Call off the 'crisis'? Social Security's solvency grows

The Social Security financing "crisis" - if it can be called that - keeps fading into the distance. The Bush administration may well have a hard time finding a crisis sufficient to justify partial privatization of the nation's key pension system.

In their annual report last spring, the Social Security trustees calculated that the system's trust fund would run out of money in 2037. After that, the system would only be able to pay about 70 percent of benefits from payroll tax receipts.

Two news items suggest the trustees could push off the crunch further in their next annual report.

One is the Congressional Budget Office's growth projections for the next 10 years. This report estimates a $600 billion jump in the federal budget surplus to $5.6 trillion over the decade. President Bush was using it last week in his pitch for a $1.6 trillion tax cut.

The new projections, notes economist Dean Baker, also imply "a brighter picture" for Social Security. They show the cumulative surplus in the Social Security trust fund reaching $3.66 trillion in 2011.

Mr. Bush, in the presidential campaign, pledged not to spend the Social Security surplus on any other government program.

This surplus, Mr. Baker notes, is at least $100 billion more than the Social Security trustees projected last year. Moreover, the trustees assumed higher inflation than the CBO economists. Since Social Security benefits are linked to the consumer price index, lower inflation means lower benefit costs. Altogether, the trust fund should have an extra $400 billion in its coffers by 2011.

Further the CBO projects labor productivity growing about 2.4 percent a year for 10 years. This compares with 1.45 percent in the trustees' report.

Added up, if the Social Security trustees use the CBO assumptions, they should report Social Security fully solvent until 2042, estimates Baker, a Social Security expert with the Center for Economic and Policy Research in Washington. That's a long way into the future.

The second news item is the 2000 census. Last April's head count shows a 13.2 percent increase in the population since the 1990 census. So there are 281.4 million residents of the US, not the 275 million estimated before the door-to-door count.

Using that data and other government numbers, a new study by economists at Northeastern University in Boston calculates that the number of undocumented workers has swelled in the past decade to 11 million. That is 5 million more than currently estimated by the US Immigration and Naturalization Service.

Since these illegal immigrants are typically young men, they are likely paying Social Security taxes, notes Paul Harrington, one author of the study. "This will contribute substantially to improving Social Security finances down the road."

This extra population growth implies that both the Social Security and Medicare programs "may not be in such bad shape," maintains Howard Wall, an economist at the Federal Reserve Bank of St. Louis.

Those seeing a crisis in Social Security observe that when the numerous baby boomers retire, there will be relatively fewer workers to support them through their payroll taxes. Hence the shortfall in revenues.

But if foreign immigration - legal or illegal - is pumping up population growth in the face of a falling national birth rate, the workers-to-retirees ratio will not slip so much. It will give the two programs "additional breathing room," holds Mr. Wall.

Baker, however, sees the 1990s flood of immigrants as "not that important" for Social Security, unless it continues in the years ahead.

Meanwhile, a New York actuarial consultant, David Langer, has altered the highly conservative economic assumptions of the Social Security trustees slightly to come a bit closer to the economy's record of the past 40 years. This exercise puts the system in the black for the next 75 years.

Britain's chief government actuary, Christopher Daykin, regards the US Social Security system as "in better financial shape than most Social Security systems around the world." It may take "quite small adjustments" to make it sound for the long term, he says in a phone interview.

Whether the Social Security trustees will take account of any of the good economic news in their March or April report remains to be seen. The trustees will now include some Republicans, including Treasury Secretary Paul O'Neill.

"They may just want to make Social Security look bad to justify President Bush's idea to overhaul it," cautions Baker.

But it would be inconsistent to use the cheerier CBO numbers to back a big tax cut and then ignore them in the Social Security report.

(c) Copyright 2001. The Christian Science Publishing Society