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Trillions and percents

Here's a number you've probably heard before: Social Security is facing a $5.4 trillion shortfall through 2084. Nasty stuff, and a scary number. But let's put that in context: $5.4 trillion over the next 75 years is equal to 1.92 percent of taxable payroll, or 0.7 percent of GDP. Of course, dollars are better than percentiles for scaring people, so that's what folks use. But when thinking about solutions, it's useful to have a proper sense of scale. And when we're thinking about a solution for Social Security's shortfall, we're thinking about something equal to 0.7 percent of GDP.

By Ezra Klein  |  August 31, 2010; 12:36 PM ET
Categories:  Social Security  
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Comments

Does that number include or not include trust fund assets?

Posted by: cdosquared5 | August 31, 2010 1:14 PM | Report abuse

I'm curious to whether or not the 5.4 Trillion dollar figure includes the so called SS trust fund which is supposed to contain trillions of dollars of Social Security surplus tax money built up over the decades but is actually full of government IOU's. The SS trust fund currently contains 2.5 Trillion dollars worth of those IOU's which the federal government spent on other things long ago. So if you add that 2.5 trillion dollar to the 5.4 trillion mentioned above you get a 7.9 trillion dollar deficit which as things go is probably vastly understating the actual deficit by several times.

Posted by: RobT1 | August 31, 2010 1:29 PM | Report abuse

Every bit of money borrowed by the federal government from others (i.e., bonds and whatnot were sold) was spent on something in the past. People are comfortable lending the US govt money -- hence the treatment of federal borrowings as "risk free assets." What is artificial is the insinuation that Treasuries in the Social Security Trust Fund (or in the Highway Trust Fund, or in the Airport and Airways Trust Fund, etc) are somehow different from any other Treasury borrowing.

Posted by: bdballard | August 31, 2010 1:49 PM | Report abuse

Great, then why don't we just increase the Social Security payroll contribution rate for both employees and employers from 6.2% to 7.16%?

That's $384 for a person earning $40,000/yr (or $768 if you consider that person to effectively pay the employer share as well).

Someone who expects to retire near 2037 with $40,000 in average earnings is scheduled to receive $22,906.80. After 2037, Social Security can only pay out 78% of scheduled benefits, or $17,867.30, a $5,039.50 difference.

Posted by: justin84 | August 31, 2010 2:00 PM | Report abuse

BDBALLARD - - There is no insinuation that these bonds are different. If the number Ezra posted is net of the trust fund, the size of the trust fund should be added back to get the true amount as a % of GDP which must be covered to pay promised benefits.

In order for the Trust Fund to redeem the bonds, Treasury must borrow more or tax more, just as it would if the bonds simply did not exist. Nobody disputes this point. That is why, for purposes of the calculation Ezra is showing, it is methodologically incorrect to net the trust fund bonds from to calculate the % of GDP the shortfall represents.

The only subtle point you can make, which Krugman has, is the money was spent in the past, which ultimately help build up the capital stock and thus the GDP level we have today. He did not explain how a crack head's welfare check made it into long term capital investment or why he thinks the F-22 raises long-term economic productivity. In fact, isn't his argument for stimilus that it is not investment, but consumption.... but I digress.

Let us know if you are confused; this is real tough stuff.

Also, your definition of why a Treasury is considered risk-free is incorrect.

Posted by: cdosquared5 | August 31, 2010 2:10 PM | Report abuse

"when we're thinking about a solution for Social Security's shortfall, we're thinking about something equal to 0.7 percent of GDP"

You neglected to add, "and that's a lot of additional money year after year after year for just one program."

Posted by: ostap666 | August 31, 2010 2:48 PM | Report abuse

Ezra,
I watched you last night on Countdown.
You were spot on and brillant!

Posted by: axto188 | August 31, 2010 2:59 PM | Report abuse

See Page 65, section b, of http://www.ssa.gov/OACT/TR/2010/tr10.pdf

"The present value of future cost less future taxes over the next 100 years for all current participants (individuals who attain age 15 or older in 2010) equals $20.0 trillion. Subtracting the current value of the trust fund gives a closed group unfunded obligation of $17.4 trillion, which represents the shortfall of lifetime contributions for all past and current participants relative to the cost of benefits for them. Future participants, on the other hand, are scheduled to pay $1.3 trillion more into the system than the cost of benefits for them. The total unfunded obligation, $16.1 trillion, is the sum of the unfunded obligation for current and past participants ($17.4 trillion) and the present value of cost less taxes for future participants (-$1.3 trillion)."

Posted by: AndrewDover | August 31, 2010 3:20 PM | Report abuse

doesn't this shortfall amount to like $10 per week per FICA contributor, even without considering the time value of money or population job growth?

Posted by: williamcross1 | August 31, 2010 6:45 PM | Report abuse

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