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The Social Security shortfall in one graph

By Ezra Klein

blog_social_security_basic_chart.jpg

That's via Kevin Drum, who calls it "the most important Social Security chart ever." And he's probably right.

Here's the point of that chart: Social Security is facing a bump, not a curve. To see the difference, think of health-care reform. We talk about "bending the cost curve" because the health-care system's problem is that costs are growing by 8 percent a year, and the economy isn't. That means systemic reforms are needed if we're going to keep health-care costs from overwhelming everything else.

Social Security does not have a curve that needs bending. As Stephen C. Goss, the system's chief actuary, has written, Social Security's problem is that "birth rates dropped from three to two children per woman." That's created an imbalance between the number of people benefiting and the number of people paying in. "Importantly," Goss continues, "this shortfall is basically stable after 2035." So once you've gotten revenues in line with spending, you're done. And to do that, you need to devote around 1 percent of GDP to the cause. That's real money, but it's nothing like what's required by health care.

Which goes back to a point I've been making on Social Security for a while now: Traditionally, Social Security has balanced its own accounts, and by either raising revenues (perhaps by lifting the cap on the payroll tax) or cutting benefits, it can continue to do so. But unlike with health care, where there's no answer but changing the system to get spending growth under control, you could plug Social Security's hole in any number of ways. If we decide that a small value-added or carbon tax is a better way to raise revenue than further payroll taxation, or that cuts in military spending make more sense than cuts in pensions, there's nothing about the nature of the program or the problem that would resist those solutions.

By Ezra Klein  | November 1, 2010; 12:04 PM ET
Categories:  Social Security  
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Comments

Has anyone done any research into what the system would save if it included an opt out feature?

I'm scheduled to start receiving benefits starting around 2050. what if they just took any future contributions (going forward) and any liabilities off the books?

Posted by: NoVAHockey | November 1, 2010 12:30 PM | Report abuse

agreed.

I wonder if there's a graph out there somewhere that shows what has been "stolen" from SS over the years and if that wasn't stolen where we'd be at?

Posted by: visionbrkr | November 1, 2010 12:31 PM | Report abuse

You need one more piece of data on your graph - the size of the Social Security trust fund.

Posted by: RalphKramden | November 1, 2010 12:56 PM | Report abuse

As the graph shows, SS tax revenue exceeded cost from the early 1980's to present. Is Ezra buying the Republican line that the trillions in Treasuries that the SSA owns have no value?

Posted by: tl_houston | November 1, 2010 1:42 PM | Report abuse

I got two things out of this latest of Ezra's folly:
1) the only answers progressives have for anything are either more taxes, or cutting military/security spending. Their dear social wealth-transfer programs are untouchable).
2) Ezra admits that Social Security is a ponzi scheme. What you pay in is not 'saved' for your use later. By the time you are eligible for SS, what you paid in is long gone!

Why is it that the 'party of choice' won't give us a choice whether we want to participate in SS, or Medicare, or their new health care scheme, or what school are kids can go to, or.....

Posted by: dbw1 | November 1, 2010 1:46 PM | Report abuse

for Ralph and perhaps for tl_houston: Chart A at http://www.ssa.gov/OACT/TRSUM/index.html

shows the size of the trust fund as a percent of annual expeditures by SSA through 2040 or so

Posted by: bdballard | November 1, 2010 1:47 PM | Report abuse

If you want to see where the Trust Fund went, and how to get it back, here is a flow chart of the monies:

http://www.youtube.com/leearnold#p/u/4/Tts2uTWt6e8

Posted by: Lee_A_Arnold | November 1, 2010 2:02 PM | Report abuse

Uncap FICA.

Let in more of the scary brown people!

Posted by: AZProgressive | November 1, 2010 2:03 PM | Report abuse

As the graph shows, SS tax revenue exceeded cost from the early 1980's to present. Is Ezra buying the Republican line that the trillions in Treasuries that the SSA owns have no value?

-----------------------------------------
Except that the tax revenue was immediately placed in the general operating budget, therefore, no real surplus actually existed.

