among the people. he enjoyed the physical contact. he refused police protection, because he said that all the people wanted to do was to touch him. not to hurt him. >> this weekend on real america, on american history tv. watch the cbs news special report from june 6th, 1968, the night robert kennedy died from gunshot wounds. >> they quickly decided to transfer him to good samaritan hospital where the facilities were better for delicate brain certainly. mrs. kennedy was with him all of the time, riding in the ambulance, now from one hospital to the other. the suspect, now identified as sirhan sirhan was grabbed by johnson and greer, the two kennedy men. he was led by police back through the ballroom and the hotel. some of the officers had to protect him from the crowd. there were several kennedy supporters, bystanders, who were close to hysteria at this point, and there was concern for the

suspect's safety. >> that's sunday at 4:00 p.m. eastern on american history tv on c-span3. at a discussion about social security's finances, the program's chief actuary talked about its fiscal solvency and the future of the program's benefits. this is an hour and a half. >> such a bright crowd. okay, i think we're ready to get started. on behalf of the national academy of social insurances board of directors, we have two representatives who will be introduced to you. the extraordinarily dedicated staff of the academy, many of whom are here, and our members who are the life blood of the academy, i'd like to welcome all of you to this annual briefing that we conduct with a key group of panelists on social

security's finances. i'm bill arno, i'm the chief executive of the academy. i just came back, along with josh gotbalm from arlington cemetery, where today we commemorated the 50th anniversary of the end of robert kennedy's campaign. knowing the age group in this room, how many of you have heard of robert f. kennedy? oh, i feel much better. i asked the interns that and i get all these, like, who? i worked for him, as you may know. i was on his senate staff when i was the age of an intern. and you might say, today was as you might expect, a very difficult day, yet very uplifting. you might say, 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. and he called for a

across-the-board increase in social security benefits. at the time, the average monthly benefit was $140. this is in april of 1968. and he wanted to do an across-the-board increase in benefits raising the average from $140 to $165. no one asked him then what we would have skhim today, which would be two questions. what will the impact be on the long-range financing of social security? and more importantly, who's going to pay for it? and i don't know how he would have answered the first question. but i know how he would have answered the second question. we all are gonna pay for it. because as he would say, it's -- social security is all of us for each of us. and i'd 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 understanding the program.

but let us never forget that for millions of beneficiaries, this is a life blood. and we have to keep that in mind. it's a life blood. and it may be for future generations it's even more of a life line, i should say, for future generations. so with that in mind, let me turn it over to the academy's vice president of opolicy on introduce our panel. c-span is filming but not airing it live. that will mean if you do ask questions, identify yourself and think twice before asking that question, because it will be preserved forever on c-span. 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 the outlook for -- [ inaudible ] i'm vice president for policy at the academy. the academy is a nonprofit, nonpartisan organization made up of experts on social insurance. its mission is to advance

solutions and challenges facing the nation by increasing public understanding of how social insurance contributes to economic security. before we begin, i wanted to call attention to -- bill already thanked our staff, which i would echo, but in addition i wanted to call attention to a brief which elliot conservatisc the back, that's available, many of you picked it up on the way in. today's briefing is at 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 wanted to highlight two other numbers which are relevant today, one bill already touched upon. the first is that today at 74th anniversary of d-day when millions of -- when hundreds of thousands of americans stormed the beaches of normandy. 53,000 americans died that day and many more were injured. so i think that's something we

should keep in mind today. and as bill mentioned also, it's the 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. and 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 receive to help make ends meet. it anchors the middle class, it helps millions of american families protect themselves against impoverishment when tragedy strikes, whether it's disability, inability to work in old age or the death of a breadwinner. it unites us also by strengthening the common wheel. it's something all of us pay 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're all here today. the national academy of social insurance is a place where people from the left, right, and center can come together to talk about our social insurance programs in a civil discourse, and also to -- and social security is probably the most important of those programs. so with that, i'd like to introduce our speakers, steve goss, steve acuary of the social security administration. karen glen, deputy chief actuary of the social security administration. henry aaron, bruce and virginia mccoy, senior fellow with the brookings institution. and doug holtz eekin, president of the american action forum. their bios are in the packets. so if you want more information on our speakers, please look there. with that i'd like to introduce steve to begin talking about the

program's finances. >> great. thank you very much, ben. and karen and i are going to do as we described, sort of a tag team run you through some of the material. we have a number of slides. ben will yell at us if we're taking too much time. so let me just run through the first couple slides, karen will run through some. we'll go back and forth, to keep it interesting. because it's been said that some actuaries are not as about interesting. so tag team will be better. why are we here today because of social security, but in particular the date of yesterday the annual trustees report came out? every year, starting 1941, there's always been one. why are we doing it? because the congress demands it. we do what they say. it's required that every near an annual trustees report comes out, april 1-ish or so, when we get it completed. that speaks to three basic things. what are the operations of the

