SS Projected Income/Cost #1

Another chart for a blog comment at Angry Bear.

The Income/Cost values are calculated from 2006 report Table IV.B1 for combined OASDI. I failed to update to 2008 because I was just looking for a conceptual impact. The magenta line is projected according to Intermediate Cost and the Red is projected according to Low Cost. The idea was to determine what would happen if we chose to limit haw fast we allowed the SS Trust Fund to be used up. The green line is the calculated tax rate required to assure that tax receipts provide a minimum of 85 percent of each years costs. The would start going up in 2025 and would reach 6.7 percent in 2040 (which is the last year IC costs and income are provided).

Notes:
The scale is exagerated since they do not go to zero, but it makes it more readable to match the left and right scales.
I assumed that costs do not change as the tax rate changes because I have only the data from the table, no underlying models.

SS Projection Uncertainty and Recessions

In a post at Angry Bear Bruce Webb counters someone's claim that the recession is going to force us to deal with changes to SS sooner. My thoughts (on accuracy of projections) require looking at this chart which is drawn from several different years reports.

You can see that the 1990-1991 recession caused actuals to diverge from the 1985 projection (green line). Employment was very slow to recover, taking about 5 years to return to pre-recession growth rates. By 1995 the projection assumed that the low growth rates had a permanent effect. Five years of growth brought things back up, but the 2001 recession turned it down again. Even with the slow recovery from 2002 to 2006, the 5-10 year projection from 2000 was beginning to look too pessimistic.

Social Security: Capacity of a PAYGO Program

How many beneficiaries can be supported for each current worker? The annual report does not directly address this question, but it is fairly easy to use the numbers to estimate it.

Workers and beneficiaries data from:
http://www.ssa.gov/OACT/TR/TR08/lr4b2.html
Income and Cost data from:
http://www.ssa.gov/OACT/TR/TR08/lr4b1.html

For 2007, divide beneficiaries (163K) by workers (49.6K) to get 0.30 'demographic' ratio
Then multiply by income rate (12.75%) and divide by cost rate (11.26%) to get 0.34 'capacity'

This gives you real demographic data to plot along with a calculated value to give a graphic view of how large the annual surplus or deficit is. It tells you how many beneficiaries you can have if the average income per worker and average cost per beneficiary stays the same. The above plot uses actual data from 1970 to 2007 and projected values from the 2008 report for Low Cost (LC) model and for Intermediate Cost (IC) model.

Some observations:
1. LC projection can support more than IC as expected.
2. For both LC and IC the capacity trend is upwards. The growing economy can support a greater ratio of beneficiaries even though they are living longer.
3. There was a rapid increase in capacity and in workers (decrease in beneficiaries per worker) in the late 90s.
4. The graph shows the 2017 date for IC and 2021 for LC when we no longer have a surplus.
5. The difference in capacity between LC and IC is much less than the difference in demographic projections.
6. The math does not account for interest income, so there is really a surplus even when the solid line is slightly above the dotted line.
7. LC demographics will lead to surpluses even with IC capacity, but IC demographics will be in deficit even with LC capacity.
8. We can grow the economy to get out of a problem with people living longer, but not out of a problem not enough workers.

Rocket Science

I am not an economist, but economics is not rocket science is it?

I performed the reliability analysis of the GOES attitude control system, so I am a rocket scientist.

Real Data was available

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Why did Mark Thoma at Economist's View not use real data in his post about how wage and price growth affect social security benefits?

SS is not overfunded

I posted a comment at Economist's View that Bruce Webb is wrong about SS being overfunded.

I can agree that it is a great program, that the SSA preductions are overly pessimistic, that people are systematically trying to destroy it, and that under current rules (and the pessimistic forecast) beneficiaries will be better off in 2060 than they are now, without agreeing that it is overfunded.

My analysis as shown in previously posted charts indicates we have not yet seen the impact of demographics.

Increasing Income Inequality

I have seen a lot of blogging about inequality lately. The above chart is derived from data at http://elsa.berkeley.edu/~saez/TabFig2004prel.xls. By subtracting the top one percent (bottom line) from the top ten percent (top line), I get roughly the professional class. ($91K to $282K) . I observe that something happened in 1987 and whatever it was only included the elite top 1 percent. If the Bush tax cuts have a significant affect, it does not show in this chart because of the volatility back to 1987.