What We Can Learn From The 2005 Social Security Trustees' Report
RSS Issue FeedThe 2005 Social Security Trustees' Report comes at a time when public attention has focused on the problems and challenges facing Social Security. A look at the data in that report leads to a clear conclusion: The Social Security program remains on an unsustainable course, requiring prompt, responsible and bipartisan action to fix the program for our children and grandchildren.
Social Security Will Begin Running Deficits In 2017. Beginning in 2017, the cost of paying Social Security benefits will exceed the tax revenues generated by the program. These deficits would be permanent, and would grow larger with every following year. The 2017 projection is one year sooner than last year's projection.
The Social Security Problem Will Not Go Away By Itself. While any projection contains some uncertainty, there is almost no chance that Social Security will remain solvent under current law. The Trustees Report shows a 95% probability of permanent deficits beginning between 2013 and 2022. It also shows less than a 2.5% chance that the program will remain solvent for the time today's toddlers retire.
Each Year's Delay In Action Makes The Total Funding Shortfall Larger. This year, the Trustees estimated that the program's total shortfall was $11.1 trillion in present value. Last year's estimate was $10.4 trillion. The passage of one year added approximately $600 billion to the shortfall.
- Technical changes reduced the shortfall by roughly $100 billion, and assumptions of higher long-range wage growth added an additional $200 billion, for a total increase of $700 billion over the 2004 estimates.
Social Security's Costs Are Growing Faster Than The Tax Base That Must Support Them. Costs are projected to rise to over 19 percent of the taxable wage base during the next 75 years, necessitating a payroll tax rate of more than 18% and rising at the end of the Trustees' 75-year valuation window.
Higher Economic Growth Won't Make A Big Difference. Social Security's finances are far more sensitive to demographic than to economic changes, because a faster-growing economy increases both the system's revenues and its benefit obligations. The 2005 Trustees' report provides evidence of this in several places, including:
- Productivity growth for 2004 (3.3%) was higher than the Trustees' 2004 estimate of 2.7%, and the Trustees also slightly increased productivity estimates through 2012. The effects of these changes, however, were dwarfed by other economic estimates such as updated data on COLA payments and interest rates. The net effect of economic re-estimates worsened the 75-year imbalance.
- The passage of one year, by itself, added more to the 75-year imbalance than the net effect of all of the economic re-estimates in the report.
- The Trustees slightly raised their real wage growth estimates over the very long term, looking out beyond the 75-year valuation window. (This actually had the effect of slightly increasing, rather than decreasing, the present value of the system's total imbalance going forward, though this change is not significant).
- Even when a number of economic and demographic assumptions are varied, per the Trustees' stochastic analysis, the program remains on an unsustainable path.
Technical Changes To The Projections Will Not Solve The Problem. Those who would minimize Social Security's projected shortfalls sometimes call attention only to the changes in projections that might reduce them, without taking equal account of changes that will exacerbate them. When taken in total, the need to fix Social Security remains clear.
- The latest Trustees' report incorporates technical corrections, based in part on the work of the Congressional Budget Office, to better reflect the "age-specific earnings levels of younger workers in recent years" - specifically, lower projected benefits for young male workers. This has the effect of reducing the system's projected shortfalls.
- At the same time, however, technical corrections were required to account for improved mortality calculations for those aged 65-69, changes in workforce participation by teenagers and seniors, and updated data on COLA payments and interest rates.