trust in the last year, what are they commekted to be in the next five years and what the actuarial status of the program? the status, really and truly, it's to inform policy makers that under current law, how are we doing financially, and if we look like we're going to be having shortfalls now or in the future, to what degree are we expecting shortfalls, because that tells policy makers what the job is ahead of them, when they have to make changes and how big a changes they're going to have to make. it's up to them to decide what the change is. the history of this is that whenever we've reached trust fund depletion, congress has always stepped up, always acted on that. for this year's trustees report, we have three primary changes we would like to just toss out to you. we have a lot more detail on some slides. the three primary changes that will leap out the most is in the

area of the disability insurance trust fund. the disability insurance trust fund has been much paid attention to for a long time now. a lot will recall back in the bipartisan budget act of 2015 we had a re-allocation of tax rates that extended the reserve depletion date from 2016 out to 2022. in the next report, we bought one more year of solvency because of the good experience in social security, then after that in the 2017, we went five more years to 2028. in this year's report, we're going to 2032 for the expected reserve depletion date for social security. this is pretty good news, and why. basically because the experience under the d.i. program has been remarkable. we have slides with more detail. but applications to social security disability have been dropping dramatically. the number of people newly starting to get disability of

those who are insured and not already receiving have been dropping dramatically beyond our expectations. so disability insurance, all good news. the number two item we point out here is a slightly different story, which is on the revenue side. on the revenue side, we have a couple of changes, the most significant of which is the social security program, the osidi and the hospital insurance program are affecting our taxable payroll, which derives from the earnings of everybody in the country. and if the earnings of everybody in the country do not grow as fast as we expected before, we'll have less that are subject to the tax and we'll get less payroll tax. lo and behold, we are suggesting some of that this year for a couple of reasons. one is, we had revisions by the department of commerce, their bureau of economic analysis. those are the ones who cook up gross domestic product numbers and national income numbers, all of that. they came up with revisions to their 2016 numbers that we had used, the initial ones in the

2017 trustees report. the revision showed a smaller amount of employee compensation relative to the size of gross domestic product. the ratio of compensation to product they revised down for 2016. lo and behold the numbers they have about into mid 2017 are also lower than we had been expecting and projecting in the prior report. gdp is pretty much been realized for what we were projecting, but the share of the gdp going to employee 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 i think we have a slide showing this in more detail later, that what we call labor productivity, the amount of output per hour of work by u.s. workers has no the be -- not been growing at the rate we were expecting. and as has been done in past

year, the trustees have decided we will accept some small portion of that shortfall as being a permanent loss to our future economic prospects, which lowers the level of gross domestic product, meaning slower growth rate in gdp over the next ten years. both contributed negative to the revenue we have for all programs. that caused our reserve depletion date for the oesi program to change from the very beginning of 2035 in last year's report to the end of 2034 in this year's report. it's two or three months' change, happens to flip a year, it was only a portion of a year. the third thing we want to mention really is, and karen and i have talked about this a lot, what do we say about the status of the oesi and d.i. combined program as a whole? we look at the deficit and last year's report was at 2.83% of

payroll. think of that in terms of the 12.4% of payroll which is the tax that people pay on their earnings. so 2.83% is the shortfall for the next 75 years. for this year's report, it's higher at 2.84% of payroll. however, is that a good thing or a bad thing? in last year's report just on the basis of moving up one year to having our valuation period be one year later, we were estimating it would be up to 2.88% of payroll. it's not gone up that much. so relative to our expectation of last year, all other things, assumptions, methods and realized data, have on balance been better than we were estimating in last year's report. o thon that, the difference between income to the program and expenses to the program for most of the future period of the next 75 years, is actually a little bit better, which

contributes towards our overall deficit, not 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. so this graph right here probably looks familiar to those of you who have been to this briefing before. what it shows is the trust fund ratio which is really the asset reserves at the beginning of the year over the cost expected for that next year. so the higher, the better, obviously. the pink line shows the oesi by itself. the black line shows the combined oesdi trust funds and the blue line shows d.i. couple things to note on this graph. once the reserves reach zero, that will be at the bottom line, you can see the d.i. from last year to this year extended out those four years, like steve was

mentioning before. oasi and oasdi are very similar to what we projected last year. you can also see the tax rate re-allocation pretty clearly on this graph. back in 1994 and again in 2016, we made changes to the tax rate, or more specifically, congress made changes to the tax rate. we didn't do that ourselves. and you can see that that really affects the trajectory of the d.i. fund. >> very, very quickly, on these next two or three slides, it gives a little more detail that you might want to reflect on later about what is going on with the disability insurance program. you'll see on slide 5 here, these are applications coming in applying for disability benefit for the social security program. that's not just disabled workers, widows and children, but almost all disabled workers. you can see the applications were over two 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. and you can see what we projected these applications to be doing in prior trustees reports. we've expected it to be dropping after the peak, but to turn back up around, up to a more stable, expected level. that has not happened. and the really interesting part of this, there's more to come. because in the year 2018, we see that applications have continued to decline, which we did not assume when the assumptions were set about the end of the last calendar year. >> you can also see in these graphs that we're projecting in the long run the applications will end up in about the same place. that's a trustees assumption to assume it will go back to a more normal level. >> more normal, yeah, 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. on the next graph, this is very,

