In what I think is an important post at E21, Charles Blahous outlines the assumptions underpinning the Social Security trustees’ plan to extend the solvency of the Social Security system until 2062:
So, what about that trustees’ “low-cost†projection scenario that shows Social Security’s trust funds lasting until 2062? Well, that projection has virtually nothing to do with increased labor force participation. Here are just some of the assumptions that all must pan out for that scenario to transpire:
- The US fertility rate rebounds to 2.2, permanently. For reference, the current US fertility rate is about 1.8, and the US has not had a single year exhibiting a 2.2 fertility rate since 1971.
- Annual US mortality improvements will slow down to barely half the rate of progress assumed in the primary projections. Basically, this scenario assumes that Social Security will cost less than now projected, because we’ll stop making significant progress in improving longevity, and recipients won’t collect benefits for as long.
- Immigration will be over 25% higher than now projected.
- Annual productivity growth will be over 20% higher than now projected.
- Real wages will grow more than 50% faster than now projected.
- After 2028, the US will never again see an unemployment rate above 4.5%.
- Disability incidence will drop by over 20% relative to the primary projections.
- Disability recovery rates will increase by over 20% relative to the primary projections.
Not to put too fine a point on it but it ain’t gonna happen. What is not mentioned here is that one of the main assumptions of the Social Security system has failed. From 1950 to 1990 the percent of taxable income being earned by the top .1% varied from 15% to 20% and after 1990 it has risen rapidly to 40%. Very little of that income is subject to FICA. In 1970 90% of income was subject to FICA. Now less than 10% is. Since its assumptions have failed, the system needs to be re-engineered.
No financial scheme fails in the arithmetic sense when funding is unlimited. But as a practical reality, they fail.
Do the math. How much revenue will be generated by increased taxes from increasing cap levels?
Do the politics- pay in and you get out or………………..just another wealth redistribution scheme?
I suspect the mortality improvement is actually overoptimistic; ie even projecting an improvement is too optimistic.
Average life expectancy has fallen for 2 straight years and there’s reason to believe it could go for 1 to 2 decades like the late Soviet Union. The spike in deaths by despair ie opioids, suicide have causes that will take time to reverse.
It helps Social Security but it is nothing to celebrate about.
By the way, this article in the WSJ is good reading on how Japan is adapting to its growing ranks of “retirees†– by adapting the meaning of “retirementâ€. Of course it helps to have the healthiest elderly in the world.
https://www.wsj.com/articles/how-aging-japan-defied-demographics-and-turned-around-its-economy-11547222490
I wouldn’t be surprised if it is a foreshadow of the US workplace in 20-30 years.
Like the border, on one hand the R’s call for benefit cuts, the D’s on the other say there is no problem and in the gripping hand there is a very potent lobby opposed to any shaking of the apple cart. Compromise appears unlikely.
my preference would be to make those currentily exempt pay in while rejiggering benefit regs to lower payments on the high end.
My guess is that they’ll let benefits lag inflation. Borrow the rest, and pass it down to the next generation. Speaking of which, the next generation of leadership has a lot to learn about the reality of “free”.
My wife thinks that way. I asked her this. If the law were written to make candy free, children would like that. But how much candy would you expect to find on the shelf tomorrow?
So let me get this straight. A board composed of Trump nominees is predicting a 25% increase in immigration? All of the others are just pie in the sky wishful thinking, but you have an administration working to reduce immigration while making economic assumptions based upon it increasing. How many of these were the same people in the financial sector who believed that housing values could never drop?
Steve