>> social security will be insolvent by 2034. three years earlier than expected according to a recent report. next, the social security administrations chief actuary discusses the future of social security fiscal solvency. the national academy of social insurance posted this event.

>> i think were ready to get started. on behalf of the national academy of social insurance of board of directors, whom we have two representatives who will be introduced to you momentarily, the extraordinary dedicated staff of the academy, many of whom are here, and members of the lifeblood economy, i like to welcome all of you to this annual briefing we conduct with a key group of panelists on social security finances. i'm the chief executive of the academy. i just came back, along with josh, from arlington cemetery, where today we commemorated the 50th anniversary of the end of robert kennedy campaign. knowing the age group in this room, how many of you have heard of robert f kennedy? i feel much better. i asked the interns that, and

you get all these like who? i work for them as you know. i was on his senate staff, and you might say today as you might expect a very, very difficult day. yet very uplifting. what does that have to do with this? in 1968 his campaign was an 85 day campaign. he gave one speech on social security. in michigan i believe it was. he called for an across-the-board increase in social security benefits. at that time the average monthly benefit was $140. this is an april of 1968. he wanted to do an across-the-board increase in benefits that would raise the average from 140, 165. no when asked him then what we would ask him today, which would

be to questions. what will the impact be on the long-range financing of social security? and more poorly, who's going to pay for it? will we all are going to pay for it because, as he would say, social security is all of us for each of us. i like you to just keep that theme in mind, because you're going to get into the weeds today. a lot of technicalities which are critical to understand the program, but let us never forget that for millions of beneficiaries, this is a lifeblood and we have to keep that in mind. it's a lifeblood, and it may be for future generations it's even more of a lifeline, i should say, for future generations. with that in mind let me turn this over to the academy vice president of policy, he will introduce us to fellow panelist. c-span is some but not airing of

life. so, ben, let me turn it over to you. >> welcome, everyone. thank you for coming to this briefing from the national academy of social insurance, what is the outlook for -- [inaudible] >> i am ben veghte, vice president for policy at the academy. the academy is nonprofit nonpartisan organization made up of experts on social insurance. its mission is to advance solutions and challenges facing the nation by increasing public understand about social insurance contributes to economic security. before begin i wanted to call attention to you, bill already thanked our staff which i would echo but in addition i want to call attention to a brief which elliott who is in the back and i drafted yesterday in response to the new trustee's report, that is available. many of you picked it up on the

waiting. today's briefing as first glance about numbers, , the financial outlook for social security. projected revenue, projected spending, trust fund reserves, et cetera, over the next 75 years. i want to to highlight two other numbers which are relevant today, one of which bill already touched upon. the first is that today is the 74th anniversary of d-day when hundreds of thousands of americans stormed the beaches of normandy. 53,000 americans died that day and many more were injured. i think that something we should keep in mind today. as bill mentioned also it's the 50th 50th anniversary of the assassination of robert kennedy. both of these events bring to mind the sacrifices that americans have made for our country and for the common good. i think it's important to remember that social security is a program that is embedded in american culture. it's about far more than numbers. it's not simply, social security

is not just about the finances of the program or how it impacts the federal budget, or even about the dollar amounts that beneficiaries received help make ends meet. it anchors the middle class. helps millions of american family protect against impoverishment when tragedy strikes, whether it is disability or inability to work in old age or the death of the breadwinner. it unites us also by strengthening the commonweal. it's something all of us paid into and all of us receive benefits when we need them. it's a shared system and it strengthens american civil society. that said, social security does face financial challenges, and it's important that we talk about those. that's why we are all here today. the national academy of social insurance was a place where left, right, and city can come together to talk about our social insurance programs in civil discourse, and also, and social security is probably the most important of those

programs. with that i like to introduce our speakers. stephen goss, chief actuary of the social security administration. karen glenn, deputy chief actuary of the social security administration. henry aaron, senior fellow at the brookings institution. kilolo kijakazi, urban institute, and doug holtz eakin president of the american action forum. their therefore bios are in the packets so please do if you want more information on her speakers please look there. with that i like to introduce steve to talk about the programs finances. >> great. thank you very much, ben. karen and i would do a tagteam through some of the two. we have a number of slides and ben promised he will yell at us if for taking too much time because we don't want to keep you from all the eloquence of the rest of our folks. let me run through the first couple of slides. we will go back and forth so that it would keep interesting

because some actuaries are not as interesting so if we tagteam it will be better. first of all, why are we here today? because social security but in particular the date of yesterday, daniel trustee's report came out. every single year starting 1941 there's always been one. why? congress demanded. we do what they say. it's required that every year and daniel trustee's report comes out april one-ish or so whenever we get it done. that speaks to three basic things. what are the operations of the trust in the last year, what i'd expected to be next five years and what is the status of program? the actual status really truly what the intent is to inform policymakers that under current law, how are we doing financially. and it would look like we're going to be having shortfalls now or in the future, to what degree are we expecting shortfalls, because that tells policymakers what the job is ahead of them, when they have to

make changes and had big changes to have to make. it's up to them to decide what the changes. the history of this is that whenever we've reached the point of trust fund reserve depletion, congress has i stepped up, always acted on that. for this year's trustee's report, we have three primary changes would like to just toss out to you. we got a lot more detail on some of the slides. the three primary changes that will leave out the most is in the area of the disability insurance trust fund. the trust fund is been much paid attention to for a long time. recall back in the bible is a budget act of 2015 we had a reallocation of tax rates that extended the reserve depletion date for di from 2016 out to 2022. the next trustee's report we bought one more year of solvency because of the good extreme under social security. and after that in 2017 trustee's

report we went five more years to 2028. this year's trustee's report were going out another four years out to 2032 for the expected reserve depletion date for social security. this is pretty good news, ny, basically because pics. under the di program has been remarkable. applications to social security disability have been dropping dramatically. disability incidence rates, the number of people who start to get disability of those who are insured and already receiving have been dropping dramatically beyond any of our expectations. disability insurance, all good news. the number two item we point out is a slightly different story, which is on the revenue side. we have a couple of changes, the most significant of which affecting the revenue is both the oes di and also the hospital entrance program are effects on a taxable payroll. our taxable payroll tries from

