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CBO on SS - Another 29' Crash?
The Congressional Budget Office is out with its annual review of Social Security. It's a long report - here's all you need to know:
This result is no surprise. SS's finances deteriorate every year. What I found interesting is the extent of the deterioration. 2013 was the best year since 2008 for the broad economy. We had fairly steady growth in the economy, and the job market improved significantly. But the red ink at SS rose very rapidly.
In 2012 a 'fix' for SS would have required an immediate and permanent tax increase of 1.95%. A year later the cost of the fix has risen to 3.36%. That's a 70% deterioration in twelve months. To right the SS ship a payroll tax increase equal to $180B would be required for 2014, and that higher tax rate would have to be sustained forever. A tax increase of this magnitude would sink the economy into a recession that the country would struggle to get out of.
The deteriorating outlook, and another year of inaction, has brought the blow-up date for SS a bit closer to today. CBO has an interesting time line for when this might happen:
In CBO’s simulations, in which most of the key demographic and economic factors in the analysis were varied on the basis of historical patterns, the trust fund ratio falls to zero in 2029
2029? One hundred years after the last crash and depression we will face a self imposed crisis. When the Trust Fund ratio falls to zero current law requires that all benefits are cut across-the-board by 25%. As it is set up today, there is a huge cliff that the economy will fall over - and that cliff is now just fifteen years away. A chart of the cliff:
When the Trust Fund is running dry in 29' SS will be paying out at a rate equal to 6% of GDP. The 25% drop in benefits would translate into an immediate (and permanent) drop in consumption of 1.5% of GDP. That's a pretty steep cliff to go over.
So we are fifteen years away from a real problem, and no one is doing anything about it. Nothing will be done in 2014 as it is an election year. I doubt that any real fixes to SS will be made until after Obama is out of the White House. The result of inaction will be that the cost of the fix rises. By 2017 it will be damn near impossible to stabilize the system in the then remaining years before the cliff is hit.
Social Security has morphed into an interesting economic stimulus that I don't believe anyone has focused on. For 2013 the amount of the hidden stimulus is $87B (0.5% of GDP) but the size of the annual boost is going to grow very quickly over the remainder of this decade. In the final year before the blow-up it grows to $550B (1.4% of GDP)
In 2013 SS will collect $727B in payroll taxes and pay out $816B in benefits (~$90B difference). Both the taxes and the benefits have a 1-1 consequence on consumer spending. The fact that SS is no longer pay-go on a cash basis means that it has to dip into the Trust Fund to fund the difference. When the TF redeems its IOUs, it forces the Treasury to issue more Debt to the Public (dollar for dollar increase). But Total Debt remains the same, and there is no consequence of this form of deficit spending on the Budget (intergovernmental transfers are not included in the deficit calculation).
A few charts on the Take-or-Pay based on numbers from the 2013 Social Security report to congress:
These are big numbers. If there are no adjustments to SS this hidden stimulus will have a significant consequence. In the years just prior to the 2029 crash the stimulus will be a substantial portion of the YoY GDP grow. But then the music just stops - from one year to the next there will be a huge contraction as the stealth deficit spending ends and benefits are cut by 25%.
Yes, all of these things are still far into the future. And yes, the thought of eliminating the hiding stimulus anytime soon is not politically (or economically) feasible. But the reality is that the SS Cliff is surely going to be realized in the now foreseeable future. D.C. knows that the future is now on a glide path into the side of a mountain, but it 'feels so good' to do nothing, that nothing will be done. The history books will not look kindly on this neglect.
Note: Elizabeth Warren (D -Mass) has been leading a liberal/progressive debate on expanding SS. She wants to increase payouts (a step that would move 2029 to 2025). When the history books do write about this, they will point to the likes of Warren, and say that she led the charge to a disaster. I don't think these people have a clue what SS is doing, and what will surely happen in the relatively near future.
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Long time, no see? Everything well?
Soylent Green, anyone?
I sat my kids down one time and explained Social Security to them. Told them about the two SCOTUS opinions - Helvering v. Davis and Flemming v. Nestor. I took the time to talk about the mechanics of how it is collected and how money taken from their paychecks right now (they are both in their 20's) is used to pay grandma and grandpa's benefits. And how when they retire that someone else will be paying for their benefits then. I explained that despite the myth that Social Security is insurance it really isn't and I pulled up the their own website where it says as much. And told them that the supreme court said that in the their Flemming decision. After a good 30 minutes of explaining all this I got a couple of questions -
"What idiot thought this scheme up?"
"Isn't this just one generation stealing from another?"
"Why can't I simply decline to accept benefits and not be taxed?"
"Why should I be paying for some slacker who didn't save for retirement?"
"So.....doesn't that make grandma and grandpa a thief?" [my favorite]
Out of the mouths of babes come words of wisdom....
Hey moron,
You didn't explain it very well, then, did you.
Properly explained, your kids response would have been:
"So they want to steal all the money they made Grandma and Grandpa save since they were 15. Why would you let them do that Daddy?"
Bruce K has a bone up his ass about SS and he's wasting his time. And so are you.
Boomers are one of the largest and most dedicated block of voters, so LOTS of things will get cut before SS.
