NEITHER THE GUTS NOR THE DESIRE

The Social Security Trust Fund annual report to Congress is due out this week. It will be discussed in the Press for a few days. Some of the things that will come up:

- The NPV of the unfunded liability will go up by approximately $2 trillion, to $23 trillion. Every year this horrific number is discussed, and then ignored. What does this number mean? The 2012 increase in new liabilities is double the reported increase in federal debt. If this number were added to the existing debt, it would bring the total nut the country faces to $39T – 250% of GDP.

The problem is that the calculation measures the present cost of the infinite future. Who cares about something that might go wrong 50+ years from now? Hopefully, the scary NPV number to be released will focus attention on SS. The fact is that SS is PayGo. It has a revenue base, it spends more than it takes in, the Treasury makes up any shortfall by issuing more debt. If this reality were the basis of looking at SS (versus goofy TF accounting), then there would be no infinite future issues.

- The date of exhaustion of the OASDI TF will be shortened by 2 years to 2031. This means that anyone 47 or younger is paying “full price” for a benefit that will be worth only 75 cents on the dollar. That is how the law is currently written; I keep wondering when younger workers will wake up to the realities of what they are paying for.

- The SSTF will recommend that either payroll taxes go up by 2.5%, or that all current and future benefits get cut by 2.5% (or some combo). These recommendations would require an immediate change to achieve the desire long term stability of SS.

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