Social Security Trust Fund to begin declining in 2014, not 2021 By James D. Agresti June 6, 2013 The newly released Social Security Trustees Report—which is the authoritative source for the program’s finances—states that its trust fund will “continue to grow through 2020.†This claim has been repeated by the likes of US News & World Report, the National Academy of Social Insurance, the Center on Budget and Policy Priorities, and the Strengthen Social Security Coalition. That claim, however, is misleading because it ignores the effects of inflation, which are projected to overrun all trust fund gains and contribute to an ongoing decline that begins in less than a year. This is seven years earlier than what is being reported. When discussing long-term financial projections, it is vital to account for inflation in order to paint an accurate picture. Per the Journal of Accountancy, financial statements that fail to account for inflation do “not deliver a message that is completely true and fair.†Likewise, the textbook Cost Accounting: Principles and Practice explains that “inflation accounting presents a true and correct view of the financial state of affairs of a firm.†Similarly, the academic work Quantitative Investing for the Global Markets affirms that “we should be concerned not with nominal quantities [i.e., those not adjusted for inflation] but with real ones.†The Social Security Trustees Report presents inflation-adjusted trust fund projections on page 207 of this 274-page report. These projections reveal that the trust fund will start dwindling in 2014. However, the first 11 pages of this report state three times that the trust fund will grow through 2020. The same message is reinforced in a Social Security Administration press release, which states that “trust fund reserves are still growing and will continue to do so through 2020.†The difference doesn’t affect when the trust fund is exhausted, but rather, when it begins deteriorating. This has practical implications for who will bear the financial burden of fixing Social Security. Generally speaking, the longer a fix is delayed, the more this burden will fall on younger generations, and the greater it will be. Allegations that the trust fund will rise for the next seven years tend to weaken support for timely reform, but as Don Fuerst, a senior fellow of the American Academy of Actuaries, recently explained to Congress: Addressing the program’s solvency now would allow a fuller range of options to be considered, many of which could be more modest in their adjustments, such as slow phase-ins over many years. Deferring efforts to address the program’s solvency to the next decade or beyond will more profoundly affect beneficiaries and the taxpaying public. It is important to note that all of the projections are based upon the Social Security Administration’s intermediate projections, which are tenuous. Although these projections “reflect the Trustees’ best estimates of future experience,†the Trustees emphasize that “significant uncertainty†surrounds these projections. This means that the trust fund may start declining at an earlier or later date. Regardless of when the decline actually begins, those who claim that the trust fund is projected to grow through 2020 are spreading a misleading narrative that may bring financial harm to younger Americans.
Posted on: Thu, 06 Jun 2013 21:41:51 +0000
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