Transcript: Blahous on the 2012 Social Security & Medicare trustees report
Transcript of remarks by Charles Blahous, Social Security & Medicare Programs Public Trustee, on April 23, 2012:
“The Social Security and Medicare programs remain among the more remarkable legislative achievements in American history.
“These two programs have between them provided critical insurance protections for hundreds of millions of Americans. They’ve done it at exceptionally low administrative costs, and they’ve done it with financing methods that, while they certainly have their critics, have been generally accepted by most of the American public as equitable historically.
“Now, it’s important to remember these achievements as we review this year’s financing projections.
“In different respects, both Social Security and Medicare finances did take a further turn for the worse this year. And of course as with nearly every year, the mere passage of time further constrains our options for bringing these programs to long-term solvency.
“But we need to remember as we review our options that the continued strengths of these programs depends not only upon their finances being restored to balance but that this is done in such a way that the public continues to believe is reasonably fair.
“As time continues to pass and as program finances continue to become more strained, this becomes more difficult to achieve.
“Before getting to the specific numbers about Social Security, first I’d like to note some general differences between Social Security projections and Medicare projections.
“Social Security does not tend to have large swings in its outlook from year-to-year, and this is because the demographics that guide its finances have been relatively well-known for some time.
“Medicare, on the other hand, faces greater projection uncertainty because factors like health care cost inflations are inherently much more difficult to predict.
“Now, my colleague Robert Reischauer, will talk about the Medicare side where we’ve had some offsetting projection changes in the short-term, some positives, some negative.
“And the Social Security side, by contrast, unfortunately this year most of the variables line up on the negative side. As a result, on the Social Security side, both the short-term and the long-term outlook worsened somewhat.
“Social Security’s actuarial imbalance now is at 2.67% of taxable payroll. Again, that’s a term of art but that’s basically the program’s tax base in worker wages.
“Now that’s a 0.44 point worsening relative to last year. And that may not seem like a big difference to the uninitiated but this is now the largest actuarial deficit that we have seen in Social Security since the 1983 reforms and this is the largest single year deterioration that we’ve seen in all of the trustees reports since the last major reforms.
“Now the projected depletion date of the combined trust funds is now anticipated to be 2033. That’s been moved up to 2036.
“So we’ve lost some ground not only because of the passage of time and legislative inaction, but also because program finances are somewhat weaker than we have previously projected.
In fact, the 2033 date is the earliest projected by the trustees in more than a decade of trustees reports, and there were a few trustees reports in the mid-1990s that saw trust fund depletion happening earlier but we have to remember now it’s much later in the game.
“And as a result, never since the 1983 reforms have we come as close to the point of trust fund depletion as we are right now.
“Now, 20 years off may sound like a long way but given the magnitude of Social Security’s financing shortfall, it’s actually not. Our window for dealing with it without substantially disruptive consequences is closing fairly rapidly.
“In 2033, as has been said, we would have enough revenue to pay 75% of scheduled benefits or the payroll tax would have to be raised from 12.4% to 16.7%.
“Now, that 25% benefit reduction, one must bear in mind, assumes we would be willing to cut benefits already on the rolls, including many people already receiving benefits today in 2012.
“And when you factor into account the shared desire on the part of many policymakers to shield people already receiving benefits from changes, to shield low-income recipients from benefit reductions, it’s clear we don’t have a great deal of time left to resolve the imbalance in a way that people on both sides of the aisle will find acceptable.
“Now our greatest immediate concern we have the fact that the disability trust fund is now projected to be exhausted in 2016. That is the earliest of the different trust funds that we report on.
“One option for dealing with this obviously is to re-allocate the tax rates between the disability and the retirement sides of Social Security. We have to remember, of course, that would shore up disability only at the expense of the other Social Security trust fund.
“If we want to avoid weakening the other side of Social Security, we’re going to have to make some tougher choices or we would otherwise have to decrease disability benefits or increase disability taxes considerably and fairly soon. We have to find roughly $30 billion of savings annually within the disability program starting within five years to prevent insolvency.
“Now why does this year’s report show a decline in Social Security finances? Primarily, this is because of updated economic data. We had a larger than expected Social Security COLA [cost of living adjustment] this year – 3.6%. We had worker taxable earnings – 1.6% lower in 2011 than we projected last year. And of course, this affects our projections for 2012, 2013, and beyond.
“We’ve also modified our expectations for long-term changes to worker hours to better fit historical data and the aging of the population.
“Beyond this, we have the usual grab-bag of changes on the methodological side. We have the usual effect of simply the passage of time. We’ve also incorporated some updated birthrate data.
“And unfortunately this year all of the smaller factors generally line up on the negative side of the line, and that’s unusual for Social Security reports but it’s an unfortunate reality this year.
“By any objective measures, the problem in Social Security are growing somewhat more serious. Its insolvency date have draw closer. Its actuarial imbalances larger. And even accounting for all the sources for trust fund income, including its interest and other recently enacted transfers of revenues from the general fund, its trust fund ratio is now lower than the peak level it hit in 2008 and projected to further decline.
“The shortfalls ahead are much larger now than can be readily corrected at the last minute as was done in 1983. So bipartisan action needs to be responsible, decisive and prompt. Thank you.”
- CSpan.org: Video of press conference on Social Security and Medicare trustees report
- Social Security Administration: Reports from the Board of Trustees
- Social Security Administration: Summary of the 2012 reports for the Social Security and Medicare programs (PDF)
- WhatTheFolly.com: Transcript: Q&A on the 2012 Social Security & Medicare Trustees report
- WhatTheFolly.com: Transcript: Reischauer on the 2012 Social Security & Medicare trustees report
- WhatTheFolly.com: Transcript: Social Security Commissioner Michael Astrue on the 2012 Social Security & Medicare trustees report
- WhatTheFolly.com: Transcript: Labor Secretary Hilda Solis on the 2012 Social Security & Medicare trustees report
- WhatTheFolly.com: Transcript: HHS Secretary Kathleen Sebelius on the 2012 Social Security & Medicare trustees report
- WhatTheFolly.com: Transcript: Treasury Secretary Timothy Geithner on the 2012 Social Security & Medicare trustees report
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