Nancy Webman: Social Security trustees last year projected the funds would run a surplus, which is tax revenue plus interest minus benefit payments, through 2023, but focusing only on tax revenue, the surplus was expected through 2016. Now it appears it will end, at least temporarily, this year. What concerns do you have about this?
Mark Warshawsky: The concern I have about this is, this is something we should have known about last year — because the Congressional Budget Office last year was already indicating that there would be deficits in 2009 as well as 2010 — and the Social Security trustees are only now acknowledging. The reason is they used a very optimistic short run economic assumption. They used the administration's economic projections for that, which were extremely optimistic in terms of unemployment not being any higher than 8%, and a quick recovery, a robust recovery, and even at the time, I think it was well acknowledged that that was overly optimistic.
David John: I expect that this is going to continue to be the case probably through 2011-2012 or something in that nature, and then we'll go back maybe into bare break-even, maybe a slight surplus, and then in 2016, if you use just the tax cash-flow numbers, it will go into perpetual deficit. What this shows me, first off, is the depth of the current recession. I don't think there's anything unsurprising about a recession of this depth's effects on Social Security.
Virginia Reno: First of all, in terms of being concerned about this temporary near-term cash flow deficit, it seems to me that's a sign that the Social Security system is working. In a recession, contributions from wages go down because wages are lower. People retire earlier than they had planned, so there are more benefit claims than might have been anticipated. So the fact that it is working like a counter-cyclical insurance program during a deep recession seems to me neither a surprise nor a bad thing. It's a good thing.
Michael Tanner: I don't think there's anything to be overly concerned about in the short term. If you go back pre-'83, small deficits appear at various times. It happened and it was not a major issue, and I don't think it's a major issue right now in the short term. But I think it does sort of expose the silliness of the whole idea of trust fund accounting. What matters is cash in, cash out. You can't really save against the future government. It's structurally incapable of doing any sort of actual saving, and what you have now is a short-term small situation that's covered over by general revenue, and you're going to end up with a situation in 2016 in which you're going to be getting progressively larger shortfalls that are not going to be easily made up from growth in general revenue.
The amount of general revenues they're going to have to consume is going to be a significant burden on the rest of the budget now, but it sort of exposes the way we've been hiding the future.
Nancy Altman: Virginia and I both sat on the Greenspan Commission back in 1982, which led to the 1983 amendments. Policymakers at that point had a choice, and they made a conscious choice. Everyone understood that the 1990s were going to be a period of low cost for Social Security because the people coming toward retirement were a smaller (contingent). The baby boomers that came after were going to be in their productive years, so there was going to be a lot of money coming in and not so much going out. Everybody recognized that the baby boomers would be retiring, there was a so-called baby bust, and that would be a high cost period for the program. So the question was: Do you reduce by keeping Social Security strictly on a currently funded basis and then raise prices around now, or do you have level rates so that you don't have a dip in that increase, and you have, as in the private sector, advanced funding. The decision was made to have some advanced funding, have the baby boomers essentially pay for their own retirement, and that's what happened.
We have a $2.6 trillion surplus that everybody knew was going to build up, and there is a substantial amount of interest earnings on the reserve. So it is using more interest now, because of the recession. Until now, we've simply invested all of the interest back, and it's been reinvested. Now we're drawing some, and to me that's not only not a concern, it's absolutely what the policymakers in Congress intended to happen.
Dean Baker: We have a designated Social Security tax, so it seems to me there's kind of an absurdity here that we've got to play a game and go, OK, it doesn't matter where it came from, all money is the same, in which case it's absurd to talk about a shortfall. Does the Defense Department have a shortfall? I mean, it would be absurd.
You can only talk about a shortfall because Social Security, under the law, is financed through the Social Security tax, which means the trust fund exists, which means we have $2.6 trillion sitting there, and there's nothing to worry about that you get one year, two years, three years, whatever, where your tax revenues are not equal to your output. Why would you be worried about that? In terms of the projection, again we always want good projections. I have complained sometimes about the trustees being inaccurate, that they do not take account of current events. What you find is, there have been sort of patterns that in the '80s, early '90s, they tended to be overly optimistic. In the late '90s they were too pessimistic, when the economy did consistently better. Again I want them to be right, but those patterns have existed. I don't think there's a pattern, that they've always been overly optimistic. It's just simply not true. In a given year, sure, sometimes they come in higher. In some years, they come in lower.
In terms of the long-term picture, there's nothing about the current situation that leads me to believe we need to be more pessimistic about the long-term prospects of Social Security.