Chief Actuary for Social Security – Raid the Retirement Fund!

Stephan Goss, the chief actuary for Social Security (SS) provided a detailed report on the status of the SS Disability Fund (DI) to the House of Representitives. The short story is that DI is going bust in a few years. The options to fix this problem were spelled out in the report. The extremes of the required “fix” range from an immediate cut in DI benefits of 16%, or an increase in DI payroll taxes of 20%.

Nothing new there. But, there is a “Plan B” for the DI Fund. The solution is to raid the SS Retirement Fund for the deficits at DI:

A simple tax-rate reallocation between OASI and DI, as was done in 1994, could equalize the financial prospects of the trust funds avoiding reserve depletion until 2033.

Note: “Simple tax-rate reallocation” means $40+b a year….

Bingo! The raid on the retirement fund results in no cuts in benefits, and no new taxes. What’s not to like about that result? The gutless wimps in D.C. would love to kick the can down the road a decade, therefore the Raid solution is an obvious choice. (The consequence of the Raid would be to reduce the expected life of the Retirement Trust Fund by as much as five years.)

This is not the first time this has come up. The Congressional Budget Office, in its 2/5/13 report on the SS Trust Funds had these words in a footnote:

CBO’s baseline assumes that the Commissioner will pay DI benefits in full even after the trust fund is exhausted.

Note: For a discussion of the CBO report, see my article from 2/10/13.

Okay, we now have two legs of the government who have (functionally) suggested that a raid on the OASI fund is a possible fix for DI. Lightening does not strike twice in the same place very often, especially in Washington. The idea of raiding one fund to preserve another, has just gotten another big supporter. If the folks at AARP understood what was being proposed – they would flip their wigs!

The True Cost of the Disability Program

I have a list, (it’s pretty short) of the folks who I think are “doing the right thing” in Washington. Stephen Goss was on that list. I’m disappointed with him and his presentation of the “Facts” about the DI program.

Mr. Goss’s report to the House ran nineteen pages; there are 14 charts. Everything a Congressman (or the public) could ever want to know about the DI program is spelled out in detail.

But, Goss completely left out the most critical cost of DI. The Chief Actuary failed to identify a cost directly related to DI. The numbers are big – $80b in 2012. The estimate is for more than a trillion of over the coming decade. If you look beyond that time horizon, the costs that Goss failed to identify are in the mega-trillions.

Goss failed to provide the full picture when he did not disclose the DI costs to Medicare. Every individual who gets DI benefits ALSO gets Medicare.

In a report dated 3/14/2013, the Congressional Budget Office (CBO) accurately described the real costs of DI:

Total government spending on DI beneficiaries is substantially higher than DI expenditures alone.

Disabled beneficiaries receive coverage under Medicare, regardless of their age.

The cost of Medicare benefits received by DI beneficiaries was about $80 billion in 2012; CBO expects that it will be $130 billion in 2023.

I give Stephen Goss an “F” for failing to provide all of the information needed to evaluate the DI program. How do you sweep a trillion dollars under the carpet?

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About Bruce Krasting 208 Articles

Bruce worked on Wall Street for twenty five years, he has been writing for the professional press for the last five years and has been on the Fox Business channel several times as a guest describing his written work.

From 1990-1995 he ran a private hedge fund in Greenwich Ct. called Falconer Limited. Investments were driven by macro developments. He closed the fund and retired in 1995. Bruce also been employed by Drexel Burnham Lambert, Citicorp, Credit Suisse and Irving Trust Corp.

Bruce holds a bachelor's degree in economics from Ithaca College and currently lives in Westchester, NY.

Visit: Bruce Krasting's Blog

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