off the charts

Social Security Trustees' Reports Tell Consistent Story

The Social Security trustees’ latest annual report showed some deterioration in the program’s long-term finances since their 2011 report, which in turn was a bit more pessimistic than 2010’s.  But, as our new analysis of the 2012 report explains, the overall picture has remained consistent for over two decades:  Social Security faces a long-term shortfall, not an immediate crisis.  There’s no evidence for suggestions that future trustees’ reports will be even more pessimistic.
The trustees’ projections since 1990 of when the Social Security trust funds will run out have fluctuated in a window between 2029 and 2043 (see table).  It’s important to remember that, even if lawmakers take no steps to shore up the program — which would be a serious mistake — Social Security could still pay three-fourths of its scheduled benefits after the trust funds are exhausted, using its annual payroll tax revenue. The estimated funding shortfall over the next 75 years has also fluctuated over the years, averaging 2 percent of taxable payroll in the 1993-2012 trustees’ reports — though as explained below, the figures aren’t strictly comparable because they span different periods.  (Taxable payroll is the total amount of wages and salaries and self-employment income that is subject to the payroll tax.) This year the estimated shortfall rose from 2.22 percent to 2.67 percent of taxable payroll.  That revision is bigger than usual but not unprecedented, as the table shows. More importantly, there’s no particular pattern of the trustees making ever-more pessimistic projections.  Each one-year shift in the 75-year period used to measure the long-term shortfall automatically moves Social Security further into the red by a small amount, since the shortfall is concentrated in the later decades of that period; it’s not fair to count that as a revision in the program’s long-term outlook.  (This table shows how the shift in the “valuation period” and other factors affect the shortfall.)  And revisions due to legislation — like the 2010 Affordable Care Act, which is expected to improve the outlook for Social Security — are of course purposeful. All other revisions — which stem from changes in economic, demographic, and other assumptions — have been positive or zero in 15 of the years since 1990, negative in the other seven. So we agree with our friend Andrew Biggs, who says that “we know that things will change from year to year, but they can get better as well as worse.”