earnings that everybody in the country and if the earnings number did not go as fast as we'd expected before will have less that are subject to the tax and get less payroll tax. lo and behold we're suggesting some of the jewish year for a of reasons. one is we had revisions by another one of the branches of government, the department of commerce, their bureau of economic analysis, those are the ones who put up gross domestic product numbers and national income numbers, all of that. they came up with revisions of the 2016 numbers that we'd use use, initial ones, in the 2017 trustee's report. the revision showed a small amount of employee compensation relative to the size of gross domestic product. so the ratio of compensation to product they revised down for 2016. lo and behold the numbers they had about intimate twentysomething are also lower than we've been expecting and projecting in the prior report. gdp is pretty much been realized from what we were projecting, but the sheriff of gdp going to

play compensation, earnings and taxable earnings is reduced so we have less tax income coming in and that is a negative. the other factor on that is that as many have noted, and to think we have a slide showing this in more detail later, what we call labor productivity, the amount of output per hour of work by u.s. workers has not been growing at the rate historically has been the right and we were expecting. and has been done a few times in past years, the trustees this year decide will accept some small portion of that shortfall is being a permanent loss to her future economic prospects which lowers the level of gross domestic product meaning it will have a slower growth rate in gdp over the next ten years, both contributed negatively towards the amount of revenue we have for all these programs and as a result that cost our reserve depletion date for the oes i

program teaching from the very beginning of 2035 lashes apart to the end of 2034, two or three months change, happens to flip a year so don't be astonished that a change of voyager wins only a portion of you. the third thing we want to mention really is, and karen and i talked about this a lot, what we say about the status of the oasi ndi combined as a whole? we look at the deficit, and lashes apart was at 2.83% payroll. think of that in terms of 12.4%% payroll which is the tax that people pay on the earnings. so 2.83% what we 3% what we estimated to be the shortfall the next 75 years. for these your support were as many that to be higher at 2.84%. however, is that good or bad? investor support just on the basis of moving up one year, one year later, we were estimating

that number would change some 2.83 up to 2.88% payroll. it's 88% payroll. it's not gone up that much which means relative to her expectation of last year, all of the things, assumptions, methods and realize data have unbalancee been better than were estimating. on that, our annual balance, the difference between income to the program and expenses to the program for most of the future of xml five years is a little bit better which contributes towards our overall deficit, , t having risen as much as expected. with that let me pass the baton to karen to cover some of our fun graphs. >> great. thank you, steve. this graph probably looks familiar to those of you with into this breaking before. what it shows is the trust fund ratio which is really the asset wizard reserved at the beginning of the

year over the cost expected for the next year. so the higher, the better obviously. the pink line shows the oesi myself pick the black line shows the combined oes di trust fund and the blue schlein shows di. a couple things to note on this graph. once the reserves reaches zero, that would be at the bottom line. you can see see the di from lat year to this year extended out those four years like steve was mentioning before. oasi and oasi di are very similar to what we projected last year. you can also see the tax rate reallocation pretty clued on this graph. back in 1994 and again in 2016 we make changes to the tax rate or more specifically congress make changes to the tax rate. we didn't do that ourselves. you can see that really affects

the trajectory of the di fund. >> very, very quickly on these next two or three slides picky gives a little more detail but you might want to flip them later about what exactly is going on with the disability insurance program. these are applications coming in applying for disability benefit of the social security program. that's not just disabled workers, disabled widows and disabled children but almost all disabled workers. over 2 million at the peak of the worst part of the recession back in 2010, and they have dropped very steadily all the way through 2017. you can see what we projected these applications to be doing in prior trustee's report. we expected it to be dropping after the peak but the to turn back around up to a more stable, expected level. that has not happened, and the interesting part of this is there's more to come.

in the year 2018 2018 we see tt applications have continued to decline which we did not assume when the assumptions were set about in the last calendar year. >> you can also see in these graphs they were projecting in the long run the applications will end up in about the same place. that is, a trustees assumption to suitable go back to a more normal level. >> more normal, what we have believed is more normal. >> what we expect is a more normal level. >> and whether we should be modifying that is another question. this is very, very similar, the distal incidence rates, the number of people new starting to receive disability benefits as a share of those injured and not already receiving a benefit. this looks very much like the other graph. we see our expectations in the last several trustees reports it up and realize. the rates keep dropping. the one thing that is a look that different on this and a nuanced item is in 2017 you can see the incident rate went up a

little bit. you might say how could that be with the applications keep going down year after year? a little bit of good news. many of you probably heard about the administrative law judge backlog of cases awaiting a hearing. in 2017 for the first time in a while social security administration has made progress. we started to get that back logged in. we had a surge in the number of dispositions made, and without many of those people were, in fact, allowed benefits and they give a little bit of surge in the new allowances which raise our incidence rate for that particular year. part of the increase is not because and natural increase of disability incidence but just catching up on cases that were waiting determination. >> one other item which is the culmination of all these things put together is what does this mean for cost? the thing that principle affect coffee family beneficiaries to have? we can see the black line, back

in the 2008 trustee's report, we had a pretty steady rise, just pretty straight line on the number of people who receive benefits under the program. along came the recession, the number went well above that as you would expect in a recession. people lose jobs and the seek some way to find more income. we had asked applications and give them qualified. since that big drop in applications and incidents we dropped down well below the numbers of disabled worker beneficiaries that we've been projected in 2008 and 2018, no exception even though the last years trustee's report. >> okay here this next figure really shows the annual balances which you can think of a sort of the annual shortfall of income versus cost in each year. in last years trustee's report versus this year's trustee's report, so the red line is this

year's report. what you can see is things are a little worse in the very near term in this report, but by the end of the time they are a little bit better. in between they fluctuate a little bit. why does that happen? the big thing in the very near term is we're expecting lower payroll tax revenue and look into all the bit more detail on that later on. after the near-term we're expecting demographic effects to really kick in. we had some changes to our assumed virtually rates in the near term, and in the longer term mortality. there's been bad mortality experience recently come higher death rates and we've expected which is bad for all of us, but that actually good for the social security program, unfortunately. the so many people die, the less benefits they get.

