Economist: Social Security in Worse Shape than Detroit’s Pension Funds
(CNSNews.com) – “Social Security is insolvent,” Boston University economics professor Laurence Kotlikoff told the House Subcommittee on Social Security at a hearing on Capitol Hill Tuesday. “And it’s not bankrupt in 30 years, or 20 years, or 10 years. It’s bankrupt today.”
“This is not my opinion. This is the only conclusion one can draw from Table IVB6 of the 2013 Social Security Trustee’s Report."
"This table reports that Social Security has a $23 trillion fiscal gap measured over the infinite horizon,” noted Kotlikoff, who also served as a senior economist on President Ronald Reagan's Council of Economic Advisers.
“Twenty-three trillion dollars is 32 percent of the present value, also measured over the infinite horizon, of Social Security’s future revenues. Hence, Social Security is 32 percent underfinanced, which means it is in significantly worse financial shape than Detroit’s two pension funds taken together.”
Social Security’s debt also “swamps the $13 trillion of official debt in the hands of the public,” Kotlikoff testified.
And “the system’s off-the-books debt is growing at leaps and bounds – by $1.6 trillion between 2012 and 2013 – thanks to the approaching retirement of vast numbers of baby boomers.”
While “the Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Fund fails the long-range test of close actuarial balance, it does satisfy the test for short-range (10-year) financial adequacy,” the 2014 Trustee's Report states.
The “combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2027,” it continues. However, “depletion of combined trust funds reserves” will occur in 2033.
According to Table VI.FI “Unfunded OASDI Obligations Through the Infinite Horizon” in the 2014 report, Social Security’s fiscal gap has increased to $24.9 trillion.
Social Security cannot “sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers,” the trustees state.
Kotlikoff also told House members that Social Security is now in “worse financial shape today than when the Greenspan Commission ‘fixed’ it” 31 years ago.
“Today, we are looking, in the current 75-year projection widow, at 31 years of negative cash flows, which the Greenspan Commission knew were coming and willfully ignored,” he said.
The economist also accused the system’s trustees of a “disinformation” campaign to keep Americans from finding out that “Social Security is in dire financial shape.”
“To their great credit, Social Security’s actuaries have been reporting the system’s infinite horizon fiscal gap every year since 2002. And to their great shame, Social Security’s Trustees have been ignoring this comprehensive measure of the system’s insolvency every year since 2002.”
“Unfortunately, those who proclaim the strongest desire to preserve and protect Social Security, particularly its Trustees, are doing their level best to destroy the system by ignoring or substantially understating its financial problems,” he said.
Although he praised Social Security for being a “lifeline for generations of Americans who would otherwise have spent their retirements in abject poverty,” Kotlikoff testified that “nothing short of a fundamental reform of the system” will save it.
“To pay its scheduled benefits in full through time, the Social Security system needs a 32 percent immediate and permanent increase in the future path of payroll tax revenues,” Kotlikoff noted. “Alternately, to prevent having to raise its FICA payroll tax rate, the system needs to immediately and permanently cut all benefits payments by 22 percent.”
He also pointed out that Social Security, which is 32 percent underfinanced compared to its obligations, “cannot be bailed out by the rest of our fiscal system,” which is 58 percent underfinanced. In April, Kotlikoff told CNSNews.com that “the nation’s true fiscal gap is $205 trillion. The nation is completely broke.”
Kotlikoff urged House members to support The Inform Act (H.R. 2967 and S. 1351), which has been endorsed by 17 Nobel Laureates in economics. The bill would require federal accounting agencies such as the Congressional Budget Office, the Government Accountability Office, and the Office of Management and Budget to do “infinite horizon fiscal gap” accounting for every major fiscal bill introduced in Congress.
That would require them to calculate “the present value lifetime net Federal tax burdens facing each current generation of children 18 years of age and under, as well as each future generation.”