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Social Security’s Looming $32 Trillion Shortfall

from Gold and Liberty:

You can look at the financial health of Social Security in many ways.

The official version, found in the Social Security and Medicare Boards of Trustees’ annual report, is this:

Social Security’s total income is projected to exceed its total cost through 2019, as it has since 1982. After 2019, interest income and money taken out of reserves will provide the resources needed to offset Social Security’s annual deficits until 2034.

By then, if Congress does nothing, the federal government will collect enough in payroll taxes to pay about 75 percent of scheduled retirement benefits until 2090.

The Social Security Administration projects that unfunded obligations will reach $11.4 trillion by 2090. That’s up $700 billion from the $10.7 trillion the administration projected for its 2089 shortfall..

Infinite horizon

Despite the huge numbers, there’s even a less generous way of looking at the fiscal shortfall.

A projection, known as the “infinite horizon,” takes into account all the program’s future liabilities, even those beyond the 75-year period that Social Security actuaries typically use in their calculations.

Under the infinite horizon, Social Security will have $32.1 trillion in unfunded liabilities by 2090, $6.3 trillion more than last year’s projection. (See the chart below.)

The infinite horizon calculation is the most important part of the trustees’ annual report, said Laurence Kotlikoff, a Boston University economics professor and co-author of “Get What’s Yours,” a best-seller about how to maximize claiming Social Security retirement benefits.

“We’re not broke in 20 years to 30 years, we’re broke now,” Kotlikoff said. “All the bills have been kept off the books by Congress and presidential administrations for six decades.”

The $6.3 trillion increase in the infinite horizon projection shows that Social Security Administration actuaries are more pessimistic about economic and wage growth, Kotlikoff said.

A reduction in the interest rate used to make calculations under the infinite horizon projection from 2.9 percent to 2.7 percent was the main contributor to the rise in the unfunded obligations forecast from last year, according to the trustees’ report.

“You can’t hide the numbers under a bunch of malarkey,” said Kotlikoff, who is running for president as a write-in candidate.

Kotlikoff had an influential ally in his quest for better accounting for Social Security and other federal programs. In 2013, Sen. Tim Kaine, the Democratic Party’s vice presidential nominee, co-sponsored bipartisan legislation that would require the federal government to use infinite horizon calculations and so-called fiscal gap accounting, which considers the difference between the government’s projected financial obligations and the present value of all projected future tax and other revenue. The bill, which Kotlikoff championed, did not pass.

Presidential proposals

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