so sort of a bad news good news story. >> i think that covers it well. the one thing towards the end of the same five-year period, you can see the 2018 trustee's report has in fact, a smaller negative balance. actually by the time i think the mortality fix another factors we're in better shape towards the end of the 75 you. period. >> so real quickly will not go through all of these numbers pick if you want to delve into more detail please feel free to let us know. you can see at the bottom of this page we are seeing the net change in the actuarial balance is a minus .02% of payroll, a slight worsening from last year. most of that is due to the first line on the page which is the change in evaluation. we are picking up a a year, evy our valuation is 75 years long.

last year that's new for this valuation is a year where we are kind of out of balance. with picking up that one year that makes things look a little worse. that is a -.06. >> which six. >> which explains more than all of our net production. >> exactly. factors pushing things in the other direction. we've got a bunch of demographic effects going on. the interesting when is the fertility rate. you may have seen in the news recently that the 2017 news on birthrates, much lower than people have been expecting. it's about 1.75 children per woman expected in her lifetime. our long-term assumption is to children for women per lifetime. that's really low pickets the lowest it's been since, what, 1976. one of the things we look at all the time is birth expectation

surveys. we ask women how many children they expect to have in a lifetime, and that's insistently been around 2.2. it's a little bit of a mystery why things are so low right now. lower birth rates in general are worse for the social security program. it's not a good thing. recent data and some slight changes to our assumption for fertility in the near-term cost of that minus .08. mortality as i mentioned already, death rates are worse than expected, which is good for the program. a few other economic things, i don't know, steve, if you want to do any of those at this time. >> i think they are all already mention, our ultimate level of gdp has a a very small affect . we have lower interest rates. we are taking a little longer to face up to ultimate interest

rate which the ultimate rate has not changed and that lowers our actual bounce balance a little. starting values as, , some of te starting values are the ones that you mentioned, had very small positive effects. >> the last, .05 you see, of the methods and improvements, we're always working on approving our methods, incorporating all the new data begin. this year that was a bit of a positive for the system. >> the next slide, we have an illustration of what was mention on the labor productivity. this puts a bit of the focus on it. if you look carefully in the last few years since about 2009, in this recession we've been having labor productivity, and increase the number of goods and services produced per hour of work has been way below the 1.7% annual rate of increase that has pretty much historically been

the case. it has been higher than that. you can see from 1949-1968 averaged almost 2%. the last almost naked it is been well below that. one thing we've done is to accept some of that shortfall as being a permanent loss for american workers in the future. that is, will not be expecting the future to recover from all that. you can see that even in another framework, on slide 11, the lower potential gdp mentioned, back in 2010 we were projecting the level of most domestic product under a full employment situation. there's enough jobs for people, and that was the black one. year by year we've taken a bit off of that expectation as we've had this continuing type of labor productivity growth falling short of expectation. there is a possibility that will

turn around but massive investment, massive investment in the workforce and will have labor go up much faster for a while but we have simply seen that as yet. we fold incrementally been accepting some of the drops. >> as i mentioned, mortality experience has been a lot worse than we expected. the black line is the actual death rates. you can see since about 2009 they had been fairly level. generally, we expect mortality to improve over time. it really hasn't been since 2009. another thing to point out, this is all ages. we do look at things by specific age groups but this is just sort of the summary of what we've done. you can seen every trustee's report we've been expecting mortality to continue to improve. it hasn't happened in recent

years. i talked to my folks back in office. they have some preliminary data for 2017. it looks like that black line is going to go up a little bit next year. still not looking good. >> continuing the trend. >> just another figure that probably looks to me or to a lot of you. it shows the difference between the cost of the program, which is the blue line, and in, which is the red line. the blue line you can see drops down at the time of reserve depletion in 2034 to equal the income line. the blue is really covering the red at that point. that is because once research deplete, we can't pay out any more than we are taking in. so those lines will become equal at that time. the dashed blue line is really the cost of all scheduled

benefits. after reserve depletion we will not be able to pay all of those. we will be able to pay about 79% in 2034, going down gradually to about 74% by 2092. another take away from this graph is the difference between the dashed line and the solid line is really the funding shortfall that we've got to figure out the way to feel. >> one tiny asterisk am trying to fill in a bit of good news here and there, the 79% of the point of depletion, 79 cents of every dollar of scheduled benefits, that's up from 77 cents last year. at the end of the year, up from $.73. that does vary from year to year but will take any little positive that we can. >> right. here is another graph that looks very similar. instead of looking as a percent of payroll this one looks as a

percent of gdp. so the focus of this graph is really, is the program sustainable in the long run? if the cost and income lines were widely diverging we would probably say no, the program is not sustainable. but it's clear from this that the gap is remaining relatively level over time. there are ways to fix the problem. >> so once the baby boomers all retire and are followed in the footsteps of working age of the next generation, we stabilize the age distribution of the population there after. this stays about flat. just needs some adjustments. >> and one more graph that looks very similar. this this is a ratio of benefics to workers. you can see it's got the exact same picture as the cost of the program. what is really says is that the cost of social security is almost solely driven by the

demographics. >> and to that point, this next chart shows you really how it's driven to recall this the aged dependency ratio. the number of people in a population 65 and older to number the number who are between 20-64, often referred to as the prime working ages. this is almost exactly the same shape as you'd expect for beneficiaries to workers. what we wanted to illustrate is what the real reason is why this graph is going up, why the beneficiaries to work is going up. it is exactly scared said, its demographic. specifically, it's more than anything else, birth rates. the black light is what we are projecting under current estimates but the blue and red lines or whatever colors they look like, what if, it is a what if scenario. what is back at the end of the baby boomers we've stayed at 3.3 or even 3.0 children per woman.

if we'd stayed at those birthrate levels you can see this age of dependency ration would have gradually been rising because of increased longevity. the big top we have is simply the drop in the birthrates and that's reflected in the cost of our program, cost to the medicare program, , cost to lots of things. ..

>> the 95 confidence interval for the annual cost rates under our projection methodology. we'll give awe preview that we've been working for quite a while now and indicated from time to time the range is not as much as it should be. we sought to be building the raining. probably in trouble for mentioning, pressure, but we're hoping to get there. one other chart we wanted to show you, we know what we pay attention to as demanded by the congress and trustee reports.

what are the actual state of the trust funds under the current law. and there is near way to look at the numbers. for those who pay attention to the budget scoring and look at these big increases in the debt held by the public, that a lot of those projections of debt held by the public are on a score convention. for the trust funds, if the reserves deplete, presume that all of those berths will keep getting paid which the law does not allow. they keep getting paid by having money transferred over from the general fund and treasury borrowed from the public to pay the full benefits. that would require a change in law. we suggest anybody who shows that kind of a projection of that debt held by the public. it all to be qualified assuming the laws would change.

