May 11, 2005
More on Social (in)Security
Jason Furman of the Center on Budget and Policy Priorities is having a field day with the Bush Social Security plan. Analyzing the potential impact on the trust fund’s solvency, he estimates that by itself the Pozen plan would push back the trust fund's exhaustion from 2041 to 2047, and make little difference to the date Social Security benefits first exceed receipts (2017). But Pozen plus private accounts changes the math dramatically: the fund would be exhausted by 2030, and benefits would exceed receipts by 2011.
Since the White House has focused a lot of its Social Security spin on the benefits vs. receipts doomsday, that six-year differential is kinda gratifying. Although as Angry Bear and Furman himself have pointed out, the benefits vs. receipts measure of impending doom actually doesn’t make much sense:
The Social Security actuaries project that in 2018, Social Security’s trust fund will hold $5.3 trillion in assets, in the form of U.S. Treasury bonds. Starting in that year, Social Security payroll tax collections will not be sufficient to cover the cost of all Social Security benefits, so the Social Security system will start to use a portion of the interest the trust fund earns on its bonds to cover the remaining benefit costs. The rest of the interest the trust fund earns will be reinvested in the trust fund. The actuaries project that as a result of these interest earnings, the trust fund’s assets will increase by another $1 trillion in the decade after 2018 and reach $6.6 trillion by 2028.
Furman’s other new paper focuses on the Bush camp’s claim that its plan will protect the poorest beneficiaries. “Protect” is relative: even the White House concedes that, on average, the bottom quintile would lose $528 a year in 2050. But Furman points out that this average hides large numbers of beneficiaries who could lose a lot more:
- Elderly widows with low incomes who receive a Social Security benefit based on their deceased husband’s earnings record. If the husband was not in the bottom 30 percent of wage-earners, the widow’s benefits would be reduced.
- Children with low incomes whose parent has died and who receive Social Security survivor benefits… Here, as well, if the deceased parent was not in the bottom 30 percent of the wage distribution, the survivor’s benefits would be reduced.
- Divorced elderly spouses with low incomes who receive a Social Security spousal benefit based on their former spouse’s earnings record… If the ex-spouse was not in the bottom 30 percent of wage-earners, the divorced spouse’s benefits would be reduced, even if she herself was in the bottom 30 percent.
It’s not clear how many divorced spouses fall into this last category, but four million elderly widows and two million children receive survivor benefits—and those affected could lose between $3,000 and $5,000 a year.
Must be some new definition of “protect.”
UPDATE: The Decembrist analyzes this from the perspective of the Bush plan’s arbitrariness.
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