May 27, 2015

Posts on social security

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Tuesday, February 26, 2013 - 10:22 AM

In his State of the Union Address President Obama declared: “Our government shouldn’t make promises we cannot keep, but we must keep the promises we’ve already made.”

It was good applause line, but it glossed over a key point: The promises we’ve already made are the ones we cannot keep.

It is widely accepted that current fiscal policy is unsustainable. By definition, that means something has to change. Yet, if we decide that all promises must be kept, we can’t change anything without “breaking a promise.”

The dilemma for policymakers in Washington is that for years they have made unfunded promises and there is no politically convenient way to reverse this.

The first thing to do is just face up to it.

That’s why a bipartisan group of former members of Congress included this warning among their findings from their Strengthening of America forum series last fall: “We cannot put our debt on a sustainable path without reductions in the projected cost of entitlement programs, cuts in discretionary spending and higher revenues.”

Strictly speaking, any of those things could be characterized as breaking a promise.

It could be argued, for example, that...

Monday, April 16, 2012 - 3:01 PM

It’s getting to be that time again when the Social Security and Medicare Trustees release their annual report on the programs’ 75-year outlook. This report is the source of valuable information, but it often causes confusion because of the different conclusions that can be drawn depending upon whether one looks at trust fund balances, which are positive, or at cash flows, which are negative.
 
Is the glass half-full or half-empty?
 
The Concord Coalition has always stressed the importance of cash flows over trust fund balances. As the Congressional Budget Office (CBO) has observed, government trust funds “have important legal meaning but little economic or budgetary meaning.”1
 
This is because trust fund “assets” are nothing more than promises from the government to pay itself a lot of money in the future regardless of whether any resources have been saved for that purpose. Trust fund balances are thus easily manipulated to increase their claims on general revenues.
 
Two recent examples demonstrate why trust fund balances should be taken with a grain of salt. One involves a grant of spending authority (new bonds) to the Social Security trust funds unsupported by any new income. The other involves cutting spending from Medicare and raising Medicare payroll taxes to...

Monday, October 24, 2011 - 12:00 AM

Last week, AARP doubled-down on its insistence that Social Security and Medicare benefits should be off the table in negotiations to stabilize the nation’s debt. It did so in a letter to members of the deficit reduction “super committee” and in response to a Concord Coalition statement criticizing AARP’s new ad campaign, which warns that 50 million seniors will be heard from on election day if Congress even thinks about touching their benefits or asking them to pay more.
 
AARP’s further explanations are not encouraging. It continues to insist that Social Security poses little, if any, budgetary challenge because of an ample trust fund surplus and that cutting unspecified “waste” in Medicare can avoid hard choices on benefits and cost-sharing. AARP’s response to Concord’s statement:   
 

  • Does not acknowledge the magnitude of the fiscal challenge we are facing or the key role...
Tuesday, May 17, 2011 - 8:48 AM

Anyone wondering why Social Security and Medicare should be “on the table” in budget negotiations need look no further than the 2011 Trustees’ Report issued on May 13.

As is usually the case, media accounts of the trustees’ report tended to focus on trust fund balances rather than on the cash balances and growing costs of the two programs. Viewed from a trust fund perspective, the financial condition of Social Security and Medicare may appear troubling but of no immediate concern. Social Security’s combined trust funds are projected to remain solvent until 2036 and the Medicare HI trust fund [Part A] is solvent until 2024. The Medicare SMI trust funds [Parts B and D] are permanently solvent, but only because they have an automatic draw on general revenues.

So why worry about these programs now? Why not wait another 10 years before making changes in Medicare and 20 years or more for Social Security?

One reason is that both programs are straining the federal budget now because they are paying out more than they are taking in from dedicated resources, including payroll taxes, taxation of...

Monday, February 7, 2011 - 10:20 PM

A flurry of commentary greeted the unsurprising news last week that Social Security is paying out more than it is taking in. According to the Congressional Budget Office (CBO), the Social Security cash deficit for 2010 was $37 billion and will rise to $45 billion this year. The one-year payroll tax holiday enacted in December would actually leave the 2011 deficit much larger ($130 billion), but general revenues will be credited to Social Security to make up for the loss of payroll tax income.

Looking ahead, CBO now projects that Social Security will run perpetual cash deficits, amounting to $547 billion through 2021. By that year, CBO projects that Social Security outlays will exceed cash income by $118 billion.