>> so we have shown you quite a few slides focusing on the funding shortfalls for social security. so how do we fix it? we've got to build that gap like i showed you on a few slides and congress can make some choices. number one, raise scheduled revenue after 2033 by one third or reduce scheduled benefits after 2033 by about one fourth or some combination of the two. one other thing people suggested is that maybe we invest more of your trust fund reserves and get more interest income. it's a possibility and i know 2.9 trillion sounds like a lot of money in reserves, but it's really not in the context of our program. we could get more income by

doing that, but it really will not be a huge help. >> and our final slide before passing the baton is all the places you should look for more information on our web page, including for the new trustees report. we have a massive amount of information up there explaining a lot of the detail and a lot of extra numbers, more than the report itself. >> henry. >> okay. i'd like to start by referring to the last slide that steve referred to. the reference to their site, the actuary site on the web. it's a gold mine. anybody who is serious about social security and doesn't dip into that is simply not aveiling him or herself of the available information. now, they've emphasized, karen and steve, the changes and-- from last year and the detail elements of the projections. i'd like to step back a bit

from that and suggest that the major important take away from this report is that there's very, very little news in it. it is neglibly changed from last year or the year before or the year before that. the reports have consistently painted the same picture for the nation. there's adequate money to pay benefits for now and the next 15, 18 years. at that point or somewhere around there, plus or minus a year, there's a financial problem. we won't have enough money to pay all scheduled benefits. and something needs to be done at that point. that is the take away from this report. there are-- one can get to some degree into details and i want to mention

just two of them for purposes of underscoring what i think is an important point about the methods they use in doing their projections. i want to focus on two important assumptions on the long run estimates. the first they emphasized at the beginning. the improvement in the prospects for disability claims. there are fewer of them than there were in the past and fewer than were expected for this year in the past. the trend is down. they have not fully incorporated that trend into their longrun assumptions. in fact, it influences their numbers only over the next four or five years, and then everything goes back to the same baseline that existed before. i'll come back to why that's important, why it opens them to criticism.

and why i think it's the right thing to do. the second assumption that's key is is the fertility assumption. it's this year, their projection is based on an assumed fertility rate considerably above that reported this year. that number has been trending down. that's a very important assumption in estimating longrun costs. they have not adjusted their numbers yet. as they have not adjusted the long run assumptions with respect to disability. now, many people look at year to year changes in the values of specific parameters that go into their estimates. and they say, oh, you're off the trend. things have changed. and expect and want the actuaries to change their projections based on the latest

news. consistently, they don't do that. rather, they wait for trends to become well established until there's a logical basis for explaining why trends have shifted and then they move gradually in the new direction. that means that, helps explain, in fact, the observation i made at the outset the similarity of projections from year to year. ask yourself how useful these projections would be if they jumped up and down, year to year by large amounts. those jumps would discredit the projections themselves. they would be responding to events that very often, indeed, much of the time, reversed themselves because they are deviations from long-term trends that offset and returned

to base values. so, i think in looking at the projections, and in looking at the observations that you will hear made about the projections, keep in mind that this is a very damped adjustment mechanism that's used in makes these projections. it's exactly in my view the right thing to do as long as they are responsive and they have been to evidence about longrun trends. you may hear some disagreement among us whether particular values should be different from there. i'm not going to defend every one of them, but i think the general approach is exactly the right one and you should keep that in mind. now, if this is the bottom-- if the bottom line is there's not a lot of news in this report, then, this brings us, i think, directly to the critical question, which one of their slides referred to. we've got a longrun financing problem, how are we going to

fix it and when are we going to fix it? i think i would have few dissent if i said not likely this year. indeed, not likely, probably, for the rest of the current administration. we might have an opportunity in the next administration, whether the next president is a democrat or on the off chance it was a republican other than the incumbent, but i want to suggest that the concensus among close followers of social security is that congress is going to punt this thing as far down the road as it can and the reason it's going to do so is whether you're a republican or a democrat, taking the steps that are necessary to close the financing gap are politically-- are politically very dangerous in your consistency.

if you try to raise taxes as a republican, you're in deep trouble. if you try and cut benefits as a democrat, you're in deep trouble, and looking ahead, the many people would argue that a likely solution to this problem in the longrun is going to include both. waiting a very long time to take the necessary steps is, in my view, exceedingly dangerous and this is the key point i'd like to leave you with. let's imagine we have come to 2033 or actually a couple of years later, when the trust fund will have dropped below 100% and steve or his successor, maybe karen, will report that the system is no longer in close actuarial balance and red flags get raised. at that point one could solve

the problem, the fansing problem entirely by raising taxes. technically. no problem. you can raise taxes quickly. it would result in a small drop in take home pay for workers, but it's not a major event. we move taxes around year to year quite a bit anyway. at that point you cannot solve the problem by cutting benefits quickly. you can't solve the problem because it would involve the estimate of cutting benefits by quarter for everybody now on the rolls at that time and everybody now coming on to the rolls in the next -- following that date. it is impossible to conceive that members of congress, of either party, would vote for a 25% cut in benefits for every retiree in america.

