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Social Security and Fiscal Discipline

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By PeterRabit
May 27, 2003

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This week I will call the Congressional Budget Office to ask them if I am correct that the interest due to the Social Security Trust fund is not being shown in the budget at all. I've been reviewing some of their data in preparation for this call. The table below is taken from their report on Historical Budget Data.

Again note that only Publicly Held Debt (not the Intra-governmental Debt that includes the money owed to the trust fund) is shown below.

What is striking to me is how the Social Security budget used to alternate between surplus and deficit up to the year 1985. In other words payroll taxes were adjusted to bring in more or less what was needed for Soc. Sec. outlays.

In 1985 the Congress started looking down the road to the large outlays, which would be needed when the boomers retired and radically hiked payroll taxes. This produced SS surpluses, which rose to a maximum of 163 billion dollar in 2001 and 160 billion in 2002.

I think it is striking that the SS surplus fell only $3 billion between 2001 and 2002 while the regular budget deficit grew by $284 billion. The nations employees are clearly a more dependable source of income then the upper class and the corporations.

I added up the SS surpluses from 1985 to present and it comes to about $1310 billion. The total of the Government Account Series bonds held by the trust funds at the end of April was $2,742 billion.

I believe the difference between the two figures ($1432 billion) is accrued interest. Not an unreasonable sum over 17 years if you figure that interest rates around 6% would give a doubling time for paid-in capital of 12 years (rule of 72).

What I want to stress here is that the working class has been shouldering the burden of paying for their retirement. What threatens that retirement after twenty years is not imbalances within the Soc. Sec. side but the regular budget deficits and the huge indebtedness of the regular budget to the trust funds.

The baby-boom generation began with the end of the war in 1945 and ended with the invention of the pill in 1970. Births in the US peaked in 1970 at 3.7 million and declined fairly rapidly to 3.1 million by 1973. By 1985 the 1970 peak was surpassed with 3.8 million births and births have stayed around 4 million per year.

Assuming an average lifetime of 75 years, the most stressful years for the SS system will be between 2035 and 2045. But note that the majority of boomers will still be paying in to the system until 2025 or even 2030 if the retirement age is raised to 70 by that time. Assuming much better health, retiring at 70 would not be unreasonable.

Bottom line, I believe the repeated accusations that the social security system is fundamentally flawed are wrong. The biggest flaw I see is the inability of the regular federal budget to maintain fiscal discipline.

It's not comforting to think that my retirement will depend (in part) on the ability of the regular budget to run major surpluses and repay the trust fund in the years 2013 onwards.

Peter

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Revenues, Outlays, Surpluses, Deficits, and Debt Held by the Public
1962-2002     (In billions of dollars)    Surplus or Deficit (-)
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                                                           Public
     Revenues   Outlays    On-    Soc.  Postal   Total     Held
                         Budget   Sec.  Service            Debt
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1962    99.7     106.8     -5.9   -1.3   n.a.     -7.1     248.0  
1963   106.6     111.3     -4.0   -0.8   n.a.     -4.8     254.0  
1964   112.6     118.5     -6.5    0.6   n.a.     -5.9     256.8  
1965   116.8     118.2     -1.6    0.2   n.a.     -1.4     260.8  
1966   130.8     134.5     -3.1   -0.6   n.a.     -3.7     263.7  
1967   148.8     157.5    -12.6    4.0   n.a.     -8.6     266.6  
1968   153.0     178.1    -27.7    2.6   n.a.    -25.2     289.5  
1969   186.9     183.6     -0.5    3.7   n.a.      3.2     278.1  
1970   192.8     195.6     -8.7    5.9   n.a.     -2.8     283.2  
1971   187.1     210.2    -26.1    3.0   n.a.    -23.0     303.0  
1972   207.3     230.7    -26.4    3.0   n.a.    -23.4     322.4  
1973   230.8     245.7    -15.4    0.5   n.a.    -14.9     340.9  
1974   263.2     269.4     -8.0    1.8   n.a.     -6.1     343.7  
1975   279.1     332.3    -55.3    2.0   n.a.    -53.2     394.7  
1976   298.1     371.8    -70.5   -3.2   n.a.    -73.7     477.4  
1977   355.6     409.2    -49.8   -3.9   n.a.    -53.7     549.1  
1978   399.6     458.7    -54.9   -4.3   n.a.    -59.2     607.1  
1979   463.3     504.0    -38.7   -2.0   n.a.    -40.7     640.3  
1980   517.1     590.9    -72.7   -1.1   n.a.    -73.8     711.9  
1981   599.3     678.2    -73.9   -5.0   n.a.    -79.0     789.4  
1982   617.8     745.7   -120.0   -7.9   n.a.   -128.0     924.6  
1983   600.6     808.4   -208.0    0.2   n.a.   -207.8   1,137.3  
1984   666.5     851.9   -185.6    0.3   n.a.   -185.4   1,307.0  
1985   734.1     946.4   -221.7    9.4   n.a.   -212.3   1,507.3  
1986   769.2     990.4   -237.9   16.7   n.a.   -221.2   1,740.6  
1987   854.4   1,004.1   -169.3   19.6   n.a.   -149.7   1,889.8  
1988   909.3   1,064.5   -194.0   38.8   n.a.   -155.2   2,051.6  
1989   991.2   1,143.6   -205.2   52.4    0.3   -152.5   2,190.7  
1990 1,032.0   1,253.2   -277.8   58.2   -1.6   -221.2   2,411.6  
1991 1,055.0   1,324.4   -321.5   53.5   -1.3   -269.3   2,689.0  
1992 1,091.3   1,381.7   -340.5   50.7   -0.7   -290.4   2,999.7  
1993 1,154.4   1,409.5   -300.4   46.8   -1.4   -255.1   3,248.4  
1994 1,258.6   1,461.9   -258.9   56.8   -1.1   -203.3   3,433.1  
1995 1,351.8   1,515.8   -226.4   60.5    2.0   -163.9   3,604.4  
1996 1,453.1   1,560.5   -174.1   66.4    0.2   -107.5   3,734.1  
1997 1,579.3   1,601.3   -103.3   81.3     *     -22.0   3,772.3  
1998 1,721.8   1,652.6    -30.0   99.0    0.2     69.2   3,721.1  
1999 1,827.5   1,701.9      1.9  124.7   -1.0    125.6   3,632.4  
2000 2,025.2   1,788.8     86.6  151.8   -2.0    236.4   3,409.8  
2001 1,991.2   1,863.9    -33.4  163.0   -2.3    127.3   3,319.6  
2002 1,853.2   2,011.0   -317.5  160.3   -0.7   -157.8   3,540.4  

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Source: Congressional Budget Office.


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