security Advisory Board, December 19,
2003, http: //www.actuary.org/pdf/socialsecurity/tech_dec03.pdf.
[6] Trustees' Report, Tables IV.B5 and IV.B6. As noted earlier, the more
prominent figures--2.67 percent of taxable payroll or 0.96 percent of
GDP--include an extra margin for a target trust-fund balance at the end of
2086.
[7] Fact sheets on the Old-Age and Survivors Insurance and Disability
Insurance programs, March 2012 baseline, http:
//www.cbo.gov/topics/retirement/social-security.
[8] Kathy Ruffing, Paul N. Van de Water, and Robert Greenstein, Chained CPI
Can Be Part of a Balanced Deficit-Reduction Package, Under Certain
Conditions, Center on Budget and Policy Priorities, February 22, 2012, http:
//www.cbpp.org/cms/?fa=view&id=3690.
[9] Congressional Budget Office, CBO's 2011 Long-Term Projections for Social
Security: Additional Information, August 5, 2011. An update is expected this
summer.
[10] Kathy A. Ruffing, Social Security Does Not Need a 'Bailout': Alarmists'
Claims Are Unjustified, But Action Is Needed to Ensure Long-Term Solvency,
Center on Budget and Policy Priorities, August 24, 2010, http:
//www.cbpp.org/cms/index.cfm?fa=view&id=3104.
[11] Paul N. Van de Water, Understanding the Social Security Trust Funds,
Center on Budget and Policy Priorities, October 5, 2010, http:
//www.cbpp.org/cms/index.cfm?fa=view&id=3299.
[12] Kathy Ruffing and Paul N. Van de Water, Bowles-Simpson Social Security
Proposal Not a Good Starting Point for Reforms, Center on Budget and Policy
Priorities, February 17, 2011; Kathy Ruffing, "Plans Differ on Social
Security Fix," Center on Budget and Policy Priorities "Off the Charts" blog,
November 23, 2010, http:
//www.offthechartsblog.org/plans-differ-on-social-security-fix/.
[13] The extension was part of a package that aided the unemployed,
established the temporary payroll-tax holiday, and extended certain other
tax cuts. Gillian Brunet and Chuck Marr, Unpacking the Tax Cut-Unemployment
Compromise, Center on Budget and Policy Priorities, December 10, 2010, http:
//www.cbpp.org/cms/index.cfm?fa=view&id=3342.
[14] Kathy Ruffing and James R. Horney, Economic Downturn and Bush Policies
Continue to Drive Large Projected Deficits, Center on Budget and Policy
Priorities, May 10, 2011, http: //www.cbpp.org/cms/?fa=view&id=3490.
[15] Elisa A. Walker, Thomas N. Bethell, and Virginia P. Reno, "Implications
of the Payroll Tax Holiday for Social Security," National Academy of Social
Insurance fact sheet, April 2012.
[16] Charles P. Blahous and Robert Greenstein, Social Security Shortfall
Warrants Action Soon, Pew Economic Policy Group, November 2010, http:
//www.cbpp.org/files/11-9-10pew-socsec.pdf.
[17] Kathy A. Ruffing and Paul N. Van de Water, Social Security Benefits Are
Modest, Center on Budget and Policy Priorities, January 11, 2011, http:
//www.cbpp.org/files/1-11-11socsec.pdf; Kathy A. Ruffing, "We're
Number...30!" Off the Charts blog, May 11, 2011, http:
//www.offthechartsblog.org/social-security-we%e2%80%99re-number%e2%80%a6-30/.
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