all right. well, you say, well, they don't do so much of that. they don't cut for benefits for people on the rolls. well, then you would have to cut benefits more for people coming onto the rolls fresh. you're going to tell 64-year-olds, 65-year-olds, you were planning to retire with a certain amount and you're going to get 35, 40% less social security, not likely. and the scenario that should scare both conservatives and progressives, and that is that congress in that situation enacts sizable benefit cuts that don't take effect immediately, sustains benefits for those already on the rolls, doesn't raise taxes, and borrows funds in order to pay for a very extended transition. that means the higher debt

scenario that steve pointed out would require a change in law to make cbo's projections correct could become a reality. it's bad economic medicine. it's bad pension policy medicine. and it's something in my view that argues strongly for trying to move up the date at which we address the projected long-term deficit in social security, as early in the 2020's as it is possible to do. >> so i want to thank the chance to being here today and this group of esteemed panelists and acknowledge the work of steve and karen not just this year, but sustained public service for which

they're not thanked enough. my job is very simple. to explain that henry is 100% right and far too calm and that's what i'm going to do. you know, as he pointed out, there really isn't a lot of news in this report for those who have been following the evolution of the system. the kinds of things that i can say today i said in 2003 when i was the cbo director. a lot of this was entirely forseeable, the demography in the structure of the program and a lot has been moved around, a lot has been to characterize the outlook for it and what we've found out is that, as we expected, you've got a problem, a mismatch on a sustained basis between scheduled benefits and the revenue dedicated to the system and that's the problem. it needs to be dealt with. i think it needs to be dealt with very quickly for a different reason than henry laid out. i am the problem.

that's usually true, but in this case, i am the problem because i am the trailing end of the baby boom generation, the trailing end of that shift. i'm 60 years old. i'm affluent person who can afford my retirement more than other americans can. if you've grandfathered me in, and you've grandfathered in the problem. we're perilously close to doing that. i think that the amount, the urgency should be heightened even above what henry is saying, for that reason, as a matter of social security policy. i believe as we sit here, one of the ironies about the social security system is that this is one of the most effective and sustained social insurance programs we've ever seen, social insurance is designed to remove financial risks from the lives of americans, particularly those who are not particularly affluent and aging. and as we-- if we leave it in its current

condition every year that it passes it becomes a source of financial risk. people do not know what their benefits will be come 2033, 34, 35, or whatever the date may be, as congress proceeds not to take action. that's ironic and disappointing to me. we don't want a system that is to remove financial risk to become the source of the risk. we should move quickly to fix this and also move to fix this for at least two other reasons, all right. one is this challenge comes in the context of much larger bugetary challenges. anyone who looks at, for example, the congressional budget office baseline projections knows that, there's an enormous amount of red ink elsewhere in federal finances. the medicare program runs an annual deficit of about $350 billion a year right now. it doesn't have a dedicated source of finance like the pay roll tax as a combination of some payroll taxes, some premiums and reliance on

general revenue so we have a whole lot of the federal budget looking at the general revenue and there isn't enough and to try to pretend to borrow our way out of that problem is to court economic disaster in my view. it takes place in that context and that's a reason to move. thor reason to move, it's pretty easy to fix. if you get on the metro fix it a couple of different ways every day. there are payroll taxes coming in, and benefitting going out and different formulations to get the balance quicker or slower, but we can get there. that's not true for some other problems. medicare is going to be incredibly hard to address, much, much harder, and so, in my view, congress should take an easy problem, get a little warm-up exercise, so as to take on a really hard problem and there's no way it's going to get around taking on both over the next ten years, in my view. so, the bottom line is simple.

i think we should fix this now. i genuinely, we should have fixed it before now, but my life is one of repeated disappointment. [laughter] >> and if you do policy work in d.c., that's what your life is, sorry. but i would just applaud the academy for holding this every year and i want to thank the trustees and the actuary and staff for what they do to illuminate the problem. now the issue is to fix it. >> let me just step in for a second and put in a plug for the national academy for social insurance who recognized steve goss with its first bob ball memorial award, now, what, 12, 15 years ago. we recognized that steve has been an absolutely invaluable resource on both sides of the aisle without fear or favorite, whoever has come has gotten

straight answers and good information and has done as much as or more than anybody else to educate the american public on social security. so, thank you. >> henry, that's so nice of you to say, but i would add to that the academy has done a better job since that year. every year they come up with better and better people for the ball award and i think there's at least one such person here on this panel. [laughter]. >> thank you, henry. >> my job here today is to talk about the role of social security in people's lives. social security is a retirement benefit that is critical to the economic security of the elderly, but it is also an insurance program that is needed at every stage of life. social security retirement benefits reduce poverty for the elderly from about 41% to about 9%. however, the program also provides insurance protection for young workers and their families.

if a young worker dies, leaving behind a spouse and two young children, they would receive survivor's benefits valued at about $700,000. if a young worker with a spouse and two young children became disabled, the family would receive about $725,000 in disability and retirement benefits. many, if not most families would not be able to afford this kind of protection from disability insurance or life insurance in the private market. social security is critical for children, too. over three million children underage 18 receive benefits as dependents of workers who died, became disabled or retired. this is greater than the number of children who received temporary assistance for needy families in 2015. and social security is responsible for lifting over a

million children out of poverty. for women, social security has been a valuable source of income as a spouse, divorced spouse, or widow of a worker. and for women who have been in the labor market for a long time and for those who are entering the labor market in increasing numbers, the program is vital to their own work histories. women are more likely to spend time out of the labor market, usually caring for family members. social security benefit-- the social security benefit formula helps to compensate for this by, first, counting the 35 highest earning years rather than typically 40 years, thereby, eliminating five years of zero or lower earnings from the benefit calculation. and second, in a -- because women continue to face a gender

wage gap, they are helped bye the benefit formula, which is progressive, so lower wage earners receive a higher -- receive a benefit that represents a higher share of their pre-retirement earnings than higher workers seech. -- research documents that racial discrimination still plays a role in determining who gets hired, compared to white workers, workers of color are more likely to be unemployed, remain unemployed longer and to work part-time, even though they want full-time positions. the benefit formula which eliminates 5, zero or low earning years, helps to compensate for years of unemployment and part-time

work. researchers have also documented that occupational segregation that results in people of color being disproportionately represented in occupations with lower wages and access to benefits such as employer sponsored retirement savings plans, even after controlling for education. social security is the only retirement benefit that many workers of color have, and the progressive benefit formula helps to compensate for lower wages received. social security disability insurance is particularly important for workers of color because they are disproportionately represented in sectors with the highest rates of illness and injury and survivors benefits are important to african-american families because they have a lower life expectancy. while social security already plays an important role in reducing poverty and in

improving economic security, the benefits are modest. the average benefit in 2016 was $1,250 per month. and although the benefit formula helped to reduce the disparity in benefits across workers, the actual dollar amount received by low wage workers can leave them and their families in poverty, even after a long work life. so benefit improvements are needed. there's a need for an effective minimum benefit that provides a floor at least the poverty level and there are those offered by the commission on retirement and personal savings. there's also a need to improve survivors benefits.

