The Congressional Budget Office estimates that there is only a 7% probability that someone born in 2000 will receive their Social Security benefits as promised today. The better news is that with a probability of 58% the cut in benefits will be 20% or less.
Since the CBO isn’t trying to predict future policy, these "probabilities" should be taken with more than a grain of salt. Sill these numbers are an arresting way of presenting the basic data on projected Social Security revenues and scheduled payments.
Hat tip to Paul Krugman.
If only Bush had stuck to trying to privatize (3%) Social Security we might be a little bit on the way to saving ourselves from a major headache. As the Chileans have done, I believe.
I only barely skimmed the doc, but this is great news. The projected year for the trust fund running out was 2030 10 years ago. Now it is 2049. Sweet.
This is just like you claim that shifting Medicare payments from the insurance companies to doctors was the Democrats cutting Medicare.
What curve were you graded on?
Another comment: notice that in all the debates about the SS system the question which is almost never asked is whether it is a good system. Saying it won’t collapse until 2049, or whenever, is like saying a 20 year old can drink a quart of gin a day for 30 years and still live. Live, yes. Well, no
Alex,
Obviously, if we expect productivity growth to exceed CBO assumptions then we should consider the projections to be quite pessimistic, shouldn’t we?
I do agree with you that an unexpectedly large number of pension plans will go bust. This will, IMO, include lots of private plans as well as city and state plans. Pension underfunding is a potentially very serious problem. Regrettably, the incentives for short-sightedness are strong.
Should we radically reshape a large entitlement system because it may be insolvent in 40 years? I don’t trust forecasting enough to say yes. In fact, I distrust forecasting and fear unintended consequences so much, that I don’t think we should legislate any fix to a 2049 problem.
There could be many reasons to reform social security and we should discuss reform in that context, not its forecast insolvency 40 years hence.
Barkley Rosser: “this cut would put the system back into where it would be exactly pay as you go, with current fica tax revenues exactly matching the current benefit outflows”
Such a “pay as you go” formula would seem the most fair across generations. Every generation pays the same level of FICA taxes. Every generation’s benefits would depend on:
- how many descendants they produced;
- how many productive immigrant workers they allowed into the economy;
- how much they had increased real per capita income;
- how much they had improved life expectancy.
In short, the collective decisions and achievements of a generation would determine their level of government retirement benefits.
Barkley Rosser,
I think you misunderstood my comment. I’m saying that the current system has those features. No need to use any stats or any calculation. Just continue the FICA tax at 12.whatever percent amd distribute all the money collected to those eligible to receive it. I think we already have procedures in place to determine who gets how much.
Where I might disagree with you is what to do with the Social Security Trust Fund. As I understand it, social security benefits will exceed FICA receipts in about 9 or 10 years. At that point, the trust Fund is supposed to begin “redeeming” those intragovernment securities. That would mean Social Security benefits would have to be partially funded by sources other than FICA receipts. My solution? Write off the Trust Fund as worthless, and start reducing all promised social security benefits proportionately to match the level of FICA receipts.
That’s where the biggest problem lies, and it starts in 2017 or 2018, not in 2030. Isn’t that right? Do we:
- raise FICA taxes at that point?
- reduce other government spending and fund Social Security from general revenues?
- implement means testing?
- reduce the benefits of all social security recipients?
Those are tough decisions.
I agree that the overall government budget faces severe shortages as the FICA surpluses decline. It really burns me up that the Greenspan Commission ever proposed a system guaranteed to produce surpluses in the first place. In his defense, he did propose in the mid-90′s that FICA surpluses be used to pare down government debt. But that didn’t happen, of course. Gingrich and Clinton just spent those surpluses and declared the government’s budget was balanced by the end of the century.
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