>> before we begin, i want to call attention and thank our staff, but in addition, i wanted to call attention to a brief, to elliott and i drafted yesterday in response to the report that's available. many of you picked it up on the way in.

today's briefing is a grant about numbers. the financial outlook for social security. projected revenue and projected spending et cetera over the next 75 years. but two numbers that are relevant and the first is that today is the 74th anniversary of d-day when americans stormed the beaches of normandy. and i think that is something we should keep in mind today. and 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 the common good. and it's important to remember that social security is a program that is embedded in american culture. it's about far more than

numbers. not simply -- social security is not about the finances or how it impacts the federal budget or beneficiaries make ends meet. it helps families protect themselves against impofferment whether disability or inability to work or death of a bread winner. it units by strengthening the common wheel and all of us pay into. it's a shared system and it strengthens american civil society. that said, social security does face financial challenges and it's important we talk about those. the national academy of national insurance, people from the right, left and center can talk about our insurance program in a civil discourse and also to -- and social security is the most

important of those programs. with that i would like to ntroduce our speakers, steve and doug.n, henry their full bios are in the pacts. if you want more information on the speakers. i would like to introduce steve to begin talking about the programs. >> great. >> thank you very much. and we are going to do a tag team. e have a number of slides. we don't want toll keep you from the eloquence of rest of our folks.

>> we have a lot more detail. the three primary changes is in he area of trust fund. 2016 all the way out to 2022 and the next trustees' report we brought one more year.

and after that, then in the 2017 trustees' report, five more years to 2028 and we are going another four years to 2032. this is pretty good news. and why? the experience has been quite remarkable. and we have slides. but applications have been dropping dramatically. we have a couple of changes, the most significant is social security program and also the hospital insurance program and effects on our taxable payroll

and it derives from the earnings and the earnings do not grow as fast. we shall going to have less. lo and be hold we are suggesting that for a couple of reasons. we had revisions to the department of commerce, their bureau of economic analysis. and product numbers and national income numbers and they came up with revisions in the 2016 numbers that we had used in the 017. it originally showed a smaller amount of employee compensation relative to the size of gross domestic product. and the product they revised down to 2016. the numbers they have about in the mid-2017 are lower than we have been expecting. while g.d.p. has been realized what we are predicting, but the

share of g.d.p. going into earnings and taxable earnings and 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 show that what we call labor productivity and hour of work has not been growing at the rate that has been the case and we have been expecting and as has been done a few times in past years, the trustees decided we will accept a small portion of that shortfall and lowers the ultimate level of gross domestic product and slower growth rate. both of those contributed contributed negatively. and as a result, that caused a reserve depletion date for the

program and to change from the very beginning of 2035 to very end of 2023. the third thing we want and last year's report just on the basis of moving up one year, one year

later, we were estimating that number would change to 2.88% of payroll. it has not gone up that much. all other things, assumptions, methods acknowledge realized data have looked better than last year's report. and on that, our annual balance is the difference between income the program and expenses to the program.

disabled most all workers. almost 2 million at the worst peak of the recession and they have dropped very steadily all the way through 2017 and see what we projected these applications. we have expected it to be dropping after the peak but then to turn back around up to a more stable expected level. that has not happened. and the interesting part of this, there is more to come

because in the year 2018, applications have continued to expect.which we did not >> you can see we are projecting in the long run the application will end up in the same place. that is a trustees' assumption and will go back to more normal level. >> what we breeved is more normal. and whether we should be notifying that. so the next graph, this is very similar, rates, people who are receiving disability rates. and you can see we have had, this looks like the other depraff. we see our expectations that they have not been realized and the rates keep dropping. he little thing in 2017, the

rate went up a little bit and you might say how can that be? a little bit of good news. many have heard about the administrative law judge backlog of cases awaiting for a hearing. social security administration has made some real progress and getting the back brog down. and with that, many of those people were allowed benefits that gives a little bit of surming in the allowances. but remember, part of the increase from is not because of natural increase but just catching up on cases awaiting edges.

