Putting the Social Security Shortfall in Context

– By Frank de Libero

Anne and Jake were taking a walk in Ballard. Jake, the thoughts obviously been weighing on him, suddenly said, “Social Security, Medicare and similar programs are almost half of non-interest Federal spending. These transfers are sabotaging America’s future.”

“Whoa”, Anne responded, “where’d that come from? And please don’t conflate Social Security with Medicare and Medicaid. Health care costs are presently a world-wide problem that needs attention. However, it doesn’t foster rational discussion to lump health care with Social Security, which has a dedicated tax and a projected shortfall a quarter century from now. Let’s keep them separate. OK?”

“OK”, Jake said, “I’ll restrain myself, but it’s common in what I read and watch that welfare programs are lumped together.”

bush tax cuts vs Social Security shortfallAnne replied sternly, “The Social Security that we pay into is an insurance program, not welfare.” And then easing up, she continued, “However, since it came up, I’ve been thinking about the projected shortfall. It’s usually expressed in terms of trillions of dollars or as a percent of GDP, and that we can’t afford it. Where’s the context? Trillions of dollars or GDP are too much of an abstraction, and just how is it unaffordable? So I did some quick calculations for context. I compared the shortfall to the costs of the Bush tax cuts.”

Jake interrupted, “That doesn’t make sense. The Bush tax cuts have paid for themselves! I recall Senator Mitch McConnell saying the tax cuts actually increased revenue, they paid for themselves.”

“That’s just congressional PR.” Anne responded. “Recently Bruce Bartlett disproved such ‘totally erroneous ideas‘. Similarly, in a June 1, 2011 policy memo, the Economic Policy Institute presented their estimate of the 10-year cost of the Bush tax cuts. It was $2.6 trillion. Using the EPI’s estimate and the 2011 Social Security Trustees Report I figure that the annual costs of the Bush tax cuts and the Social Security shortfall in today’s dollars is about the same, approximately a quarter trillion dollars a year. That helps me understand. I can think in comparables rather than trillions. Here’s what I did:

On page 13 of the Trustees Report, it essentially states the shortfall beginning in 2035 will average about 1.5% of GDP. On page 14 there’s a graph that shows the shortfall averaging close to 1.5% of GDP from 2035 to 2085, pretty much flat over those years. Right now, given the recession, GDP is about $13.5T.

If there were no recession, the potential GDP would instead be about $14.5T, which is what I used. And 1.5% of $14.5T is $0.22T. That is, the annual Social Security shortfall in today’s dollars would be about a quarter trillion dollars. The EPI estimate for the cost of the tax cuts is $0.26T a year, again about a quarter trillion dollars. So the annual Social Security shortfall is approximately the same as the average annual cost of the Bush tax cuts.”

Jake, his eyes beginning to glaze over, murmured “You’re making me feel uncomfortable.”

Anne stopped walking and stood for a moment. And then almost as if she were talking to herself said, “I feel uncomfortable too. However, I feel uncomfortable because I better understand and I don’t like what I see. Given the prevailing narrative, this says we can afford the Bush tax cuts which are chiefly for the wealthy, but we can’t afford Social Security even though we pay for it and it’s for everyone. How’s that work?”

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