very similar, the disability incidence rates, the number of people newly starting to receive disability benefits as a share of those insured and not already receiving a benefit. this looks very much like the other graph. we see on the expectations in the last several trustees reports have not been realized. the rates keep dropping. the one thing that's a little bit different on this and a nuance item is for the year 2017, you can see the incidence rate went up a little bit. you might say, how could that be when the applications just keep going down year after year after year? this is a little bit of good news. many of you have probably heard about the administrative law judge backlog of cases awaiting a hearing. for the first time, the social security administration has started to make progress, we're starting to get the backlog down. we had a surge in the number of dispositions made by the eljs, and with that, many of those people were in fact allowed benefits and that gives a little bit of a surge in the number of new allowances which raised our

incidence rate for that particular year. but remember part of the increase there is not because a natural increase of disability incidents, but catching up on cases that were waiting determination.

get into more detail on that later on. after the near term, we're expecting demographic effects to

really kick in. we have some changes to our assumed fertility rates in the near term. and in the longer term, mortality. there's been bad mortality experience recently. higher death rates than we've expected. which is bad for all of us, but that's actually good for the social security program, unfortunately. the sooner people die, the less benefits they get. so sort of a bad news/good news story. >> at the end of the 75-year period, you can see the trustees report has a smaller negative balance, so actually by that time, i think largely because real quickly, we will not

go through all of these numbers. we are seeing the net change in our balance is a -.02% of payroll which is a slight worsening from last year. most of that is due to the first line on the page which is the change in the evaluation period. every year our valuation period is 75 years long and the last year that's new is a year where we are kind of at a balance. >> that explains all of our net reduction. >> exactly. so factors pushing things in the other direction, we have a bunch of demographic affects going on here. the interesting one is on the fertility weight-- the fertility rate. you may have seen the 2017 news

on birth rates is much lower than people have been expecting. i think it's 1.75 children per woman expected in her lifetime. our long-term assumption is 2 women-- to my children per woman. it's the lowest it has been since what, 1970-- 1976? and one of the things we look at all the time his birth expectation surveys. we ask women how many children they expect to have in their lifetime and that has consistently been around 2.2. it's a little bit of a mystery why things were so low. lower birth rates are worse for the security program. recent data and it changes to our assumptions in the near term caused that -.08. mortality as i mentioned death

rates are worse than expected which is good for the program. a few other economic things, i don't know if you want to go into this at this time? >> i think it was already mentioned our ultimate level of gdp has a very small effect here. we have lower interest rates and are taking a little longer to face up to our ultimate interest rate which has not changed. starting values-- some of the starting values are the ones that you've mentioned, had some very small positive effects. >> the last .05, other methods of improvements, we are always working on improving methods and incorporating all the data that we can. this year that was a positive for the system. >> the next slide or what was

already mentioned, this puts a little bit of a focus on it. if you look very carefully in the last few years since 2009 in this recession we've been having an increased in goods and services produced per hour of work, has been way below the 1.7% annual rate of increase that has historically been the case. in fact it has been higher than that. you can see that it averaged 2%. only 1.7% of the future but the last decade has been well below that. one thing we have done is to accept some of that is being a permanent loss for american workers in the future. we will not be expecting it to recover from all of that. you can see that in another framework, on slide 11 the lower potential gdp you

mentioned, back in 2010 we were projecting the level of gross domestic product under a full employment situation. there's a possibility at some point it will turn around but massive investment in the workforce will have it go up much faster for a while but we had simply not seen that as yet. we've only incrementally been accepting some of the drops. >> as i mentioned, mortality experience has been a lot worse than you expected. -- then we've expected.

the black site-- the black line is death rates, since 2009 they've been fairly level. generally we expect mortality to improve and it really hasn't been since 2009. another thing to point out, this is all ages. we look at things by specific age groups but this is sort of a summary of what we've done. the cutter light-- the colored lines, in every report we've been expecting mortality to continue to improve. it hasn't happened in recent years. i talked to my folks in the office who have preliminary data for 2017. it looks like the 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 familiar, it shows the difference between the cost of the program which is the blue lime-- the blue line and the income which is the red

line. the blue one 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 reserves deplete, we can't pay out anymore than we are taking in so those lines will become equal. 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 very gradually to about 74% by 2092. another take away is the difference between the dashed line and the solid line is really the funding shortfall that we have to figure out a way to fill. >> trying to throw in a little bit of good news. the 79% for every dollar of

scheduled benefits, that's up from $.77. 74 is up from $.73 so that does vary from year to year but we will take any positive that we can.>> here is another graph. instead of looking as a percent of payroll this looks as a percentage of gdp. the focus is really, is the program sustainable in the long run? if the cost was widely diverging we would probably say no, it's not sustainable. but it's clear that the gap is remaining relatively level and there are ways to fix the problem. >> once the baby boomers retire and are followed in their--

