Monday, October 1, 2007

President Clinton’s Social Security Surplus

If Hillary Clinton is elected President and serves two terms, I predict she’ll leave her successor with about $8 trillion in Social Security Trust Fund reserves and that these reserves will still be growing. Dean Baker is more worried about her plans to deal with space invaders than he is about the alleged Social Security crisis. Dean is mocking the latest insanity from the Washington Post, which makes this claim:

Since President Bush took office, she noted, the insolvency date has moved from 2055 to 2041. "So the first thing is, let's get back to doing what worked in the '90s to shore up Social Security."

Did Senator Clinton actually makes this claim as it differs from what Robert Greenstein noted here? The year when the Trust Fund is expected to be exhausted is indeed 2041 but that compares to a prediction from the 1997 report that the predicted year of exhaustion was 2029. Also notice that the “year costs exceed tax revenue and interest” is predicted to be 2027 – well after the next President Clinton leaves office.

Perhaps the Washington Post should be spending more time asking the Presidential candidates in the other party how they would fund their endless wars, keep tax rates as the current levels or lower, and address the rather massive General Fund deficit.


Anonymous said...

washington post won't be spending more time on real issues because it is too much easier winning elections on phony issues.

aside from Dean Baker I am not aware of anyone who has made a serious effort to educate the puplic to innoculate them from this nonsense.

of course it's difficult because the wash post is not the only "high end news source" that seems to have declared a news blackout on careful discussion Social Security.

J.Goodwin said...

I was pretty shocked when I ran the numbers a while ago and realized that the VAST majority of the national debt during this administration has been money that's piling up in the trust funds.

The fact that the trust funds are building up a massive surplus and buying US bonds with it is predominantly what is allowing the US federal government to continue to borrow. I think that the international demand for US bonds is significantly less than I would have anticipated previously, and that it might well be dropping precipitously and we aren't noticing it because we keep seeing that debt ceiling raised, and assume that someone is buying the bonds (someone is, it's the social security and medicare trust funds).

Why doesn't social security hold a more diversified portfolio of international debt? When they are the holder of something like 2/3 or 3/4 of the total outstanding national debt, it strikes me that that might be a problem, perhaps a larger one than the possibility that China is building up a large cache of US bonds. Because the trust funds will continue to have a rising demand for bonds as that surplus builds, which it will continue to do for a couple decades. If the rate structure for these transfer programs was changed to allow a rate to be applied to an uncapped wage base, perhaps a slightly lower rate, then that process might even be accelerated further.

The things that we are doing to shore up social security are the very things that are increasing the limit on the federal credit card.

Anonymous said...

Did Hillary lie when she claimed that the "insolvency date has moved from 2055 to 2041" or is she just ignorant?

Clearly, by repeating her nonsense, without pointing out the obvious errors, the WaPo was cutting her some very undeserved slack.

Bruce Webb said...

Dean was a little more charitable, thinking perhaps she was mis-citing the first CBO estimate and then comparing it to the Trustees' estimate. But even then I don't believe CBO ever had it at 2055. As Dean points out that first report had it at 2052. So not only would we be talking apples and oranges, Hillary would have got the color of the orange wrong.

So I am not inclined to give Hillary a pass on this one. Still less the WaPO

But maybe Dean doesn't get one either. Because this I think is wrong:
"While the economy did experience healthy growth in the last four years of the Clinton administration, and the projected date of trust fund depletion actually was pushed back several years by the SS trustees, this was actually due to a cut in benefits, not more rapid economic growth."
I did some poking around in the 1997 and 1998 Reports this morning and didn't find anything to support a 'benefit cuts' conclusion. Nor is this consistent with the language of the introduction to 'Phony Crisis' in 1999 Dean seemed pretty comfortable with a growth model:
"Furthermore, the forecast of a shortfall in 2034 is based on the economy limping along at less than a 1.7 percent annual rate of growth—about half the rate of the previous three decades. If the economy were to grow at 1998’s rate, for example, the system would never run short of money."

In the 1997 Report the Trustees projected Real GPD at 2.5% for 1997 and 2.0% for 1998-2006. The actual figures were 1997 4.5% 1998 4.2% 1999 4.4% and 2000 3.4%

I think I will go with 1999 Dean Baker and not the Oct 2007 version. Near as I can see that was an unmerited swat at Clinton. The economy did grow at 1998's rate plus and the effect on the Trust Fund is just what Dean's language would have predicted: a flood of excess income into the Trust Fund paralleling the improvement in the General Fund over the same time period and an improvement in the outlook.

Certainly there were some cost savings on the DI side, but a decrease in benefits paid out can only as a stretch be called a 'cut in benefits'