The Devil, they say, is “in the details.”
So it is with our government. It has a habit of telling the truth in the fine print of seldom read documents. That way the politicians can say they told us— but no one listened. The recently issued report from the Trustees for Social Security is a good example. It quietly tells us that the true liabilities of Social Security are $7 trillion larger than conventionally reported.
The executive summary tells us that benefit payments will exceed tax revenue by 2018. It also tells us that the estimated 75-year deficit has worsened slightly, from 1.87 to 1.92 percent of payroll.
Ho-hum.
Every worker in America has already received similar information from Social Security commissioner Jo Anne Barnhart. It came as part of your “Annual Social Security Statement” in which Ms. Barnhart mentioned, in the fifth paragraph, that the program would begin paying more in benefits than it collects in taxes by 2018. Furthermore, benefits will have to be cut 27 percent by 2041 unless something is done.
Don’t believe me? Read your statement.
That, believe it or not, is the good news. It’s the stuff politicians of both parties tell us. In fact, the situation is far worse. You can read about it on pages 61, 62, and 63 of the “2003 OASDI Trustees Report” (Old Age Survivor and Disability Insurance). It is available free of charge as web pages, a PDF download, or by mail as a printed document on request.
Here’s the story. Since 1965 the trustees have examined the long-term health of Social Security retirement and disability programs by making a 75-year estimate of income and expenses. This seems like a long time to you and me but it works to understate funding problems— it includes tax revenue from some workers but excludes some of their retirement benefits. As a consequence it routinely understates the imbalance between revenues and benefits.
Using the traditional (Executive summary) measure, Social Security has a 75-year revenue shortfall equal to 1.92 percent of payroll. That’s about $3.5 trillion in today’s dollars. To provide full benefits, employment taxes would have to be increased—immediately— to avoid the benefits cut Ms. Barnhart warns about in her letter.
This year, however, the Trustees Report includes two additional measures that are more accurate. They don’t shove some liabilities beyond the 75-year horizon.
Guess what happens?
The revenue shortfall triples to a present value of $10.5 trillion. You can read this for yourself at: http://www.ssa.gov/OACT/TR/TR03/IV_LRest.html#wp254423.
Does the extra $7 trillion make a difference?
Here are some ways to think about it.
- If the real shortfall is three times the traditional measure, which is 1.9 percent of payroll, then the true payroll tax shortfall is 5.7 percent of payroll. Assuring that our children and grandchildren will receive the same benefits as current retirees would require an immediate 46 percent increase in the portion of the payroll tax dedicated to retirement and disability income. A workers’ share of the tax, currently 6.2 percent of the first $87,000 of earnings, would increase to 9.05 percent. Employers would experience the same increase.
- Measured another way; the $7 trillion increase is about the same as our total home equity ($7.6 trillion). If we just surrender our homes to Washington today, they can make good on the promises that have been made. Toss in every dime we have in mutual funds, about $2.6 trillion, and we’ll cover the entire $10.5 trillion shortfall.
- The $7 trillion increase is greater than the so-called “National Debt”, the formal debt owed by the U.S. Treasury. As of April 24, the obligations of the U.S. Treasury totaled $6.46 trillion. Of the $6.46 trillion, $1.38 trillion was held in the Social Security Trust fund at the end of 2002.
When it comes to illusion and obfuscation, government accounting makes the crew at Enron look like Boy Scouts.
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ON THE WEB:
Readers who would like to read these documents for themselves can find them at these URLs:
Read the Executive Summary of the Trustees’ Report:
http://www.ssa.gov/OACT/TRSUM/trsummary.html
Read the entire Report:
http://www.ssa.gov/OACT/TR/TR03/index.html
Read Jo Ann Barnhart’s letter:
http://www.ssa.gov/mystatement/statsamples.htm
Read the new calculation of long-term liabilities:
http://www.ssa.gov/OACT/TR/TR03/IV_LRest.html#wp254423
See the daily reckoning of U.S. Treasury debt:
http://www.publicdebt.treas.gov/opd/opdpenny.htm
Check the assets of the Social Security Trust fund:
http://www.ssa.gov/OACT/TR/TR03/III_cyoper.html#wp82233
Check our home equity and mutual fund holdings per the Federal Reserve Consumer Balance Sheet, year-end 2002:
http://www.federalreserve.gov/releases/Z1/Current/z1r-5.pdf
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Photo by Karolina Grabowska on pexels.com
(c) Scott Burns, 2022