followed by the next generation, this stays about flat and needs some adjustments. >> one more that looks very similar, this is a ratio of beneficiaries to workers. it has the exact same picture as the cost of the program. what this says is that the cost of social security is almost solely driven by the demographics. >> to that point, this shows you really how it's driven. we call this the age of dependency ratio. the number of people in our population to the number between 20 and 64 often referred to as the prime working ages, this has almost exactly the same shape as beneficiaries to workers. we want to illustrate why this graph is going up. it is

exactly as karen said, demographic. specifically it's more than anything else, birthrates. the black line is what we are projecting that you can see the blue and red lines are what if- - what if it back after the end of the baby boom period we had stayed at 3.3 or 3.0 children? if we had stayed at those levels you can see the age of dependency ratio would have gradually been rising because of increased longevity. the big hop is because of the drop in the birthrates and that is the cost of the program, the cost of lots of things. uncertainty illustrations, we throw this in because we do not

simply make the central intermediate assumptions. we have several ways of showing variation in what the estimates might be because we know we are unlikely to mail it. the central numbers are what we have on the dashed lines for intermediate projection but then we show high cost and low cost. toward better or worse for the financing of social security but we also show the 95% confidence interval for the annual cost rates under our methodology. we will give you a preview that we have been working for quite a while. it has been indicated that we think that this range is probably not as great as it should be but they are technical things like parameter uncertainty. i'm sure everyone reads about that every night before going to bed. we ought to be expanding our--

our range and i think karen and folks will be having an actual study coming up. i'm probably in trouble for mentioning it but we are hoping to get there. >> a lot-- a number of us have been concerned about, what we pay attention to as demanded by congress is what is the actual status of the trust fund under current law? there's another way and we want to make really clear to anybody that we talk to for those who pay attention to budget scoring and look at big increases and the debt held by the public that a lot of those are based on a scoring convention which is if the deserves deplete, it presumes that all of those benefits will keep getting paid.

how? by having money somehow transferred over from the general fund of the treasury which will be borrowed from the public in order to keep paying the full benefits. while that is a possibility it would require a change in law. anyone who shows that kind of a projection of debt ought to be qualified as saying assuming the law will change in order to be able to make this happen. >> we have shown you quite a few slides focusing on the funding shortfalls so how do we actually fix it in the long term? the bottom line is that we have to fill that gap. congress can make certain choices addressing the gap. they could raise scheduled revenue after 2033 by about one third or could review scheduled benefits over 2033 by about one

fourth or some combination of the two. one other thing people have suggested is maybe we invest more of our trust fund reserves and get more interest income. it's a possibility and i know 2.9 trillion sounds like a lot of money but it's not in the context of our program. we could get a little more income but it really will not be a huge help. >> the final slide is all of the places that you should look for more information on our webpage. we have a massive amount of information explaining a lot of the details and extra numbers of the report itself. >> henry? >> i would like to start by referring to the last slide.

the reference to their site, the actuary site is a gold mine. anyone who is serious about social security and does not dip into that is not availing him or herself of the available information. >> they have emphasized the changes and-- changes from last year and the detail elements of the projections. i would like to step back and suggest that the major important take away from this report is that there is very little news. it is negligibly 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 is adequate money to pay benefits for now and the next 15 to 18 years. at that point there's a financial problem. we will not have enough money to pay all scheduled benefits and something needs to be done at that point. that's the take away. one can get to some degree into details and i want to mention two of them for purposes of underscoring what i think is an important part of the methods that they use when doing their projections. i will focus on 2 important assumptions that go into the long run estimates. the first is what they emphasized. the improvement in 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 the long run assumptions. it influences their numbers only over the next four or five years and that everything goes back to the same baseline that existed before. i will come back to why that is important and why it opens them to criticism, and why i think it's the right thing to do. the second assumption that is key is the fertility assumption. this year, their projection is based on an assumed fertility rate considerably above what is reported this year. that number has been trending down. that is a very important assumption estimating long-run costs. they have not adjusted their

numbers yet as they have not adjusted long-running assumptions with respect to disability. many people look at year-to- year changes in the values of specific parameters that go into the estimates and say you are off of the trend. things have changed. and expect and want actuaries to change projects and's-- projections based on the latest news. consistently, they don't do that. they wait until trends are well- established until there is a logical basis, and informational basis for explaining why they have shifted. then they move gradually in the new direction. that helps explain the observation that i made, 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 would discredit the projections themselves. they would be responding to events that very often, indeed much of the time, reversed themselves because they are deviation from-- deviations from long-term trends that are returned to base values. in looking at the projections and the observations that you will hear made about the projections, keep in mind that this is a very dampened adjustment mechanism used in making these projections. it is exactly, in my view, the right thing to do as long as they are responsive-and they have been-to evidence about long-term trends.

you may hear agreement about whether particular values should be different. 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. if the bottom line is that there's not a lot of news in this report, this brings us directly to the critical question that one of the slides referred to. we have a long run financing problem. how are we going to fix it and when? i think i would have a few dissent's if i said not likely this year. indeed, not likely for the rest of the current administration. we may 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 and-- incumbent.