>> you can see in 2008, 2009 and people lose jobs and find more income. we had extra politicses. you can see since that, big drop in applications and incidents, we dropped well below the number of beneficiaries that we had been projecting in 2008. and expectations are even lower. this shows the annual balances and the income versus costs in each year. and last year's trust he tee

eport so the red line. at you can see is things are worst. but by the end of the period they are better and in between they fluctuate. why does that happen? the big thing in the very near term is we are expecting lower payroll tax revenue and we will get into that a little more later on. after the near term, we are expecting effects to really kick in. we have some changes to our rates. and in the longer term, mortality. there has been bad mortality experience recently. hire death rates than we expected, which is bad for all of us but good for the social program unfortunately. the sooner people die, the less

benefits they get. so bad news-good news story. >> you can see the trustees' report has a smaller negative balance so by that time, i think because of the mortality effects, we are in petter shape. >> so real quickly, we will not go through all of these numbers. if you want to go into these details. you can see at the bottom of this page, the net change in our lance is a minus 0.2% of payroll. that is slightly worse than last year. that is due to the first line on the paming which is the change in the valuation period, because

our valuation period is 75 years long. the last year, that is new for this valuation is a year where it is kind of out of balance and making things look worse. that is a minus.06. >> which explains all of our net reduction. >> pushing things in the other direction. we have a bunch of demographics. on the fertility rate. you may have seen in the news that the 2017 news on birth rates, much lower than people have been expecting. 1.75 children per woman expected in her lifetime. our long-term assumption is two children per woman. 1976. e lowest since so and one of the things we look

at all the time is birth expectation surveys. expected. many are and it is around 2.2. a mystery why things are so low right now. lower birth rates are worst for the social security program and not a good thing. recent data.

incorporating the new data. this year that was a little bit of a positive for the system. >> we have the illustration oral productivity and puts a little bit of a focus. if you look very carefully in the last few years since 2009 in this recession, we have been having productivity and increase in the amount of goods and services produced by hours of work by people in our economy has been way below the 1.7 annual percent that has been the

case. it has been higher than that. 19 49, it averaged 2%. and the last almost decade well below that. and one thing we have done in this year's report is to accept some of that shortfall is a permanent loss. and that is we will not be expecting the future to recover from all of that. and you can see that even in sort of a framework. the lower potential g.d.p., you can see back in 2010, we were rojecting the gross domestic product, enough jobs for people who wanted to work and you can littler by year taking a bit off that expectation and have had this deproth falling well short.

there is a possibility it will turn around, but national investment in the work work force and go up much faster but we have not seen that as yet but we have accepting some of the drops. >> as already mentioned a couple of times, mortality experience has been a lot worse than we expected. the black line here is the actual death rates. you can see since about 2009, there have been fairly level. and we expect mortality to improve. it really hasn't been since 2009. another thing to point out, this is all ages, we look at specific age groups, but this is a summary. the colored lines, you can see in each trustees' report, we expect mortality to improve.

it just hasn't happened in recent years. and i talked to my folks in the office and they have preliminary data for 2017 and looks like the plaque line is going to go up a little bit next year. still not looking good. >> continuing the trend. >> this is another figure that looks familiar to a lot of you and shows the difference between the cost of the program which is the blue line and the income, which is the red line. the blue line, you can see drops down at the time of reserve depletion in 20 4 to equal the income line. the blue is covering the red at that point. that is because once reserves deplete we cannot pay out any more than taking in. so the lines will become equal. the dashed blue line is the cost of all scheduled benefits.

after reserve depletion, we will going down9% in 2034 to about 7 by 2092. so another take-away is the difference between the dash line and the solid line is the funding shortfall that we have to figure out a way. >> one tiny aspect and turn good news. the 79% of the reserve depletion , 79 cents for every dollar of scheduled benefits that is rufflely up. and the 74 is up from 73 cents. that does vary but we will take every positive we can. >> here is another graph that looks very similar. instead of rooking at a percent of payroll.

this will one looks as a percentage of g.d.p. the folk can cuss is the program sustainable in the long run? if the cost and the income lines were difficult verging, we would say the program is not sustainable. but the gap is remaining relatively level. >> once the baby boomers retire and working age and we stabilize the age distribution and it stays about flat. >> one more depraffic looks similar. this is ratio of beneficiaries o workers in the population. >> the cost of social security

is driven by the demographics. >> driven to the dem depaffics and how it is driven, the age to dependency ratio and the people to the number who are between 20-64 and the prime working ages. and this has almost the same shape you would expect from beneficiaries to workers. and what the real reason is why this graph is going up and it is exactly, it's the demographic and it is more than anything else birth rates. the black line is what we are projecting but see the blue and red lines and are what -- it's a what-if scenario. you have stayed at 3.3 children per woman.

and if we stayed at those birth rate levels. only very gently been rising because of increased longist. and it's simply because of the drop in the birth rates and cost of our program, cost of the medicare program and cost of ots of things.