Is Ezra not buying the line from Clinton's head of the Office of Management and Budget in that the trillions in Treasuries actually reflect debt owed from the general revenue to pay future social security claimants. In fact, the alleged Treasuries have a negative value, in that they reflect future debt that must be later paid by future taxpayers. (And this is on a cash basis, you should marvel at it on an accrual basis).

You can go through the practice learned in Accounting 101 to see that the term "treasuries" used to describe the content of trust funds are deliberate misrepresentions, rather, the fund can be considered as an "account receivable" of the federal government which must be repaid at some point.

Of course, there are some, like the Madoff investors, who are impressed when they hear the words "Treasuries". There are others who look behind the curtain and see no such animal.

Posted by: PALADIN7E | November 1, 2010 2:14 PM | Report abuse

PALADIN7E: "You can go through the practice learned in Accounting 101 to see that the term "treasuries" used to describe the content of trust funds are deliberate misrepresentions, rather, the fund can be considered as an "account receivable" of the federal government which must be repaid at some point."

None of the other Treasuries are to be repaid at some point?

Posted by: Lee_A_Arnold | November 1, 2010 2:41 PM | Report abuse

Politicians must stop their attacks on social security with plans to harm the elderly, by raising the age and reducing the benefits, instead of having the Rich contribute more. Benefits for the elderly should not be reduced in any way to protect the incomes of the wealthy. Social security benefits should be increased and all income, not just the first $107k, modestly taxed to support it. Tax all income, but lower everyones tax from current 6.2% to 4%.

Raise the Social Security Tax to include all income and not just up to your first $107k. As more people have gotten wealthy, wealth has been shielded from the Social Security Tax as it has not kept up with inflation.

http://politics.usnews.com/opinion/articles/2010/09/20/cutting-benefits-isnt-the-way-to-save-social-security.html

“Cutting Benefits Isn't the Way to Save Social Security: The answer isn't raising the retirement age; it's making the rich pay a fair share”

“Most people don't know that someone making $300,000 or even $30 million a year pays no more in Social Security taxes than someone earning roughly $107,000. In 1983, 90 percent of wage and salary income was taxed, but today it's less than 84 percent. That's a huge windfall for the rich and a serious shortfall for Social Security.”

Posted by: Airborne82 | November 1, 2010 3:19 PM | Report abuse

Ezra's eagerness to fund Social Security with taxes other than payroll taxes is very suspicious. I smell an ulterior motive.

Posted by: bgmma50 | November 1, 2010 3:54 PM | Report abuse

Airborne82, I assume you are aware that someone making $300,000 gets no more social security benefit than somebody making $107,000. I don't see how paying zero tax and receiving zero benefit on income over $107,000 is a "windfall".

Currently, the worst return is on income between about $55,000 and $107,000. In retirement, that income is replaced at a rate of only 15%, which is almost certainly a net loss.

Posted by: tl_houston | November 1, 2010 3:59 PM | Report abuse

The income disparity in America is becoming a National Security issue as much as economic security. Ensuring a safe and stable society is everyone's responsibility and social security benefits are a big part of that. Generally not a single dime of social security goes towards anything but paying for the most basic of needs; food, shelter, and transportation. Greater wealth is built with the contribution of hundreds and thousands of others so all that wealth should contribute to Social Security benefits and society as a whole.

Americans are paying historically low taxes that are the lowest since 1950. No one pays their tax bracket rate as write off allow everyone’s federal, state and local income taxes to average less than 9%/year and for the more wealthy landowners it’s often 0%.

In the meantime, more income has become sheilded from social security. Fund all income and you reduce everyones taxes to a lower percentage. Reducing social security tax from 6.2% to 4% for everyone is a more fair solution.

Posted by: Airborne82 | November 1, 2010 6:27 PM | Report abuse

The mythology surrounding the recipients of social security is stuck in the 1960's. The elderly aren't poor. In fact the 65 and over cohort has the lowest poverty rate of any age group in the country. The greatest concentration of wealth is in this age group. A kid in America is four times more likely to live in poverty than a senior citizen.

Rather than slapping more taxes on the working folks (which includes young families), how about trimming some of the fat from the recipients? How about means testing survivor's benefits and spousal benefits? Many of the recipients of these benefits never paid into the SS system. Sure, keep those benefits for those who are poor, but there's no reason why many of these spouses/survivors should be receiving SS benefits.