i want to suggest that the consensus among close followers of social security is that congress is going to put this as far down the road as it can. the reason why is because whether you are a republican or democrat, taking the steps that are necessary to close the financing gap are politically very dangerous in your constituency. if you try to raise taxes you are in deep trouble. if you try to cut benefits as a democrat you are in deep trouble. looking ahead, many people would argue that a likely solution is going to include both. waiting a very long time to take the necessary steps is, in my view, exceedingly dangerous.

this is the key point i would like to leave you with. let's imagine we've come to 2033 or a couple of years later where the trust fund will have dropped below 100% and steve and his successor or maybe karen will report that the system is in close balance and red flags get raised. at that point one could solve the problem-- the financing problem by raising taxes technically. you can raise taxes quickly. it's a major event. we move taxes around quite a bit anyway. at that point you cannot solve the problem by solving benefits quickly. you can't solve the problem because it would involve the

estimate of cutting benefits by a quarter for everybody now at that time and everybody coming onto the roles 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. okay you say, they don't do so much of that. you would have to cut benefits more for people coming on fresh. you are going to tell 64-year- olds, 65-year-olds you were planning to retire with a certain amount and you are going to get-- 35%-45% less. that leads to the scenario that should scare both conservatives

and progressives. that is that congress enacts sizable benefit cuts that don't take effect immediately, sustains benefits for those already on the roles, does not raise taxes, and borrows funds in order to pay for an extended transition. that means the higher death scenario that steve pointed out would require a change in law to make the projections correct could become a reality. it's bad economic medicine, bad pension policy medicine, and 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 2020s as it is possible to do. >> i want to thank you for the chance to be here today and the group of this panelists. i want to acknowledge the work of steve and karen and a sustained contribution to public service that i think is too infrequent-- in frequently recognized. my job is very simple. it's to explain that henry is 100% right and far too calm. as he pointed out there really isn't a lot of news for those who have been following the evolution of the system. the kinds of things that i say i've said in 2003. a lot of this was entirely foreseeable. it was the demography and structure of the program. the numbers do move around and

a lot of care is taken to correctly characterize the outlook and what i found out is that as we expected, you have a problem. a mismatch between scheduled benefits and the revenue dedicated to the system. that is the problem and it needs to be dealt with. i think it needs to be dealt with very quickly for a different reason then henry laid out. i am the problem. that's usually true, but in this case i am the problem because i am the trailing edge of the baby boom generation. i'm 60 years old, i'm an affluent person who can-- who can afford-- cannot afford my retirement more than most americans. if you grandfather me, you have grandfathered the problem. we are perilously close to doing that. i think the amount of urgency should be heightened above what

henry is saying. 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 already seen. social insurance is designed to remove financial risk from the lives of americans, those were not particularly affluent. if we leave it in the current condition every year it passes it becomes a source of financial risk. people do not know what their benefits will be, 34 or 33 or 35, whatever your that may be as congress precedes to not take any action. that's incredibly ironic and disappointing. we don't want to become the source of the risk so we should move quickly to fix this. we should also move quickly to fix this for at least 2 other reasons.

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 300-- $350 billion a year. it does not have a dedicated source of tax. some premiums and a whole reliance on general revenues there is not enough-- and there is enough-- not enough. it takes place in the larger context and i think that's a reason to move. the other reason is, it's pretty easy to fix. if you get on the metro you can fix it a couple of different ways. there are payable taxes, benefits going in and out, formulas and you can imagine

what will get this into balance quicker or slower. that's not true. medicare is going to be incredibly hard to address, much harder. in my view, congress should make an easy problem and get some exercise to take on a hard problem. there's no way it will take on both. i think we should fix this now, we should have fixed it before but my life is one of repeated disappointment-- if you do policy work in dc, that's what your life is-sorry. i would applaud the academy for holding this every year and think the trustees and the actuary and staff for what they do to eliminate the problem. now the issue is to fix it.

>> let me put in a plug for the national academy of social insurance recognized steve with the-- with its first memorial award over 15 years ago. he has been an invaluable resource on both sides of the aisle without fear of favor. whoever has come has gone straight answers and good information and has done as much as or more than anyone else to educate the american public on social security. >> it has done a better job. every year they come up with better and better people and i think there's one such person here on this panel. >> my job is to talk about the role of social security in people's lives. it 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 about 41% to about 9%. the program also provides insurance protection for young workers and their families. if a young worker dies leaving behind a spouse and 2 young children they will receive survivors 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

markets. social security is critical for children as well. over 3 million children under the age of 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. social security is responsible for lifting over 1 million children out of poverty . for women, social security has been a valuable source of income as a divorced spouse or will of a worker. for women who have been in the labor market and those entering the labor market, increasing numbers, the program is vital to their own work history. women are more likely to spend time out of the labor market usually caring for family

members. 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. second, because women continue to face a gender wage gap, they are helped by the benefit formula which is progressive so lower wage earners receive a benefit that represents a higher share of preretirement earnings than higher wage workers receive. this formula also helps to compensate for label-- labor market disparities faced by people of color. 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 work part-time even though they want full-time positions. the formula that eliminates five, 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-- employer-sponsored benefit plans even after controlling for education. social security is the only 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 highest rates of illness and injury. survivors benefits are important to african-american families because they have a lower life and-- life expectancy. while social security plays an important role in reducing poverty and improving economic security, the benefits are modest. the average benefit was $1250 per month. although the benefit formula helps to reduce the disparity in benefits across workers, the actual dollar amount received can lead them and their families into poverty even after a long work life. benefit improvements are needed.