current the surviving spouse receives 100% of the deceased worker's benefits or 100% of their own benefit, whichever is higher. this can result in a substantial reduction for the surviving spouse in their income. one proposal is to provide the surviving spouse with 75% of what the couple would have received and cap this so that the increase is focused on lower income survivors. a third proposal is to establish a caregiver credit to compensate for time out of the labor market to care for family members. >> for example, workers could receive a credit of the median wage for up to five years during which they were caring for a family member. and the fourth proposal is to reestablish the benefits for students up to age 22, if they have a deceased, disabled or

retired parent and they're pursuing full secondary education. this benefit was terminated in 1981 as a cost cutting measure and under current law, unmarried children can receive benefits through age 18 or 19 if they are students in elementary or secondary school. so benefit adequacy is necessary, but so is the-- so is restoring the solvency of the program. and to restore solvency and improvements the following proposals have been offered. one is to gradually raise the maximum amount of wages subjected to the social security payroll tax. currently only $128,400 of annual income is taxed. this is regressive, since lower

wage workers pay tax on all of their wages, while higher wage workers pay tax on a fraction of their wages. historically, the maximum tax has covered 90% of national wages, but this has declined to 83% today. raising the maximum taxable raise to capital tur 90% again would increase to the trust fund and would not affect lower wage workers. second proposal is to cap the spouse benefits. currently the spouse may receive benefits based on his or other own work history or 50% of their spouse's work history, whichever is higher. but given the growing share of women in the work force,

earning benefits through their own work history, a reform that has been proposed for years is to cap the spouse benefits. now, finding a proposal is to gradually increase the payroll tax for all workers and employers. the national academy of social insurance estimated that an increase from 6.2, to 7.2 over a period-- and that would be for workers and for employers each, over a period of 20 years, would require someone earning $50,000 a year to contribute about 50 cents more per week. so, social security's essential at all ages, but benefits are modest and leave some families in poverty even after a lifetime of work. proposed changes can be made to both increased economic security and the equity of the

program, as well as restoring program solvency. . >> thank you. kilolo. thank you, everyone, i would like to open it up for questions, before so doing, i would like to take moderator's privilege and ask a question myself to our panel. 2018 is the first year that we've had tax reserves, projected to have to tap reserves towards the end of the year to pay schedule benefits. what is the significance of that? perhaps we start with one of the actuaries and move on to our other panels. >> well, i guess, just on that, anytime we expend any money on any benefits or paying karen or my salaries, that results in tapping into the trust fund reserves. we have to-- we have to redeem reserves, redeem investments at any time. in 2018, almost exclusively of the drop in the tax revenues

coming in, which were, as indicated, all a bit of a surprise here, based on these things. towards the idea we're going to have to redeem more in the reserves than we will be investing. the nominal reserves will be dropping partly in 2018 as opposed to 2022. that's significant. i guess from a budget scoring perspective, that could be argued to have some significance, but of the point of view of the ability to pay social security benefits, assuming as always, our investments in interest bearing securities as backed by the full, faith of the federal government. that ability to pay depends on the reserve depletion date, it doesn't have significance in that record and others, i'm sure henry and doug might want to opine on. >> i'll just say for me. i don't think there's a lot of

significance. operational significance, but i look the a the outlook for the program today, the same way i looked at it a year ago and you know, the problem was understood to be there and hasn't changed. >> what steve said. what doug said. [laughte [laughter]. >> thank you. one more question, if i may. about the disability program. a lot is going on in the disability program in terms of finances. you said that the applications and claimant's incidents rates were going down. the other item is the initial benefits are just lower and i understood that henry, the you answered this question for me. >> since they answered for me, i'll answer for you. >> why are initial benefits down and does it have to do with a backlog? >> it's interesting, it's more about the mix of the new

awarded benefits. let's see if i've got this straight. so, while the backlog was growing, there were fewer awards at the alj level. administrative law judge level. more at the initial determination level and one thing we discovered this year is that awards at the alj level are actually about, what is it, 10 to 12% lower than those at the initial level. this was news to us. something we just discovered, as we were digging into it. so, while backlog was growing, there were more of those and benefits were elevated a little bit at that time. now, as the backlog is finally starting to go down, we're seeing sort of a more normal level of benefits and they've come down, because we've got 10 to 12% difference, a changing case mix, average benefits are down about half a percent, is that right?

>> the key point here, it doesn't have anything to do with what al j's are doing. it has to do with the characteristics of the workers who are receiving final decisions from al j's, on average they have lower earnings and hence, get lower benefits, but it's nothing that the alj's are doing. >> that's right, and we do have some speculation as to why that's the case if you want to-- >> it is really interesting that people who get awarded a little bit after their initial application at the administrative law judge hearing tend to have lower, as henry indicated, clearly, it's because on average their earnings histories are weaker. we suspect part of that might be because people who are awarded very quickly to the details, people who have very obvious disabilities, in many cases maybe disproportionately, we need to check this, may be cases where they've had sort after sudden elevation of tl

tlan-- their impairment or accident and might have a good history up to the point and then have a higher level. people who have the administrative law judge more likely have considerations and probably had an impairment gradually getting worse over time and might have compromised their earnings ability prior to becoming disabled. >> let's go to the audience. tj. >> thank you so much for today's panel. i was curious if you've taken a look at what's driving the lower di incident rate and the lower application levels we've been seeing over the last few years, if there are variables you've ruled out and if you have a hypothesis for what's driving that. >> so, yes, we have looked

quite a bit at it. it is still sort of a mystery to us. we've looked at things like is there geographic variation? is there a rural-urban divide, are there differences by age group? the answer is no, it's down across the board. so we don't know, so if you guys have any great ideas, please let us know. >> we know a bunch of the drops at peak 2010. before the recession and we got some drop, but the degree of the decline, our applications with ale little ov over-- and we're well below 2007. at the peak of the population cycle. given the age distribution we

would expect more disability applications. it's a bit of a mystery. nothing left out, just something in general in society people are viewing themselves as more able, but cards and letters we're looking forward to for any thoughts you might be able to help us understand this. >> so-- [inaudible] >> my position as nothing to to with anything, i'm not with an institution, i worked as a physician in the va. if in 2034 we go only to tax increase, do i understand the 2% on the employer that fixes it? >> well, that would really be up to the congress to decide what they want to do.

