1. Social Security Reform
and the Joint Budget Committee
Process
Charles Blahous

2. Social Security Income and Costs as a % of Taxable Payroll

3. Key Summary Measures and Statistics
(Combined Social Security Trust Funds)
Trust Fund Exhaustion Date:
2036 (OASI = 2038, DI = 2018)
Choices if resolution delayed until 2036:
Benefits reduced 23%, or;
Payroll tax rate = 16.4%
75-Year Actuarial Imbalance:
2.22% of Taxable Payroll (previous report = 1.92%)
($PV = $6.5 T on TF basis; $9.1 T on unified budget basis)
Trust Fund Ratio (100 x TF assets/annual costs):
353 (was 358 in 2008)

4. Key Points from Trustees’ Messages
1) Legislative corrections best enacted soon: “Earlier action
will. . . afford elected officials with a greater opportunity to
minimize adverse impacts on vulnerable
populations, including lower-income workers and those
who are already substantially dependent on program
benefits.”
2) Don’t get distracted by Trust Fund accounting debate:
“Whether viewed from the narrower trust fund perspective
or from the wider unified budget perspective, the financial
challenges . . . must be addressed.”
3) Practical policy constraints increase the costs of delay: “In
the past, policy makers have been reluctant to significantly
reduce the benefits of those who have already begun to
collect them. . .The costs that will be borne by younger
generations will grow significantly each year that a new
cohort of baby boomers joins the benefit rolls.”

5. 2011 Operations of
Combined Social Security Trust Funds
Category Amount ($B)
A) Expenditures 738.4
B) Net payroll tax contributions 564.7
C) Taxation of benefits 22.7
D) Total tax income (B + C) 587.4
E) Deficit of tax income vs. expenditures (D-A) -151.0
F) General Fund reimbursements 105.4
G) Total non-interest income (B + C + F) 692.8
H) Deficit of non-interest income vs. expenditures (G-A) -45.6
I) Interest income 114.9
J) Total income (B + C + F + I) 807.7
K) Net increase in Trust Fund assets (J – A) 69.3

6. Should the Joint Committee Attempt Social Security Reform?
Arguments For:
• Social Security faces a substantial shortfall requiring legislative correction.
• Social Security is a significant contributor to deficits now and in the future.
• Delaying Soc Sec reforms is costly; this is the best near-term opportunity.
• The economy may benefit from removing this significant policy uncertainty.
Arguments Against:
• A ten-year outlook is not the best yardstick for Social Security reform.
• Social Security reforms should not be judged by unified budget targets.
• Taking on Social Security would make the committee’s tough job still harder.

7. Joint Budget Committee Goals
From the text of the BCA:
1) “The goal of the joint committee shall be to reduce the deficit by
at least $1,500,000,000,000 over the period of fiscal years 2012 to
2021.”
2) “The joint committee shall provide recommendations and
legislative language that will significantly improve the short-term and
long-term fiscal imbalance of the Federal Government.”
Social Security reforms are typically designed pursuant to #2 more than
#1, but some past reforms (1977, 1983) have also focused on near-
term flows.

8. Effect of 10-Yr Window On Various Soc Sec Reform Proposals
Reforms with Relative Scoring Advantage in 10-Year View:
-- CPI Reform
-- Raising the Cap on Taxable Wages
-- Raising the Early Eligibility Age (EEA)
Reforms with Relative Scoring Disadvantage in 10-Year View:
-- Re-indexing initial benefits (price indexing; progressive indexing)
-- Any reforms involving advance funding (TF investment; personal accts)
Neither Advantaged Nor Disadvantaged by Short-term View:
-- Raising the Normal Retirement Age (NRA)
-- Changing the benefit formula factors

9. Example of reform with scoring advantage in 10-Yr view:
Raise tax cap to cover 90% of wages (phased in 2011-2020)

10. Example of reform with scoring disadvantage in 10-Yr view:
Progressive benefit indexing

11. Some Subjective Personal (not Trustees’) Opinions
1) CPI reform is a technical, broader budget reform, not Soc Sec
reform.
2) Repairing Soc Sec’s work disincentives is fertile ground for
bipartisanship:
-- Progressive benefit formula currently based on average (not annual) earnings
-- Non-working spouse benefit
-- Actuarial adjustments for early/delayed retirement claims
-- Eligibility ages (especially EEA)
-- Earnings limitation
-- Payroll tax on working seniors
3) If we continue to cut the payroll tax, one of two things must happen:
-- Accelerated program insolvency;
-- Reliance on general revenue financing.
Both are very dangerous for Social Security.