If you don't understand any of this, quit posting until your kids are smart enough to explain it to you.
All you "kill SS" nuts are endorsing stealing your neighbors money. You whine about YOUR money being ripped off with big govt programs, Wall St, FED......
But you endorse stealing someone elses money.
ESAD
Edumacate thyself:
Saving Social Security, Part 1:
http://reason.com/reasontv/2008/09/30/saving-social-security
Part 2:
http://reason.com/reasontv/2008/10/10/saving-social-security-1
Part 3:
http://reason.com/reasontv/2008/10/16/saving-social-security-2
Part 4:
http://reason.com/reasontv/2008/10/23/saving-social-security-3
Part 5:
http://reason.com/reasontv/2008/10/31/saving-social-security-4
Ha, Ha,
That's great!
You've got to ask yourself about the intelligence level of the audience they are trying to reach by putting this in cartoon format!
That's the video version of crayons.
Too F'n Funny !
(Now, if I only include the phrase "Ponzi Scheme" I'll get a bunch of thumbs up.)
Morons
Booger ask yourself if it’s so great why is it mandatory.
Ponzi scheme, a big one.
Today's and yestersday's SS recipients have not "contributed" sufficient amounts to SS to fully cover the benefits they have collected / are collecting. Today's recipients are collecting funds others have contributed.
SS has all the characteristics of a ponzi scheme -- collect funds, use it fund distributions AND alternative purposes (general govt spending), early retirees get paid well, little left for later retirees. Ponzi.
How about only paying SS $$$ to US citizens that have paid into the system?
Remove Disability, students, illegals......instead of ME?
I'm telling you, your time would be better spent.
You will NEVER just get rid of SS.
See my earlier post above. I paid in about $175,000. And that was when that money was worth a whole lot more than it is today. I just started getting $1600 a month. So, would you explain how I'm getting way more than I paid in? I suppose after about 10 years, I willl have gotten my money back, but that's not factoring in inflation. With real inflation factored in, I will never get my money back.
Jeez... sheeple are such idiots.
You didn't really paid to a fund. Your money were taken from you by force and spent - to win votes from the older people. Your money were stollen. There is no money with your name on it. Just a promise from the Gov that will steal some more money from the younger victims to pay you.
The time to fight back is now for the young - and they will fight with their votes and blood. For you is probably too late.
How's this for a deal then? I'm 45. You can keep every last cent that I have paid into SS up to this point. I get to opt out tomorrow and I keep the 12% that currently goes to the system. I'm self employed btw so I pay twice. I'll have more to show for that money if I stuff it in a mattress for the next 25 years than I will ever see when I get to retirement age.
Who in their right mind would give the government a dollar today so they can get 75 cents back in 25 years?
Who in their right mind would give the government a dollar today so they can get 75 cents back in 25 years?
.75¢? You're an optimist!
FORWARD SOVIET!
".75¢? You're an optimist"
I wouldn't go that far. I was just using the governments "if we do nothing, after year 20xx we will still be able to pay 75% of benefits" meme.
Seems everyone is OK with that kind of ROI.
Buy the Cliff
Socialism on the march!
Imagine SS as Old Yeller; now you know what must be done.
Would Elizabeth Warren make a better Hitler than even Hitlery?
BULLISH Death Panels!
FORWARD STALIN!
Bruce, I really like your other articles. But you continue to write about SS as if it matters, as if the fantasy economy in the USA is going to continue on until 2029. They may make it go on for a few more years, but somethiing big is coming down, and probably sooner rather than later.
You always seem to leave out the fact that the reason the taxpayers have to pony up a higher and higher percentage every year, is because the congress stole the money. The SS money was supposed to be untouchable, yet Rubin and Clinton figured out a way to steal it. If the $2.6 Trillion they stole was still there, there would be no problem with SS today, and for many years to come.
I don't get it, Bruce. Your other writings make sense. This BS does not.
Here's the truth. We paid in a lot of money to SS. The politicos couldn't stand it, all that money just sitting there, so they stole it and spent it in all the ways they do so well. The IOU's in the SS trust fund put there by the politicos are not even real treasury bonds. They are not redeemable anywhere. So now, SS is being paid for just like everything else, from money collected from the taxpayers + what the FED prints. Soon the printing will be more than the taxes collected. Soon the whole thing will blow up, and this stupid argument about SS will not matter, cause the whole game will change.
I agree, like the federal government knows what percentage of the budget this or that will be 15 years from now. They don't know what will happen next year. If China develops their own consumers and cuts our credit cards in half, factories may come back here and people would be paying into social security. Government workers might stop retiring 20 years early and collecting 2 to 15 times social security benefits without putting as much into their retirements.
folks keep you eye on the ball - 10 year treasury. plain, simple, math and demise of dolla...
cause the ponzi of s.s. won't matta...
I'm just gonna send my part D money to India from now on.
What is really going on here is the game, Divide and Conquer. Convince the younger people, who are being taxed to death, and don't have much of a future, that older people on SS are getting their tax money. Well... technically, that is true, but the reason is that someone stole all the money the old people saved.
It's the Left/Right Paradigm. Get people fighting with each other, put their attention on other things, so they don't see who the real criminals are.