2012 Social Security Trustees Report Overview

2012 Social Security Trustees Report Overview

(Click here for a pdf of this overview)

• The Social Security Trustees Report shows that our Social Security system works just as intended, even in difficult economic times. Unlike the banks, which nearly brought the economy to ruin, Social Security didn’t need a bailout.
• The most important fact revealed in the 2012 Trustees Report is that our Social Security system has a large and growing surplus. This year’s Report confirms that Social Security has a $2.7 trillion surplus at the end of 2011, and projects that it will remain $2.7 trillion through 2012. The 2012 estimate is based on projected revenue of $846.0 billion from its three revenue sources and outlays of $788.7 billion.
• Like the nation’s interstate highway system, the Social Security system must be maintained to keep it strong, but this should be cause for reassurance, not alarm. The Social Security Trustees Report is doing exactly what it is designed to do – providing an assessment of program finances and serving as an early warning system. Social Security is the nation’s most conservatively financed and carefully monitored public program. The annual Trustees Report projects income and outgo further into the future than private pension programs and further than the Social Security programs of nearly every other nation. It is intended to provide Congress an extremely long lead time to make adjustments that are needed from time to time. When shortfalls, decades away, are projected, they should be addressed calmly, just as potholes in our highways are.
• Without any Congressional action, Social Security will continue to pay benefits to America’s eligible working families for decades, and with modest legislated increases in revenue, it will continue to pay those benefits for the next century and beyond. The 2011 Trustees Report projected that with no congressional action, Social Security will have resources to pay all monthly benefits in full and on time until 2036. This year’s Report projects that the number of years that Social Security can continue to pay benefits in full with no Congressional action is three years earlier, 2033. After that, even without congressional action, our Social Security system can pay three-fourths of the benefits earned. The precise year has fluctuated in virtually every Trustees Report, sometimes projecting a later date, sometimes sooner. The fluctuation in the exact years is unsurprising given the uncertainties with projecting inflation, wage growth, productivity, immigration rates, fertility rates, and other factors so far into the future.
• Social Security’s long-range funding gap, modest in size and still decades away, should be addressed sooner rather than later, in order to restore public confidence in the program. But it should be addressed correctly– in the sunshine and only after the current deficit debate is concluded. By law, Social Security cannot borrow. If it lacks the revenue to cover benefits its only recourse is to cut benefits. Thus, it does not and cannot contribute to the federal deficit. Cutting its modest benefits does not reduce the federal debt subject to limit by a penny.
• All that is needed to maintain our Social Security system is a simple adjustment: have everyone pay the same rate on all income. Today, people earning $50,000/year contribute 6.2% of that for Social Security, but people making $500,000/year pay only about 1%. If we all pay the same rate, the system keeps going strong. Congress could eliminate the entire projected shortfall, which amounts to around 0.8 percent of Gross Domestic Product (about the size of the Bush tax cuts going to the top two percent), by raising the Social Security tax cap so that the 6 percent of workers that make more than $110,100 a year pay taxes on all of their wages just like the 94 percent who make less. This would guarantee full payment of benefits for the next 75 years and beyond. There are many other ways to address the projected shortfall without cutting Social Security’s modest benefits, just $14,781 a year for retirees—less than is paid in a year of minimum wage work—yet vitally important just as they are for the children and spouses of deceased workers, and for workers who have sustained permanent and serious disabilities and their families.
• The 2012 report provides an opportunity to put to rest the common misunderstanding that Social Security has entered a cash deficit situation where it is paying out more in benefits than collecting in income. Social Security can only pay benefits if it has sufficient income to cover all costs. If there were less income than outgo this year, the Trustees would be reporting that benefits would not be able to be paid in full during the remainder of 2012! Social Security has three revenue sources: payroll contributions from employers and employees, income earned from the interest on or redemption of Social Security’s U.S. Treasury bond holdings (which have the same legal standing as all other Treasury bonds), and income taxes on Social Security benefits paid by those with higher incomes. The Report projects that benefits and administrative costs in 2012 will exceed the amount of payroll tax contributions collected, but that is not surprising in light of the stagnation of average wages and continued high unemployment. Indeed, including the projections for 2012, it has happened 25 times since 1957, according to the Social Security Administration.
• The release of the report provides an opportunity to inform the public about the retirement income crisis facing America’s families. The Retirement Research Center at Boston College estimates that nearly one-half of Americans will not be able to maintain their standard of living in old age; 6 out of 10 when health and long-term care costs are included in the estimate. The finances and retirement savings of many persons nearing retirement have been hit hard by the Great Recession, the collapse of the housing market and loss of pension protections. Decades-long shifts in the economy and pension coverage have diminished the upward mobility and income prospects of many young and middle-aged persons.
• The real question we should be looking at is how we want our Social Security system to serve families and the nation in the future. Today Social Security is the most important source of retirement income protection as well as America’s most important disability protection and life insurance protection, especially for all our children. Given the unpredictability of disability and premature death, and the insecurity of employer-sponsored retirement arrangements, stocks, home equity, and other savings, Social Security will be a more important source of income for tomorrow’s workers.

FACTS RELATED TO 2012 TRUSTEES REPORT RELEASE

Social Security is projected to pay all benefits in full and on time until 2033.

• Social Security’s trust fund will continue to grow through 2020, when it will reach $3.06 trillion.
• With no action whatsoever, Social Security will have sufficient income and assets to pay all monthly benefits in full and on time until 2033.

Social Security is prohibited by law from contributing to the federal deficit.

• By law, Social Security cannot borrow.
• Social Security is prohibited from paying benefits if it has insufficient income and assets to cover the cost.
• Cutting Social Security will not subtract a single penny from the federal debt subject to the limit that some are threatening to hold hostage.

Social Security can pay all benefits in full and on time after 2033 with a relatively modest increase in dedicated revenues.

• The 2012 Trustees Report projects that Social Security would be in complete actuarial balance for the full 75 year valuation period, if revenues were increased by the equivalent increasing the deductions from workers’ wages by roughly 1.1 percent, matched by employers.
• Social Security could be restored to balance more progressively, such as with a tax on sales and purchases of stock, a tax on the assets of very large estates, or by eliminating or “scrapping” the payroll tax cap.
• By increasing the revenue by a small amount more than is needed to pay scheduled benefits, those benefits could be increased either in a targeted way or across the board.

The fact that 2012 benefit payments are projected to exceed one part of Social Security’s dedicated revenue, from payroll taxes, ignores the fact that 2012 benefit payouts are less than all of Social Security’s income combined. Social Security’s actuaries project that in 2012 Social Security will enjoy a $57.3 billion SURPLUS!

• Social Security has three revenue sources: (1) mandatory contributions, deducted from the wages of workers, and matched by employers (commonly referred to as “payroll taxes”); (2) interest earned on revenue not needed to pay benefits and expenses in prior years, and so invested in certificates of obligation and bonds issued by the U.S. Treasury; and (3) income taxes on the Social Security benefits of those with higher incomes.
• These three sources of revenue, taken together, exceed the cost of all benefits and associated administrative costs in 2012 by a projected $57.3 billion, according to the 2011 Trustees Report.
• There is nothing new or surprising about Social Security’s benefits exceeding the so-called payroll taxes in 2012. Benefits exceeded payroll tax contributions in 1958, 1959, 1960, 1961, 1962, 1963, 1965, 1971, 1972, 1973, 1974, 1975, 1976, 1977, 1978, 1979, 1980, 1981, 1982, 1983, 1984, 2010, 2011, and 2012. The sky did not fall. Indeed, the trust funds acted as intended, providing a margin of safety so that benefits could be fully paid, even in very difficult economic times.