No Runny Eggs

Last week, I took a look at the ble…er, lack of future of the Disability Insurance (DI) portion of Social Security. Depending on the assumption of outgo used, that fund will likely run out of money between June 2015 and September 2016.

Since the Social Security Trustees are late with their already-delayed annual report, I decided to take a look at the much-larger Old-Age and Survivors Insurance (OASI) portion of Social Security. The Cliff’s Notes version, for those of you who don’t want to wade through the details on a holiday weekend, is that once again, the Trustees were overly optimistic last year. The OASI “Trust” Fund will begin running annual primary (cash) deficits this month, will likely begin running overall (including interest) deficits sometime between 2014 and 2020, and will likely be exhausted sometime between 2026 and 2033, with the latter two breakpoints depending on which rate-of-cost-growth one selects.

Like the look at the DI Fund, I assumed that tax revenues and outgo would do for the rest of 2010 what they did for the first 5 months (tax revenues decreased by 4.1%, outgo increased by 4.0%), that the interest rate would be 5% (a bit higher than the current weighted average of 4.880% and significantly higher than the 2.875% new bonds/certificates of indebtedness earn), and that tax revenues would increase by 5.3% starting in 2011 (ahead of the 1996-2006 average of 5.234% for the total FICA/SECA tax). Outside of a couple of “recovery” years, that 5.3% increase in tax revenues is also higher than anticipated in the 2009 Annual Report.

Because there will be a “bubble” of retirees over the next 20 years, I could not simply use either the rate of cost increase between the first 5 months of 2009 and the first 5 months of 2010 (like I did for the “base” DI scenario) or the average rate of cost increase between 1996 and 2006 (like I did for revenues). Instead, I calculated the annual increase of outgo using the percentages from the 2009 Annual Report, using a 2-year average for 2019 and 2020 and a 5-year average after 2020 because annual numbers were not available. Since the “low-cost” estimate is unrealistically optimistic (it claimed that even the DI “Trust” Fund would never run out of money), I used the “intermediate” and “high-cost” estimates for that, and ran the numbers twice.

As a review, the 2009 Annual Report claimed that, under the “intermediate” scenario, the OASI “Trust” Fund would run a yearly primary surplus until 2020 and a yearly overall surplus until 2024. Also, it would not be exhausted until 2041. Under the “high-cost” scenario, the yearly primary surpluses would last until 2014, yearly overall surpluses would last until sometime after 2018 (a specific year was not given), and the fund itself would last until 2031.

Fast-forward to this year. Unless something drastically changes between May and July, the 12-month primary deficit in the OASI fund will begin in the August 2009-July 2010 period (that’s this month, and 4 years before the high-cost estimate from last year), with the FY2010 primary deficit of $9.781 billion and a calendar-year 2010 primary deficit of $20.779 billion.

Assuming future cost growth at the “intermediate” rates, the yearly primary balance never quite gets out of the red in the intermediate term, coming no closer than $10.592 billion between March 2011 and April 2012. The yearly overall balance would flip to the negative side in 2020, and the fund itself would run out in 2033.

Before those of you who think that there really is a pot of gold at the end of every rainbow and that unicorn farts smell like Skittles start hammering me for being pessimistic, remember that I used a high estimate of tax revenue increase. Proof of that is the results of taking the estimates further out to 2085, which is as far as the Trustees go. Because, unlike the “intermediate” model from the Trustees, revenues increase faster than costs, this model projects the OASI “Trust” Fund goes back into the black in 2058. That is rather unlikely because under the “intermediate” model, the closest the OASI operation comes to running a yearly primary surplus after fund exhaustion is sometime between 2050 (when the primary balance is -2.98% of taxable payroll) and 2060 (balance of -3.06% of payroll), and likely near 2055 (balance of -2.96% of payroll).

Now, let’s take what the Trustees assumed to be the “intermediate” case for tax revenue increases from 2011 onwards and plug that back into the spreadsheet. Since they assumed roughly a 6% increase in 2012 and 2013, the OASI “Trust” Fund does get closer to the black on a yearly cash basis, getting as close as a $7.720 billion primary deficit between February 2012 and January 2013. However, they also assume a lower increase in tax revenues the other years, which means the fund goes into a yearly overall deficit in 2019, and runs out of money in 2030, never to go into the black again for more than one month in twelve (specifically, April).

It gets worse if future cost growth is at the “high-cost” rate. That is more likely given the first 5 months of 2010 have been more costly than even the 2009 high-cost estimate projected. Assuming either the flat 5.3% tax-revenue growth the “base” scenario does or the variable tax-revenue growth assumed by the Trustees in the 2009 “high-cost” estimate, the yearly overall balance would flip to the negative side in 2016, the last monthly overall positive balances in the intermediate term (long-term using the Trustees’ tax-revenue numbers) would be in April 2022 (on the strength of taxes) and June 2022 (on the strength of interest), and the fund would be exhausted in 2026.

Revisions/extensions (7:25 pm 7/3/2010) – The power of a HotAir-lanche is truly awesome. At last check, somewhere over 2,000 of you popped in here off the Headline Ed/Allahpundit put up. I can’t thank you enough for dropping in this little corner of the ‘Tubes, and Shoebox and I hope you stick around a while.