Saturday, August 07, 2010

Good News For Us

The annual report of the Social Security and Medicare Boards of Trustees on the status of Social Security and Medicare recently was released. Noted by most major liberal blogs, it understandably has been ignored by the Beltway and the mainstream media, which prefers to scare the public.

The report included the obligatory advice: "the significant longer term financial imbalances of the programs still need to be addressed. The sooner action is taken to address the long-run financial imbalances, the more reform options will be available, and the more time there will be to phase in changes so that those affected will have adequate time to prepare." It would hardly be worthwhile for an organization to issue a mandatory annual report, only to assure the nation that everything is fine, that really we were merely wasting our time and taxpayers' funds by analyzing data, writing a report, and issuing findings.

More significantly, while acknowledging that the deep and broad recession has created a deficit in the Social Security trust fund this year, the Trustees found

This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084.

Full benefits, then, can be expected through 2036 and and at least three-quarters of benefits through 2084. That would be if no change whatsoever is made in funding or the level of benefits. And despite the economic downturn, "the outlook for Medicare has improved substantially because of program changes made in the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 ."

With no help from the GOP, the prognosis for Medicare has improved- and the Social Security system, far from being "in crisis," is on fairly sound financial footing.

Fairly sound financial footing might easily be turned into exceedingly sound financial footing. Not all income is subject to the payroll tax with the cap, increased annually, now standing at $106,800. Moreover, growing income inequality over the past 30+ years has eroded the soundness of the system (figure, below, from Matt Yglesias).

The increase in millionaires and relative decline of middle-class income have eroded the long-term health of Social Security, with so much income unavailable to shore up the system. Last year, Ezra Klein, with the aid of two charts, explained how a substantial increase in the cap would contribute to the solvency of Social Security:

Janemarie Mulvey and Debra Whitman of the Congressional Research Service looked at this question in 2008 by evaluating three different proposals. The first would raise the cap so that 90 percent of wages are taxed (CRS estimates this would mean a cap of $171,600 in 2006) and pay higher benefits to those affected; the second would eliminate the cap and pay higher benefits; and the third would eliminate the cap for taxes but would not increase benefits. Here is how the proposals would affect the actuarial state of Social Security, as compared to its current trajectory:

The President's deficit reduction commission is expected to issue its report during the lame duck session of Congress following the November elections and is poised to recommend de facto cuts in Social Security benefits. But as Nancy Altman, co-chairman of the Strengthen Social Security Campaign, noted:

Every year, the trustees' reports become an excuse for fear mongering by those who should know better. This year, the news is especially good for Medicare, thanks to the enactment of health care reform. The news for Social Security is even better...

Unfortunately, we know there are some in Washington, including a few members of the Administration's fiscal commission, who will use this report to try to advance their agenda of cuts to Social Security benefits, including raising the retirement age. Politicians should stop scaring the American people. Social Security is strong and should be strengthened, not cut.

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