there is a need for an expected minimum benefit that provides a floor at least at the poverty level. there are several proposals including the basic minimum benefit offered by the bipartisan policy center commission on retirement security and personal savings. there is also a need to improve survivors benefits. currently the surviving spouse receives 100% of the deceased workers benefit or 100% of their own benefit, whichever is higher. this can result in a substantial reduction for the surviving spouse. one proposal is to provide the surviving spouse of-- with 75% of what the couple would have perceived and type this so that it's focused on lower incomes survivors.

a third proposal is to establish a caregiver credit to compensate for time out of the labor market to care for family members. workers could receive a credit of the median wage for up to five years during which they were caring for a family member. a fourth proposal is to reestablish benefits for students up to age 22 if they have a deceased, disabled, or retired parent and are pursuing postsecondary education. this benefit was terminated in 1981 as a cost-cutting measure. under current law unmarried children can receive benefits through age 18 or 19 if they are students in elementary or secondary school. benefit adequacy is necessary but so is restoring resolve and see-- solvency of the program.

to pay for benefit 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 $128,000, 128, 128,000 of annual income is taxed. this is regressive since lower wage workers pay taxes on all of their wages while higher wage taxes pay taxes on a fraction. historically, the maximum tax is covered 90% of national wages but this has declined to 83%. raising the maximum taxable wage to capture 90% would substantially increase the income to the trust fund and would not affect lower wage to

workers. >> the second is to cap the spouse benefit. they may receive benefits based on his or her own work history or 50% of their spouses work history, whichever is higher. given the growing share of women in the workforce, earning benefits through their own history, a form that has been proposed for years is to cap the spouse benefit. the final proposal is to gradually increase the payroll tax for all workers and employers. the national academy of social insurance estimated that an increase from 6.2-7.2 over a period for workers and

employers each over a period of 20 years would require someone earning $50,000 a year to contribute about $.50 more per week. social security is essential at all ages that benefits are modest and leave some families and poverty. proposed changes can be made to increase economics in the-- security and the equity of the program as well as restoring program solvency. >> thank you everyone. i would like to open it up for questions but ask one myself. 2018 is the first year we have had to tap reserves to pay scheduled benefits. what is the significance of that?

perhaps we start with one of the actuaries and move on.>> anytime we expend any money on any benefits or paying my salary is, that results in tapping into the trust fund reserves. we have to redeem investments. the real question is we are moving into 2018 because almost exclusively for the drop in the tax revenues coming in which are a little bit of a surprised here. the idea we are going to have to redeem a little bit more than we are investing. so the total dominant-- dominant amount will be dropping part way through 2018. that is significant. from a budget perspective that can be argued to have particular significance but from the ability to pay the social security benefits,

assuming that our investments are required by law,, those would be available. from that point of view it really does depend on the reserve depletion date so it doesn't has significance in that regard but certainly in other which i'm sure they might want to plan on. >> i don't think there's a lot of significance. there's operational but look at the outlook for the program. the problem was understood to be there and has not changed.>> what steve said, what doug said. >> okay thank you. one more question if i may about the disability program. a lot is going on in terms of finances. you said the applications and interest rates are going down

but another item is that initial benefits are lower. you asked this question on my behalf earlier today- >> since they answered it for me i will let them answer for you.>> thank you. why our initial benefits down? >> it's really interesting. it's more about the mix of the newly awarded benefits. let's see if i have this right. while the backlog was growing, there were fewer awards at the administrative lodge level, more at the initial determination level. one thing we discovered is that awards at the alj level are actually 10 to 12% lower than those at the initial level. this is news to us and

something we just discovered. while the backlog was growing there were more of those so benefits were actually elevated a little bit. now as the backlog is starting to go down we are seeing a more normal level of benefits and they have come down because we have a changing case mix, average benefits are down about half of the percent. is that right? >> it doesn't have anything to do with what alj's are doing, but the characteristics of the workers receiving final decisions. on average they have lower earnings and hence get lower benefits. it's nothing that the aljs are doing. >> we do have some speculation as to why that's the case. >> it's interesting that people

who get awarded a little bit after the initial application tend to have, their earnings histories are weaker. we suspect part might be because people who are awarded very quickly, people who have obvious disabilities, in many cases may disproportionately be cases where they have had a sudden elevation of their impairment or an accident. they may have had a good earnings history up to the point where they became disabled and have a higher benefit level. some are more likely to have a complex case in terms of vocational considerations. it has been probably gradually getting worse and may have compromised earnings ability prior to becoming disabled. >> please identify yourself. >> i'm tj. thank you so much

for today's panel. i was curious if you have taken a look at what is driving the lower incident rate as well as the lower application levels we have been seeing. if there are any variables you have ruled out or any hypothesis for what is driving that? >> yes, we have looked quite a bit at that. it is still sort of a mystery to us. we have looked at things like, is there geographic variation? is there a urban divide? are there differences by age groups? the answer is no. it's down all across the board. we don't know. if you guys have any great ideas please let us know.>> we know much of the drops which is the start of the procession, we

were expecting some drop and got some but the degree of the decline, applications were over 2 million and are down between 1.4 and 1.5 million which is well below the level that we had in 2007. at the peak of the last economic cycle, we would expect quite a bit more disability applications. a bit of a mystery but there's nothing really left out. is it just something in general or people viewing themselves as more able, that would be wonderful. we are always looking forward to any thoughts you may be able to help with understanding this. >> if we wait until 2054--