Viewed as a percentage of the gross domestic product (GDP), Social Security’s cost will grow from 4.8 percent this year to 5.3 percent in 2021.

Running a cash deficit does not mean that full benefits cannot be paid. When there is a shortfall in cash income, Social Security can draw on its trust fund balance to continue issuing checks. Currently, the trust fund has a balance of $2.7 trillion and is projected to remain “solvent” until 2037. But this method of “financing” only serves to demonstrate why the government’s largest program will become a growing budgetary challenge.

The trust funds...

Monday, January 10, 2011 - 12:16 PM

Urban Institute scholar Gene Steuerle has run the numbers and found that for Medicare, retirees are getting a really good deal.

In a fascinating set of calculations, Steuerle and colleague Stephanie Rennane, looked at both Social Security and Medicare and estimated the levels of benefits relative to taxes (and premiums for Medicare) paid for many different levels of income and years of retirement.

For Social Security, prior generations received substantially more benefits than taxes paid, while current retirees and those in the future who earn average and above-average wages are scheduled to receive slightly less cash benefits than taxes paid. The lowest income workers are scheduled to still get more in benefits than taxes paid. 

For Medicare, however, their conclusion is that, "Past and current retirees, and most working age adults, will never pay for all of their benefits."

The basic reason is that Medicare payroll taxes, which only go towards Medicare Part A (hospital insurance), combined with premiums (which are set at levels to pay for about 25 percent of Medicare Part B costs), only cover 51 to 58 percent of total Medicare ...

Monday, December 6, 2010 - 11:54 AM

By now we've seen a number of proposals for fiscal sustainability from groups with very different perspectives. Some of the harshest critics of the bipartisan deficit-reduction panels are liberal-leaning groups that argue that the recommendations of the President's commission, as well as those of the Bipartisan Policy Center and the MacGuineas-Galston plan, leaned too heavily toward the conservative side and proposed packages that were too heavy on spending cuts and too insistent on keeping taxes (too) low. (I may agree that I would have preferred more revenue increases in the overall mix than the President's commission proposed, but I don't think that should lead me to declare the overall proposal "dead on arrival" or to reject the the individual policies contained within it.)

I've looked at two...

Saturday, October 16, 2010 - 11:20 PM

The Social Security Administration announced on Friday that for the second year in a row there would be no cost-of-living increase in Social Security benefits for 2011.  Why not?  As the SSA explains, this is a straightforward, non-political determination based on historical economic data:

The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a cost-of-living adjustment (COLA) was determined to the third quarter of the current year.

Very objectively, there will be no cost-of-living increase in Social Security benefits in 2011 because there was no increase in the cost of living, as measured by the CPI-W, from the 3rd quarter of 2008 (the last time a COLA was triggered, for 2009 benefits) to the 3rd quarter of 2010.  The latest data on consumer prices from the Bureau of Labor Statistics show that the...

Monday, August 9, 2010 - 6:13 PM

Social Security’s contribution to the overall fiscal gap over the coming decades is smaller than Medicare’s, as the program’s trustees have again made clear in their annual report. If Social Security contributes so much less to the fiscal gap than Medicare, some people ask, why do we have to talk about reforming Social Security? 

It would be a mistake, however, to ignore the pressure that Social Security will put on the federal budget in the future -- and how that problem, if it is not addressed, will steadily grow. The difference between Social Security’s annual income (without interest) and its annual costs would stay close to 1 percent of GDP for decades but grows closer to 1.5 percent later in the 75-year window under the trustees’ “intermediate” assumptions. The longer we wait, the more difficult fixing the problem will become.

Closing the gap on Social Security certainly won’t be fun and will involve sacrifice. We would not want implement immediate changes that would weaken the economic recovery, nor would we want to place undue burdens on current...

Thursday, June 24, 2010 - 10:00 AM

A Washington Post editorial today sums up a bunch of different strands of thinking about the federal budget that Concord has been writing about and talking about a lot recently. One is that the country can "walk and chew gum" at the same time when it comes to short-term actions to help the economy that may involve increased deficits and long-term planning to confront the nation's real fiscal challenges. Another is that the current debate in Congress over the cost of tax-extenders is failing to focus on their merits while the overall fiscal challenge continues to go unexamined. A third is that we generally do know what actions need to be taken to reform federal programs over the long run -- but that members of Congress lack the political courage to act, and hopefully the President's fiscal commission can begin to...