As bad as the financing as Social Security appears on paper, things could actually be considerably worse according to the Congressional Budget Office (CBO).
That agency believes that the consequences of the program’s finances will be larger, arrive sooner, and tend to be much more expensive to fix than the public typically believes based on its long-term projections, released late last month.
That agency found that the combined Trust Funds for Social Security would be exhausted in 2029, leading to benefit cuts of nearly 30 percent.
This outlook tends to contrast sharply with the more favorable estimates of the Trustees of the Social Security Trust Funds. The Trustees tend to be more optimistic, leading to the widely accepted meme that Social Security can pay everything to everyone for the next 17 years.
In reality, there is however no reason to think that the experts of one agency are better than the next. We don’t know when the cuts are coming, nor the size. The authorities of both agencies agree that the system is heading to crisis with mathematic certainty.
The combined estimates suggest that the program should pay scheduled benefits for 12 to 17 years, and subject future retirees to benefit cuts of 20 to 30 percent.
Without any fix, the typical American facing retirement today should expect to face benefit reductions for 3 to 8 years of retirement.
The tax remedy for the program continues to rise with all estimates. As a result, everyone pretty much agrees that the cost to fix Social Security for existing voters (75 years) requires payroll taxes of 18 to 20 percent.
Why are the estimates different? In simple terms, CBO expects the system to generate less revenue and spend more money. This trend is magnified by the interest earned on the reserves in the Social Security Trust Fund.
While CBO believes that the Trust Fund will be exhausted in 2029, Trustees believe that it will hold roughly $1.6 trillion as we enter 2030. On top of that sum, the reserve will earn another $400 billion in interest. That means that these projections vary by around $2 trillion dollars.
For younger Americans, this disparity has a significant implication on reform because reformers base changes on the more optimistic numbers of the Trustees. Thus it is possible that “fixed” may turn to broken again very quickly. To illustrate, the reforms enacted in 1983 meant that by 1984 the system promised scheduled benefits for 75 years. A decade later, that forecast had dropped by 40 years.
It is time for those in Congress to admit that these results are not in the interest of the public as a whole. It is time for Congress to return from its sabbatical from responsibility and have an honest discussion about the program on which millions depend.
Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.
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