CRFB Breaks Down the Social Security Trustees Report
With the release of Trustees reports on Social Security and Medicare, CRFB has released its analysis of the Social Security report, breaking down the sources of deterioration in the projection and what it means for the program. We will do a full analysis of the Medicare report in The Bottom Line later.
The program's 75-year actuarial shortfall--the 75-year imbalance between spending and revenue--rose to 2.67 percent of payroll (1.0 percent of GDP) from 2.22 percent of payroll (0.8 percent of GDP) in last year's report. In addition, the dates for trust fund insolvency for OASI and DI have been moved up to 2035 and 2016, respectively, from 2038 and 2018. Considering the whole OASDI trust fund, the insolvency date has been moved up three years to 2033. If no action is taken, disability insurance benefits will be cut by 21 percent only five years from now, while overall Social Security benefits will be cut by 25 percent in 2033.
More pessimistic economic assumptions are mostly to blame for the deterioration. In the short term, higher than expected inflation and lower than expected wage growth have led to higher spending and lower revenue projections. Over the long term, the Trustees have cut their projections of average hours worked, which also lowered revenue in this year's report. Other demographic changes and the shifting forward of the 75-year projection window also added somewhat to the program's imbalance.
|Changes in Trustees Projections (Percent of Payroll)|
|2011 Actuarial Imbalance||-2.22%|
|Near-Term Economic Assumptions||-0.14%|
|Long-Term Economic Assumptions||-0.07%|
|Demographic and Disability Assumptions||-0.09%|
|Shifting 75-Year Window||-0.05%|
|2012 Actuarial Imbalance||-2.67%|
The significant deterioration in Social Security's projections should be alarming. Large immediate benefit cuts face disability benefit recipients in only five years, while overall insolvency looms in twenty years. These dates should give a sense of urgency to lawmakers. As the Trustees said:
Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.