Fiscal Status of US Social Programs—The Long Version

During last week’s session, we spent a bit of time on the above topic, but agreed that we weren’t in a position to discuss this complex topic “off the cuff,” without the benefit of some background reading.

I offered to provide some evidence of why I’m concerned about the fiscal status of the various social programs, and backup to my statement that, without changing the programs I am concerned that they are not sustainable—in the sense that young workers contributing today cannot reasonably expect to receive benefits comparable to what today’s eligible recipients get.

Here is some reading for the holidays (remember, the Library is closed for the next two Mondays–and we have another topic already selected for our January 9, 2017 meeting).

Financial Report of the United States, Fiscal 2015

In an era of “fake news,” I provide a hopefully impeccable source: The Financial Report of the United States, Fiscal Year 2015.” It’s a big file (it’s a big organization!) if you download the entire 274-page report, so you should download it from the link above.

Feel free to read as much of the report as you like—I haven’t read it all (or much of it), but there are lots of interesting “nuggets” in there. For those who are not financial experts, used to looking at stuff like this, I’ll walk you through some relevant pages and try to explain/interpret what they suggest to me. If you disagree with the explanation, great! We’ll have a good discussion some Monday morning.

My Answers in Quotes from the Report

On sustainability

“A sustainable policy is one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is ultimately stable or declining”
Financial Report of the United States Government, Fiscal Year 2015, p. 169

“…the projections in this report indicate that current policy is not sustainable.”
ibid., p. 169

On the size of the problem

“…[with a 75-year horizon,] the present value of the total resources needed for the Social Security and
Medicare Programs over and above current-law funding sources (payroll taxes, benefit taxes, and premium payments from the public) is $41,379 billion”
ibid., p. 199

“…a 75-year projection can be a misleading indicator of all future financial flows. For example, when calculating unfunded obligations, a 75-year horizon includes revenue from some future workers but only a fraction of their future benefits.”
ibid., p. 199

“[With an infinite horizon that captures all of the future revenues and benefits of the program, t]he total resources needed for all the programs sums to $72.0 trillion in present value terms.”
ibid., p. 200 (emphasis added)

On the cost of delayed action

“The longer policy action to close the fiscal gap is delayed, the larger the post reform primary surpluses must be to achieve the target debt-to-GDP ratio at the end of the 75-year period.
ibid., p. 171

“Subject to the important caveat that policy changes are not so abrupt that they slow continued economic growth, the sooner policies are put in place to avert these trends, the smaller are the receipt increases and/or spending decreases necessary to return the Nation to a sustainable fiscal path, and the lower the burden of the national debt will be to future generations.”
ibid., p. 178

Maybe I’ll be accused of “cherrypicking” the quotes. You’re welcome (in fact, strongly encouraged) to read the relevant sections of the report for yourself to see what counter-arguments might reside there. Or, if you can find a more credible resource for an analysis of the issue, post a link to it as a comment for all of us to review!

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