It's possible that the Bushwackers could "save" the SS system by upgrading the
projected
growth rate of the economy. Then, using rhetorical & statistical mumbo-jumbo (like with
their avoidance of the distributional impact of the Bush tax cut), they could take
credit
for "saving" the system. Next, they could figure out how to retreat from their proposal
about putting SS funds into the stock market, which seems an embarrassment at this
point.
-- Jim Devine.
> FOR IMMEDIATE RELEASE
>
> March 16, 2001
>
> CONTACT:
>
> Info: Quetta Carpenter (202) 293-5380 ext 208
> Comments/Interviews: Dean Baker (252) 995-7869
> Mark Weisbrot (202) 432-6762
>
> UNDERSTANDING THE SOCIAL SECURITY
> TRUSTEES REPORT
>
> Will Trustees Follow CBO on Growth Projections?
>
>
> WASHINGON, D.C. -- The biggest question mark with
> the release of the year 2001 Trustees Report, is
> whether the Social Security trustees will make
> the same upward revisions in growth projections
> as the Congressional Budget Office (CBO) did
> earlier this year. Based on the economy's strong
> recent performance, the non-partisan CBO raised
> its long-term projections for labor and
> productivity growth by 0.3 percentage points. If
> the Social Security trustees make the same upward
> revision in their projections, it would reduce
> the projected long-term shortfall by
> approximately 0.30 percentage points and, more
> importantly, it would push out the date where the
> program would first face a funding shortfall from
> 2037 to approximately 2042.
>
> Prior to the release of the latest CBO economic
> projections, the Social Security trustees
> projections for real wage and productivity growth
> were already approximately 0.2 percentage points
> below the CBO projections. (The two sets of
> projections have to be adjusted slightly for
> different deflators, assumptions about the growth
> of non-wage compensation, and assumptions on the
> shortening of the work year in order to make
> them directly comparable.) This gap is due to the
> fact that the Trustees had actually lowered their
> projections for wage and productivity growth
> between 1996 and 2000. The projected rate of real
> wage growth in the year 2000 report is
> approximately 0.5 percentage points lower than
> the rate of real wage growth projected in the
> 1996 report, after adjusting for the impact of
> the changes that the Bureau of Labor Statistics
> made in the consumer price index.
>
> Unlike the non-partisan CBO, 4 of the 6 Social
> Security trustees are political appointees of the
> President. The four political appointees who will
> vote on this year's projections are Treasury
> Secretary Paul O'Neil, HHS Secretary Tommy
> Thompson, Labor Secretary Elaine Chao, and
> William A. Halter, the Acting Social Security
> Commissioner.
>
> If the new trustees follow the pattern set by the
> CBO, then the trust fund will be projected to get
> through virtually the entire retirement of the
> baby boom generation, with no changes whatsoever.
> By 2042, the youngest baby boomers will be age 78
> and the oldest will be age 96. Ultimately, the
> program will still be projected to face a
> shortfall, simply due to the fact that we expect
> future generations to live longer lives, and
> therefore have longer retirements, than do
> current retirees.
>
> In years past, the Social Security trustees
> report has placed a major emphasis on the date
> when benefit payments are projected to exceed tax
> revenue, 2015 in the last report. This is
> unfortunate, since that date has absolutely no
> significance for the Social Security program. It
> only makes sense to maintain a separate account
> for the Social Security program, if it is treated
> as a separate fund, with its own finances. Unless
> the federal government were to default on the
> bonds held by the Social Security trust fund, an
> event that is almost unimaginable politically,
> the fact that the fund must start drawing relying
> on its bond income, instead of just its tax
> revenue, is irrelevant to the health of the
> program.
>
> In fact, this date is even irrelevant to the
> federal government's finances. It is often
> claimed that after 2015, the government will
> either have to raise taxes, cut other spending,
> or borrow to make up for the annual shortfall in
> Social Security taxes. Actually, the impact on
> the federal budget will first be felt when the
> annual surplus of taxes over expenditures peaks
> in 2002 at approximately $57 billion. From that
> point forward the surplus will decline and the
> rest of the budget will have to accommodate the
> fact that there is a smaller surplus from Social
> Security in each succeeding year. The year 2014,
> when the zero line is crossed holds no special
> significance.
>
> An analogy may make this point clearer. Suppose a
> family spends $40,000 each year, where $38,000 is
> its own money and the other $2000 is borrowed
> from a rich uncle. Now suppose the uncle tells
> this family that he is going to cut back his
> annual lending to zero over a ten year period,
> with the size of the annual loan declining by
> $200 per year. After the tenth year, he wants to
> start getting repaid, with the size of the annual
> repayment rising by $200 a year. In this case,
> the family feels the pinch first in year one,
> when the size of annual loan has declined by $200
> to $1,800. The tenth year has no particular
> significance to the family; like every other
> year, it must find a way to get by on $200 less
> than in the previous year.
>
> The federal government is in the exact same
> situation in relation to the Social Security
> surplus. Once the surplus has peaked and begun
> declining, the federal budget can count on less
> assistance from the Social Security budget. Just
> as with family described above, there is no
> particular significance to the year where the
> annual surplus actually turns into a deficit.
>
> A last important misunderstanding about the
> trustees report is the failure to recognize that
> it is giving us a picture of the whole economy,
> not just the Social Security program. The 1.0
> percent annual wage growth projected in the 2000
> trustees report implies that an average worker
> will be more than 40 percent richer in 2035
> than at present. If the trustees accept the CBO
> revisions, then the real wages will be more than
> 50 percent higher in 2035 than at present.
>
> Analysts who see a picture of doom facing future
> generations because of the projected shortfalls
> in the program, often miss the fact that future
> generations are projected to be much wealthier
> than today's workers. There is no plausible
> scenario in which tax increases attributable to
> Social Security (and Medicare) could prevent
> future generations of workers from enjoying
> substantially higher real wages than do workers
> at present.
>
>
> Dean Baker is Co-Director of the Center for
> Economic and Policy Research in Washington, DC.
> His email: <[EMAIL PROTECTED]>.
>
>
> Center for Economic and Policy Research - 1015
> 18th Street NW, Suite 200, Washington, D.C. 20036
> - (202) 293-5380 - www.cepr.net
>
>
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