Fact and Fiction Behind Too Big to Fail
Did your Representative vote for last summer’s omnibus spending bill? Try finding that bill and those votes on Congress’s website. There’s a huge, hidden story behind the votes.
The spending bill may have prevented a shutdown of the government, but it had some retirement surprises. The least talked about in this electorate-fragmenting election was the transfer of funds from the Social Security Trust Fund to the Disability Insurance Trust Fund to keep the Disability Insurance program solvent for another stretch.
Keeping Disability solvent may seem a reasonable action, but the big picture needs examination. The Congress did this in the mid-1990s, and the action kept Disability Insurance solvent for another two decades. But, as they shifted money from the Social Security Trust Fund to accomplish this goal, it advanced the year in which the trustees estimated that the Social Security Trust Fund itself would become insolvent thirteen years — from 2044 in the 1993 report to 2031 in the 1995 report. Last July’s trustee report to Congress estimated that the Social Security Trust Fund would run out of funds in 2035. If what they did last summer had a similar impact, the Social Security Trust Fund would run out of funds in 2022 — just six years from now. I’ll be 71. How old will you be?
The Social Security Administration, which manages both programs, is not keeping this a secret. In fact, they put their estimate that less than 80% of promised benefits could be legally paid at that point in a number of locations. Take a look at the Social Security benefit estimator. One of the reasons the monthly benefit produced by the estimator cannot be guaranteed is this one, the third in the list. By law, benefits for each of these programs can be paid only out of current year OASDI tax receipts and the respective trust funds.
Citizens take Social Security for granted. This election year shows that it’s a great time to become very familiar with the program, its history and how it works.
Social Security is one of several major government entitlement programs. Social Security (established in 1935) and Disability Insurance (1956) are managed by the Social Security Administration (SSA). You may see the acronym OASDI associated with them. It stands for Old-Age, Survivors and Disability Insurance, which pretty much captures what the programs cover.
Each year the trustees of the two insurance programs, largely senior government officials headed by the “managing trustee”, the U.S. Treasury Secretary, submit a detailed report on the status of this insurance. The report is addressed to the leaders of the Senate and the House of Representatives. Each program has its own “trust fund”, into which excesses of OASDI tax receipts (look at your paycheck) over payouts to beneficiaries in any one year are accumulated and invested in U.S. Treasury securities. I will use SSTF and DITF as my own acronyms for each trust fund.
If history can be our guide, the next trustees report will be submitted to Congress in July. About the time of the conventions (July 18-21 and 25-28)! A second round of fireworks that month.
I’m looking for one item in this year’s trustees report. It would be fun like playing “Where’s Waldo?” if only the issue weren’t so incredibly challenging and critical to political stability. That item is the year in which the trustees estimate the Social Security Trust Fund (SSTF) will become insolvent.
Reading prior years’ trustee reports, this curious citizen, nearly 65, found that mid-1990s history. (For those who would like to see the insolvency year estimates, trust fund assets and other information gleaned from each report, I’ve inserted the information in the two PDFs linked at the bottom of the post.)
In the 1993 and 1994 reports the Disability Insurance Trust Fund (DITF) was forecast to become insolvent in 1995. So in 1995 Congress changed the percentage of the OASDI payroll tax that was allocated to the DI program, increasing it, and shifting a percentage FROM Social Security. The total OASDI tax wasn’t increased, just reallocated. And Congress backdated this shift to the beginning of 1994 (January).
Fast forward to the past four years’ reports. The trustees, in each of those years, forecast the DITF to become insolvent in 2016, this Presidential election year. In the Omnibus spending bill of last summer, Congress made the same shift.
Congress’s move in 1995 accelerated the estimated insolvency of the SSTF by 13 years, from 2044 in the 1993 report to 2031 in the 1995 report. (I’ve highlighted it in lavender.) Last year’s estimate of that insolvency date was 2035. (2034 was the estimate of the combined programs.) Subtract 13 years, if the impact is similar, and Social Security’s Trust Fund might become insolvent around 2022. Six years from now.
There aren’t any other magic trust funds to tap to cover Social Security. I’ll be 71 and on the leading edge of the Baby Boom. (And we’ve known about my generation’s impact for decades. Read the reports. Or from time to time the front page of newspapers.) What if you’re 55 or younger? You will not have even hit retirement age. You’ll be paying into the program and supporting the debt incurred to pay for Baby Boomer benefits, yet not see all your expected benefits.
Before any candidate promises more benefits, the nation better figure out how to address the not-so-long-range Social Security problem. Increase taxes in the face of economic weakness? Borrow more from foreigners in a turbulent world? This is a very ugly political issue.
We WILL cut Social Security payments, including mine. While many say we just need to means-test them, the longer we wait, the further down the income scale the means test reaches. A means-test formula has also got to be a political nightmare to construct. But avoiding that challenge brings an even worse nightmare: the erosion of our democracy.
This is going to be a hot topic that none of the candidates have really addressed yet. In fact, in the face of a suffocating debt burden being passed along to the next generations, President Obama proposes even higher benefits. How to buy votes and punish the younger generation. I’m an Unaffiliated voter and won’t digress to my voting patterns, but this is the purely political talk which is incredibly irresponsible that we get from politicians these days. Both sides. Make us feel good, or make us angry. We need to engage our minds and focus down ballot and on future elections if this one seems lost. When the young support Sanders or older folks support Trump, both are shunning traditional Washington politics and the media that covers it. This is a big — no, make that huge — reason why.
Here is useful information from reports going back to 1990. Yes, it took a bit of time, but it was worth the investment. The first PDF (click on the link) shows the insolvency estimates in each year’s report: the SSTF, the DITF and the combined programs. The second PDF shows each program’s year-end assets, tax receipts and the difference in receipts from the prior year.
A few observations. Disability Insurance grew in the “Great Recession” after 2008. You can see how it chewed up the program’s assets. You’ll also see a drop in receipts about the same time. Congress cut the OASDI tax to put cash into worker hands, a cut which ended a few years down the road, when receipts increased again. The details are in the trustee reports. The black line marks when the SSA changed the financial year from the calendar year to September 30th to match Federal accounting. The trustees’ estimates of SSTF insolvency moved further out during good economic periods and moved closer during downturns. You can see the DITF’s assets swell during good times, then dwindle during tough times. It was a trend that was pretty clear for years, yet silence on the part of our elected officials. At least nearly all. Mine mailed me a postcard that said we have to protect Social Security. Yes. When?