The Social Security actuaries are not as dumb as rocks

The Social Security actuaries are not as dumb as rocks

by digby

One of the things that drives me nuts about the Social Security "debate" is the this notion that way too many people have that the whole thing happened because everyone just noticed that the baby boomers are getting old and there's a whole bunch of them. This is just nonsense. No matter how stupid you think the government is you can't possible believe that they don't take demographics into account when they project Social Security. That's pretty elementary.

And, of course, they did. Indeed back when most boomers were already in or entering our peak earning years, there was a big bipartisan deal made to raise the retirement age and raise the contributions so we boomers would pre-pay for our own retirement. (That's the SS surplus.) It extended the funding for the program for many years.

Current projections show that we might have a shortfall in a couple of decades. That is not because they failed to plan properly. It's because something unexpected happened in our economy:
The SS payroll tax currently applies only to income below $110,100 a year, while any dollar an individual makes over that amount is not subject to the tax. So the growth in inequality since the late 1970s has pushed ever more income out of the reach of the payroll tax. When the formula for setting the cap was reformed in 1983, only 10 percent of earnings in the country escaped the tax. By 2008, that had grown to 16 percent...

What if the cap had remained the same as it is, but inequality had not taken off? Which is to say, what if wage growth had maintained its historic connection to productivity growth, instead of decoupling since the 1970s, and median wages had not stagnated?:

If real wage growth had kept up with productivity from 1983 to 2007, the trust fund would now be larger by roughly $450 billion, equal to 8% of the $5.4 trillion shortfall.

Going forward, the Social Security actuaries project relatively slow wage growth of 1.2% above inflation, but wage growth of 1.8% above inflation (the average productivity growth rate over the past quarter century) would eliminate 43% of the projected shortfall, according to the trustees’ 2010 report. All together, then, slow wage growth accounts for roughly half (51%) of the projected shortfall that has emerged since the system was last restored to balance.

The rest of that could easily be made up by raising the amount the high earners pay in beyond what it would have been.

Programs always need tweaking as time goes on --- projections that go out decades are little more than educated guesses. In this case, rushing to cut benefits as both parties' leaders have proposed to do through the adoption of the Chained-CPI is just a further reward to the people who have caused the imbalance with their pursuit of policies that pushes more and more of the money into their wallets and leaves average people with less and less at retirement. There are better ways to deal with any potential shortfall in Social Security. (We could, for instance, just fund it ...)

More importantly, I think it's fair to assume that making a deal with today's terroristic Republicans is going to be a bad deal. Doesn't it make more sense to wait and see if we can unseat some of these freaks before we go "fixing" something that may or may not happen and is easily fixed down the road?
We have plenty of problems that do require immediate attention. Why would we negotiate with this freakshow unless there's absolutely no choice?