>> my position has nothing to do with anything. i'm not presenting any institution. if-- the individual 2% to-- >> that would be up to congress to decide what they want to do. >> what is needed as well, you say by one third, that would be 4% more. >> we suggest a bout a one third increase in revenue which over that remainder would be about 4% of payroll. they could be a little smaller than that initially and have it rise up. >> it's in the ballpark. that would be a solution.

>> the second question. i understand that benefits are in just-- adjusted for inflation. indirectly, that-- is adjusted for inflation but sometimes there is a provision that can be adjusted by wage inflation which is if it is lower than in front-- than inflation. correct? how would that affect things? >> what you are saying here, we have a provision here where if our trust fund level gets to be less than 20%, there is a provision in the law that we may have to adjust our cost of living adjustment which is based on the cpi w, but if we go below 20% and the average wage growth is less than the

increase in prices, then we use the lesser of the two. >> so would such a choice affect things generally? >> we do not expect to be living in the range of between zero and 20% very much. historically, all of the policymakers have said that for this program even though we are not an advance to funded system and because we cannot borrow under current law, we have to keep this at one year, that is the target. we are almost 3 years worth in the trust fund, so to get and stay below 20% and 0% for any period of time would be tricky. part of that is because the recession is still happening and we've estimated a normal

recession-not a great one-but a normal one would resolve over a two or three-year period by dropping as much as 50 percentage points. the trustees have targeted to keep it well above the 20. >> i'm terrified of the idea of waiting. if we wait, what does it take to hold current ones harmless? we have to immediately raise taxes enough to have no shortfall at all. i'm going to pass my homework over to the trustees to get the math checked. i got about six percentage points. 4 seems optimistic to me. >> i heard that as well but when i did the math-- >> if you

are a betting person bet on that number, but that is a big increase in payroll taxes overnight because we waited. there's another perspective which is an argument for not raiding, i may have my arithmetic wrong, but i think of -- i think one would raise revenues over the 75 year period and when i say reverse i'm assuming the individual cuts are permanent and 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. >> as long as you have the current electorate-- >> 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 dangerous one but a long shot that got us major healthcare reform in the obama administration. i for one did not believe it would happen. i was surprised. i think a lot of us will be surprised if a farsighted candidate skillfully articulates the importance of social security to the nation's future. the modesty of the steps that could be taken. if we react reasonably quickly to deal with it, we could get action.

i'm not suggesting it would involve reversing this particular tax cut. 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 taxes. thinking in those metrics rather than a major chop out of earnings in 2034 is a more constructive way to think about it. >> just to clarify the arithmetic on the thought experiment of if we were to raise the payroll tax rate, we indicated that the shortfall is 3.4% of taxable payroll which means at that time and that year-- parting? 3.4% of payroll additional would be what we did. it's half- and-half for employers and

employees and would have to be raised by that period. it could be as little as 1.4% each. just reaching out by the time we get to 2095. not that anyone is advocating that as a solution. >> in terms of how it we don't often sound the same as others, you can do things gradually and get the system itself into balance. my concern is that the rest of the government has melted down and we have not taken care of an extraordinarily large budget problem that exists outside of social security. i worry about those things because in the big picture we don't have that kind of ram.>> the chart that he showed us which is that the magnitude of the gap outside social security

is smaller than that suggested by the projections of debt, since those projections include the counter legal assumption that all scheduled social security benefits will be paid by borrowing, the gap between that and revenues. >> i have a question for steve. it's related to methodology more than the results of the latest report. would you please explain an example that you had of trust fund assets in considering financial projections? obviously it is taken at the possible value and if so what is the effective discount rate is applied to effective cash flows from interest income security proceeds? and if that is so, what a different result be obtained by

evaluating directly expected cash flows from interest income and security proceeds? then are the results of the trustees report affected in any way by the prevailing research redevelopment? whether it's 2% or 4% for example.>> feel free to answer this otherwise we will have steve answer it. >> i will let steve answer it.>> technical question, but it's important. first of all just one characteristic of the investments. the law requires that any of the investments which is every dollar that comes in is immediately invested in securities. that covers a fair amount of territory. there are marketable bounds. if they invested in marketable treasuries, then the fluctuations would become