>> what is needed. >> right now 12% combined contribution and you said one third and 4% more-- >> we would need, we suggested one third increase in revenue, over the remainder of the 75-year period, over 4% of payroll. they could be smaller than that initially in 2034 and have it rise up because-- >> it's in the ballpark. >> that would be a solution, 2% for each, yeah. >> the second question, i understand that benefits are i a justed for inflation and indirectly the-- also adjusted for inflation and sometimes there's a provision that can be adjusted by wage inflation if its lower than inflation, is that correct? and how will that affect

things? >> okay. what's your-- what you're saying here, we have sort of a provision here, right, where if our trust fund level gets to be, i believe it's less than 20% of annual out-go, there's a provision in the law we may have to adjust our cost of living adjustment, you said is based on cpiw, for clerical workers now, if we below 20% trust fund level and the average wage growth is less than the increase in prices, then we use the lesser of the two. otherwise we always use the cpi. >> so in effect, materially would affect-- >> well, we do not expect to be living in the range of between zero and 20% trust fund ratio very much of the time. historically all of the policy

makers and policy wonks like all of us who have worked for social security said this program even though we're not an advance funded system and we can't borrow under current law, one year's outgo. we're at almost three years of outgo at the trust fund right now. and to stay below 20% and zero percent for any period of time would be tricky, part of the reason is recessions still happen and we've estimated a normal recession might drop the ratio by as much as 50 percentage points and congress has tried to keep the ratio well above the 20. >> if we go back to the first of the questions, i'm terrified of the idea of waiting until 2034. i think that's a very bad idea and someone asked me one time if we wait, what does it take to hold current retirees

harmless, and so i did a back of the envelope calculation where you have to immediately raise taxes enough to have no shortfall at all, and i'm going to pass my homework over to the trustees to get the math checked. >>. [laughter] >> i've got about six percentage points for the payroll tax increase. four seems optimistic to me. i know, i know, i heard that, too, but when i did the math i got a far more dramatic increase. >> and i think the spirit of it is neither four nor six might be right. if you're a better person, bet on that number, but that's a big increase in payroll taxes overnight because we waited. i don't think we want to do that. there's another perspective, however, which is also an argument for not waiting, and i may have my arithmetic wrong and invoke steve or you, doug, and i think of one reverse the recent tax cut, one would raise revenues over the 75-year

period and when i say reverse is, i'm assuming the individual cuts are permanent not phased out. if one reversed that, one would go most of the way, if not all of the way in terms of financial flows to closing the long-term gap in social security. >> and again-- [inaudible] as long as you have the current electorate and people. >> we don't know what will happen until candidates for the presidency identify the issues that they want to bring before the american public and to which they want to devote their administration. i think it was a long shot, it turned out to be a very dangerous one, but a long shot that got us major health care reform in the obama administration. i, for one, didn't believe it would happen and i was

surprised. i think a lot of us will be surprised if a far-sighted candidate skillfully articulates the importance of social security to the nation's future, the modesty of the steps that could be taken as i think doug and i both agreed in the near term if we act reasonably quickly to do with it and we could get action. i'm not suggesting it would involve reversing this particular tax cuts. what i am suggesting is that it is a measure of the magnitude of the steps that would suffice. we had an easy enough time cutting the taxes. i think, thinking in those metrics, rather than a major chop out of earnings in 2034, there's a more constructive way to think about it. >> if i could, doug, just to

clarify the arithmetic on the thought experiment if we were just to simply raise the payroll tax rate, in 2035 we indicated in the report that our shortfall is 3.4% of taxable payroll, which means at that time, in that year-- pardon? >> okay, go ahead. >> in that time and that year, 3.4% of payroll additional is what we'd need. by the time we get out to 2095, it's 4.45% of payroll so that would mean the 12.4, which is half and half for employers and employees would have to be raised by 4%. it could be as little as 1.7% each for employees and employers in 2034, rising 2.2% for employers and employees each by the time we get to 2095. not that anybody is advocating that as a solution. >> and understanding how different people don't think about it and i often don't sound the same as others,

looking over 75 years you can do thing gradually and get things into balance. my concern is that the rest of the federal government has melted down by 2030. and we haven't taken care of a budget problem outside of social security. so i worry about those things which counsel far too much patience. in the big picture. we don't have that kind of room. >> let me remind you of the chart that steve showed you, the magnitude of the deficit gap outside of social security is smaller than that suggested by the cbo projections of debt sos those projections include the counter factual, or counter legal assumption that all scheduled social security benefits will be paid by borrowing. the gap between that and revenues. >> questions. >> i have a question for steve

goss, it's related to methodology than to the results of the latest trustees report. would you please explain exactly how the trust fund assets are valued in preparing the financial projections? obviously taken at their principal value and if so, what's the discount rate with the cash flows from interest income and maturity proceeds? and then if that's so, would a different result be obtained by valuing directly the expected cash flows from interest income and maturity proceeds at an appropriate discovery? and then, other results of the trustees reports affected in any way by the prevailing interest rate environment? as, for example, the yield on 10-year treasuries are 2% or 4%. >> answer these or let steve--

>> i'll let steve answer. >> okay, a technical question, this is an actuary thing, but it's important. first of all, just one characteristic of the investments i mentioned earlier. the law requires any of the dollars that comes in the trust fund is immediately invested. and that covers a fair amount of territory. there are marketable bonds and other things to be invested in. if the trust fund invested in marketable treasures, then the market value would be important. for quite a few years, the investments have been special issued bonds to the trust fund and they have interest in characteristics. first of all, there's no arbitrage because the interest rate, the coupon rate assigned to any investment made by the trust funds is based on what is the actual or effective market yield on all outstanding marketable treasuries in the

prior month with the remaining time till call or maturity of at least four years. so, it's straight up, the initial interest rate that's assigned to any newly issued bond is right at market. however, when we have those bonds, if we hold them to maturity, and then-- and then we redeem the bond at maturity, we will have every june 30 clip the coupon and gotten the interest rate and put back into the trust fund and at the point of maturity redeem the par value exactly as a marketable bond would be. the difference is, if we are required to redeem a bond before it reaches maturity the market valley is exactly the par value. there is no market value per se because it's nonmarketable security. that's a special feature. is that a plus or minus? it depends what the interest rate environment is since the time that bond was issued.

