Oops: The Government's $800 Billion Social Security Math Error

Posted: Jan 07, 2013 10:14 AM

Before we delve into the details of the feds' epic entitlement arithmetic snafu, let's check in with Harry Reid for the Democrats' official party line on question of Social Security's solvency:


"I'm saying the arithmetic on Social Security works...no, it's not in crisis...Social Security is fine."

Reid said the same thing about Obamacare's now-defunct CLASS Act back in 2009.  Here he is on the Senate floor claiming that the program is funded for "decades and decades" into the future:


Since that assessment, the CLASS Act has been abandoned by the Obama administration, due to its inescapable financial unsustainability.  The White House was well aware of this actuarial issue before the law was passed -- but they needed the Ponzi scheme's illusory "revenue" to help fabricate a lower CBO score.  Last week's fiscal cliff deal formally repealed 'CLASS' altogether, decimating Reid's "fully paid for" fantasy once and for all.  Nevertheless, Democrats continue to insist that Social Security's future is secure, and there's nothing to see here, folks.  All this despite the scheme's $20.5 trillion unfunded liability, its annual revenue/pay-out shortfalls (a threshold that was breached earlier than expected), and an impending insolvency date.  A jaw-dropping New York Times report over the weekend exposed how even these harrowing assumptions are unduly optimistic thanks to an $800 billion elixir of actuarial mistakes and ludicrously false demographic calculations:

For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall. Those funds — a $2.7 trillion buffer built in anticipation of retiring baby boomers — will be exhausted by 2033, the government currently projects. Those facts are widely known. What’s not is that the Social Security Administration underestimates how long Americans will live and how much the trust funds will need to pay out — to the tune of $800 billion by 2031, more than the current annual defense budget — and that the trust funds will run out, if nothing is done, two years earlier than the government has predicted.

In short, the government's calculation methods and models are an embarrassing, outmoded mess:

The government’s methods for forecasting Americans’ longevity were outdated and omitted crucial health and demographic factors. Historic declines in smoking and improvements in the prevention and treatment of cardiovascular disease are adding years of life that the government hasn’t accounted for. (While obesity has rapidly increased, it is not likely, at this point, to offset these public health and medical successes.) More retirees will receive benefits for longer than predicted, supported by the payroll taxes of relatively fewer working adults than projected. Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing...With considerable help from the actuaries and other officials at the Social Security Administration, we unearthed how the agency makes mortality forecasts and uses them to predict the program’s solvency. We learned that the methods are antiquated, subjective and needlessly complicated — and, as a result, are prone to error and to potential interference from political appointees.

This useful infographic demonstrates many of the problems, the most astonishing of which is Social Security's insane death rate projections (table 4).  As currently constituted, the government's math assumes that all Americans between the ages of 55 and 59 will die in the year 2028, even as millions over the age of 60 live on.  Wiping out an entire age bracket would obviously diminish the program's liabilities, but this scenario is completely untethered from reality.  Allahpundit points out a dark irony in the $800 billion math error:

Meanwhile, as Tom Maguire notes, an $800 billion shortfall by 2031 amounts to a $40 billion deficit each year. The GOP’s aborted attempt to amend the fiscal-cliff deal to add spending cuts would have produced only $30 billion in savings annually over the last decade. So meager is Washington’s will to reduce outlays that even an “ambitious” proposal can get instantly swallowed up by a mathematical tweak to our entitlement leviathan.  

Bear in mind that the "ambitious" proposal was shelved and went nowhere.  It would have saved enough money to fund the government for less than a week, but even that was a bridge too far for Democrats.  Relative to Medicare, Social Security is in less horrible shape and can be mostly fixed with some significant tweaks.  But it is not in fine shape.  It was in bad shape on Friday, and its woes are $800 billion worse than previously thought.  Washington can either confront this reality with serious action, or it can continue to repeat Harry Reid's mendacious mantra.  What does he have to lose?  He'll likely be long gone when reality comes crashing down.

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