important. however, for quite a few years all of the investments have been made in what we call special issue bonds and they have interesting characteristics. there's no arbitrage because the coupon rate assigned to any investment made by trust funds is based on what is the actual effective market yield on all outstanding marketable treasuries in the prior month with a remaining time of maturity until at least four years? so it is straight up the initial interest rate assigned to any newly issued bond is right at market. when we have those and hold them into maturity and then we redeem the bond at maturity, we will equip the coupon which will be put back into the trust fund, and then we will redeem

the par value of the bond at that point as a marketable-- exactly as a marketable bond would be. if we are required to redeem a bond before it reaches maturity the market value is exactly that value. it is a nonmarketable security. that is a special feature. is that a plus or minus? it depends on what the interest rate environment is. interest rates have gone up a lot which will tend to make the market value. if market rates have gone down a lot then there is no change. in terms of the discount rate, what we do their is for that, we look at the portfolio yield of all of the bonds being held at any given point in time which is the average of interest rates being held. we

use that as the annual rate of discount for projections. that raises the question how about if we reach reserve depletion and reach a point where we don't have anything invested? we use what we estimate at that point to be the new issue rate which is exactly equal to what we and the trustees anticipate will be effective market yield on longer duration bonds. >> what is-- what he said is an important fact. the assets that social security holds are better than the ones that are sold and they are the best asset in the world to the public. no other bond carries a put at par. the financial markets would price that and charge a premium. >> this is slightly directed to

henry and doug. this is the latest in a series of reports. the social security commissioner and public trustees. to you they are-- there is symbolic importance, and when they had people in these positions, did they have a significant substantive effect on the report itself? >> it is only two positions. we have an acting commissioner who works as a full-fledged member of the board and has for several years. >> i think it's important to have the position filled in terms of the strength of the work that is put forth. when you have all of the positions filled and the report

is coming out and has been approved, i think it makes the report stronger. in answer to your second question, i'm not aware-and i've been working on this issue since the midshipman-90s- 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. i think they are a really sad reminder of that. i think the public trustees have a very important role. steve is going to do the work, his team is going to do the work, but how you think about the meaning and what it says about where the social security system fits in policy objectives, you will get a

different set of opinions between an administration and cabinet officials and trustees. i think their voice should be heard. >> i have a question for steve and karen. is it the case that there will be a .5 or six years of now where the reallocation of the disability trust fund, the money going into this would be reallocated? and if that's the case, what effect does it have on the estimates that you have put forward? >> not in current law. in current law the reallocation was set for three years. 2016, 17, 18. it will go back to the way that it was in 2019. congress could always decide to reallocate again. if the experience is as favorable as it has been

there's a possibility that the depletion date could extend past that and we could maybe reallocate the other way. we don't know at this point. >> chris? >> i'm president of elm income group. i have a 50 year association with the private sector and benefit to find a contribution. i was puzzled in that if we wrapped-- were presented with this actuary in the private sector, the first thing we would be doing is looking at the rate of return and yet that is the one solution you have dismissed out of hand. it is particularly curious in light of kim's question and your answers which implies that the fair market value of the bond held in the trust fund which there is no fair market value since you can't sell

them, but if you could sell them henry implies that the fair market value is actually higher than the book value because of the special provision. please tell me why you are dismissing-- >> i would not say i'm dismissing it. i would say that the value of our assets as a percent of the annual costs is way less than any private benefit-- defined benefit plan. they 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 about three times annual cost. in a private plan that's more like 2025. just relatively speaking, the assets themselves are not as important as they would be in a private plan. >> absolutely not.

i think it traditionally in congress, policymakers have believed that it is more important that the assets be safe and protected by the us government rather than investing them in the market. that assertion-- certainly an available option. you can see that we score several provisions for putting certain percentages of assets in the market. it's a possibility. >> there is time for one last question. >> i just want to elaborate on why it's beneficial to projects along. with the uncertainty of the economy, we could pass immigration reform, but just the benefits of the longer window sometimes. >> 75 years is one of many

durations over which we look at the prospects for financing. in addition to 75 years we also have a 50 and 25 year period. part in this, but the 75 years is traditionally considered to be the basic period over which we look. first of all, pretty much everybody who is a current participant in social security is likely not to live more than 75 years. it's likely. except for some of the very young women because they are going to live beyond us anyway, but by and large the remaining lifetime of even some of our youngest workers, it's important to learn about the prospects.

when people in congress are considering making changes, and we have a whole bunch of provisions and proposals identified, when people are considering changes because of the nature of this program and most of the kinds of proposals that come forth, they are not immediate and massive changes. often they are changes that may not start for a while, and when they do they phase-in gradually. it's really necessary to show the full ramifications of the proposal. one example is the 1983 amendments which included an increase in the normal retirement age which didn't start affect until 17 years later and the full effect will not be completed until 2022 four people reaching 60 in that year. it has a couple of pretty good reasons that we have the numbers in the report for shorter periods. >> thank you for coming and if

you go to our website you can find a video of this event within a few hours of now. thank you. he testifies on capital year about the fiscal solvency of social security. you can watch the hearing live beginning at 11 am eastern time. tonight on tremont 3, a senate hearing on-- tonight on c-span 3, the decision to withdraw from the iran nuclear deal and the effects of deregulation by the trump administration. legal scholars us-- discussed authority