Posted by: Beagle1 | November 1, 2010 6:47 PM | Report abuse

There must be something wrong with that graph, because it should reflect both the Post war Baby Boom, and the population trough that followed it. there should be a hiccup in there where costs rise, peak and then dip to reflect a major paired population swing event. The baby boom was to roughly 1960 or so, and there was a following sag for at least a decade as the baby boom delayed its own reproduction. so fifteen years from now, as the leading edge of the boom starts into the rapid mortality descent stage of a cohort that should carry on for twenty years before beginning to rise again.

So, from 2025 t0 2045 there should be a downward slope in the expenditures line to reflect the passing of the boomers.

Posted by: ceflynline | November 1, 2010 10:04 PM | Report abuse

If you graph any Ponzi scheme, it looks similar.

Posted by: illogicbuster | November 1, 2010 11:20 PM | Report abuse

One graph designed to highlight the Post's editorial spin -- cut entitlements. Sorry, that should be "CUT ENTITLEMENTS!!!!" to be accurate to the Post line.

There are 243% of old age and survivor insurance benefits annual disbursements sitting in Treasuries in the SS trust fund. It is going to take until 2040 until the savings (the gap between what was paid in "extra" to the funding need) collected over the last 27 years is exhausted.

I have other much more critical issues in the next 6 to 10 years than screwing up something that will still work QUITE WELL when only paying out 78% of currently promised benefits 25+ years out.

And no, Ezra, it isn't broken because of 'fewer employees' than expected paying into the system. The SSA actuaries forecast this pretty darn well.

If there is a problem with 'employees paying into the system' it is because there are too many unemployed people (9.6 - 9.8%) that should be growing the econoy and paying taxes that instead are sitting idle, pulling taxes and giving the GOP a hissy fit over deficits. (Oh, wait. It can't be unemployed that cause GOP to have hissy fit over deficit, since during the Bush years the standard was "not to pay for things". It must be that the black, democrats are in charge. Yeah, that's it!).

Dean Baker has a nice chart of employees per social security recipient. Fix the exonomy and the employee per SS recipient improves between now and peak boomer retirement.

The way to "fix" social security is to get the economy moving again with a BIG FISCAL STIMULUS. Given that the insane posse about to be elected today abhors fixing the economy by investing in things that would make our future better (infrastructure, new technologies, education, etc) there is no reason to choose their "fix" for social security either.

The shortfall is a small percentage of GDP. Just grow the economy.

Posted by: grooft | November 2, 2010 8:19 AM | Report abuse

Some of the comments bemoan that there is no choice as to whether or not to contribute to SS, Medicare, and the other parts of the social safety net. To a point I would agree with them if they would let me opt out of paying for the programs they hold so dear, like the military/industrial complex (50% of the budget), the CIA dirty ops (secret budget), corporate welfare (Lord knows how much that costs, but the bailout is just chicken feed in comparison), and other control measures so dear to what passes for a right wing heart.

Posted by: dkmjr | November 2, 2010 12:08 PM | Report abuse

I think it's time to "reimagine" Social Security. To think of it as a kind of "Anti-poverty Insurance -- not an "entitlement" that everyone gets because they paid in, but an insurance policy that you don't use until, and unless, you need it.

A retired executive with a pension and/or a portfolio doesn't need the comparatively small amount of money added to the kitty in order to have a "comfortable" retirement.

But, if there is no pension, and there is only a savings account now earning Point 2 5 %, then that person should be able to apply for and receive a sufficient amount in Social Security benefits comparable to a "living wage."

In addition, the base for "premium payers" has to be open-ended. Why should someone making a million or more not have to continue to pay into the fund, but a middle class person has all income included? Where is the fairness in that?

One last item ... why does a person who works to earn income pay into the fund, but a person who sits home and "clips coupons" has no obligation to. Unearned income should be factored in at both ends ... contributions and benefits ... premiums and payoff -- on the policy.

The new century requires new ideas to meet new circumstances. Conceptual redesign of Social Security is part of it.

Posted by: wide-eyed1 | November 2, 2010 5:33 PM | Report abuse

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