interest rates have gone up a lot and that would tend to make the market value lower. we don't suffer that lowering of market value. if interest rates have gone down a lot since it was issued. there's no change and it's a par value. in terms of the discount that we use for doing our valuation and our projections, what we do there is we, for that, we look at the portfolio field of all of the bonds that are held at any given point in time, which is the sort of weighted average of all the interest rates on the bonds being held at that time and the discount for our projections and that raises the question. how about if we reach reserve depletion and we don't have anything invested. we use what we estimate at that point to be the new issue rate for the rate of discounting, which, of course, is exactly equal to what we and the trustees will be effective market yield on four year or longer duration bonds in the

marketable environment. >> let me just add one note. what steve said is an important fact. the assets that social security holds are better than the ones that are sold and are the best asset in the world to the public, and the reason is, they carry a put at par. no other bond has that and the financial markets would price that and charge a premium. >> bill. >> my question, i always think of steve and karen, and henry, and doug and kilolo. the trustees positions are vacant, the social security commissioner and the public trustees, so, to you is there symbolic importance to these vacancies and when these vacancies had people in these positions, did they have a significant substantive effect on the report itself? >> it's only two positions are

vacant. we do have an acting commissioner who works as a full-fledged member of the board and have for these past several years. >> i think that it's important to have the positions filled. in terms of just the strength of the work that's put forth, you have all the positions filled and the report is coming out with all-- it's been approved by all. i think it just makes the report stronger. in answer to your second question, i'm not aware and i have been working on this issue since the mid '90s. i'm not aware of there being a difference in what the report is going to say based on those positions being filled or not. >> i think the vacancies are

symbolic of the larger breakdown in the capacity of the parties to get things done and i think they're a sad reminder of that and certainly, i believe they should be filled. i think the public trustees have an important role. steve is going to do the work. his team is going to do the work. what is says about where the social security system fits in the larger policy objectives, you'll got a very different set of opinions between an administration and their cabinet officials and the public trustees and i think their voice should be heard. >> i'm alan cohen with the center for american progress. i have a question for steve and karen, is it the case that there will be a point five or six years from now or four years where the reallocation of the disability trust fund, the monies that are going into the disability trust fund would be

reallocated back to the osai fund? if that's the case, what is the effect on the performance here? >> not in current law. in current law the reallocation was set for three years, 2016, 17, 18, it would go back to the way it was in 2019. of course, congress could always decide to reallocate again. if experience is as favorable as recently, it's possible that the depletion dates for di could extend out past and we could reallocate the other way, we don't know at this point. >> i'm president of an income group. i have a 50-year association with the private sector in defined contributions so i was puzzled in that if we were

presented with this actuarial report in the private sector, the first thing we would be doing is looking at the rate of return on the assets and, yet, that is the one solution that you've dismissed out of hand. and it's particularly curious in light of ken's question and the answer, and your answer, too, steve, which implies that the fair market value of the bonds held in the trust fund, which there is no fair market value since you can't sell them. that the fair market value is higher than the book value because of the special provision, please tell me why you're missing. >> okay, i wouldn't say i'm dismissing it. i would say that the value of our asset as sort of a person of the annual cost is way less than any private defined

benefit plan. defined benefit plans are generally intended to be fully funded. social security is not. it's more of a pay as you go system. we do hold some reserves. right now it's at about three times annual cost and a private plan more like 2025. so just relatively speaking, the assets themselves are not as important as they would be in a private plan. >> [inaudible] leave money on the table? >> absolutely not. absolutely not. i think traditionally commerce and policymakers have believed it's more important that the assets be safe and producted boy the full faith and credit of the u.s. government rather than investing them in the market, but that's certainly an option available. you can see on our website, we score several provisions for putting certain percentages of assets in the market. it's a possibility.

>> there's time for one last question. >> yes. >> [inaudible] i just want you to elaborate more why it's beneficial to project 75 years. you could do a shorter window and with things being so uncertain with the economy and of course could pass immigration reform and participation, and-- >> well, 75 years is one of many, many that we look at financing. we also look at a 50-year, 25-year, and even a 10-year short-term period and pardon this, we also go over the horizon period. the 75 years is traditionally for a long time be the basic period to look.

>> pretty much everybody who is a current participant in social security is likely not to live a lot more than 75 more years. [laughter] >> it's it's likely, except for the very young women because they're going to live beyond us anyway, but by and large the lifetime of some of ours even youngest workers will be 75 years, and the prospects. the other is again, because of the hallowed halls we're in here, when people in congress are considering making changes and by the way, we have a whole bunch of provisions and proposals identified, when people are considering changes, because of the nature of this program and because of most of the kinds of proposals that come forth, they're not immediately massive changes, often times they are changes that might not start for a while and when they do, they phase in gradually.

so 75 year period is to show the ramifications of the proposal and one is 1983 amendments which included an increase in the normal retirement age which didn't start to effect until 17 years later and its full effect won't be until 2022 for people reaching 62 in at that year. so the 75 year period has a couple of good and we have numbers to look at shorter periods. >> if you go to the website, you can find a video of this event within a few hours from now. thank you. [applaus [applause]. [inaudible conversations] >> ahead this morning, a hearing on social security's fiscal solvency. the chief actuary of the

program stephen goss testifies at a house ways and means subcommittee hearing live at 11 a.m. eastern on c-span 3. c-span.org and on our free c-span radio app. >> c-span, where history unfolds daily. in 1979 c-span was created as a public service by america's cable television companies and today we continue to bring you unfiltered coverage of congress, the white house, the supreme court, and public policy events in washington d.c. and around the country. c-span is brought to you by your cable or satellite provider. provider. >> while the u.s. senate is about to gavel in on this thursday morning with debate on an education department nomination, confirmation vote on assistant secretary for civil rights is expected at 12:30 eastern today and more

daib on the 716 million dollars 2019 defense programs and policy bill. now to live coverage of the u.s. senate here on c-span2. the president pro tempore: the senate will come to order. the chaplain, dr. barry black, will lead the senate in prayer.