>> we ought to be building and expand our range and i think will be having a study coming out. pressure, but we are hoping to get there. >> one of the charts we want to show you is a number of us have looked at and concerned about. we know what we pay attention for actual status as demanded by

the congress, what is the status of the trust fund under current law. there is another way of hooking at the numbers and we what happens to make it clear for those who pay attention to the budget scoring and the big increases and the debt held by the public are based on a specific scoring convention, which is for the trust funds, if the reserves deplete, it getting they will keep paid. by having money transferred from the germ fund which will be borrowed from the public. and the problem with that, that require change in law. anybody who shows that kind of projection with the debt held by the public, it ought to be qualified as assuming the law will change in order to make

this happen. >> we have shown you quite a few slides focusing on the funding shortfalls in social security. how do we actually fix it in the long-term? bottom line, we have to build that gap, like i showed you on a flew slides. congress can make certain choices. number one, they could raise schedule revenue by about one-third or reduce scheduled benefits by about one-fourth or combination of the two. one other thing that people suggested maybe we invest more of our trust fund reserves and get more interest income. it's a possibility and $2.9 trillion sounds like a lot of money but it's really not. we could get a little more doing

that but it will not be a huge help. >> final slide before passing the time, all the places you should look for more information. and we have a massive amount of information up there explaining a lot of detail and extra numbers more than the report itself. >> henry. >> i would 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. anyone who is serious is not availing him or herself of the information. now they have emphasized and karen and steve, the changes from last year and the detail elements of the projections.

i would 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. or s changed from last year the year before or year before that. he reports have consistently painted the same picture for the nation. there is 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 is a financial problem. we won't have enough money to pay all scheduled benefits and something needs to be done. that's the takeaaway from this report. one can get into details and i

want to mention just two of them for purposes underscoring what i think is an important point about the methods they use in doing their projections. . want to focus on two the first one, the improvement in the prospects or disability claims. there are fewer of them than they were in the past and fewer than were expected. the trend is down. they have not fully incorporated that trend into their long-running assumptions. in fact, it influences their numbers om over the next four, 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 it is the right thing to do. the second assumption that's key is the fertility assumption. this year, their projection is based on an assumed fertility rate above that reported this year. that number has been trending down. that is a very important assumption in estimating long run 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 estimate. and want to hanged

change their proper jecks on the latest news. consistently, they don't do that. rather, they rate for trends to be established until there is an informational basis for explaining why trends have shifted and then they move gradually in the new direction. that means that helps explain ng fact the observation i made at the outset, the similarity of protections from year to year. ask yourself how useful these projections would be if they jump up and down year to year. they could discredit the projections themselves and respond to events that very often and much of the time reverse themselves because there are variations from long-term trends that are offset and

return 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 damp adjustment mechanism. and exactly in my view the right thing to do as along as they are n responsive >> this brings us directly to he question. we have long run financing

problem how and when are we go to go fix it? i think i would have few dissents in this room if i said . t likely this year we might have an opportunity in the next sfration whether the next president is a democrat or on the off chance it was a republican other than the incumbent. t i want to suggest that the consensus among close followers of social security is that congress is going to punt this thing down the road as far as it can and whether you are a republican or democrat, taking the sfeps that are necessary to close the financing gap and are particularly very dangerous in

your constituency. if you try to raise taxes. if you try to cut taxes, you are in deep trouble and looking .head and this is the key point i would like to leave you with. let's imagine we have come to 2033 or a couple of years later hen the trust fund drops and we'll report that the system is longer in close actuarial balance and red flags get raised.

at that point, one could solve the problem, the financing roblem entirely. you can't solve the problem because it would involve the estimate of cutting benefits by quarter for everybody now on the roles at that time and every time everybody coming on the rolls following that date, it is impossible to conseeve that members of congress either party would vote for 25% in benefits

for every retiree. you say they don't do so much of that. well then, you would have to cut benefits more for people coming fresh.he rolls tell 65 year olds rgs you are going to get 35% less in social security. not likely. that leads to what is the scenario that should scare both conservatives and progressives and that is that congress in that situation enacts sizeable benefit cuts that don't take effect immediately and sustains benefits for those on the rolls and doesn't raise taxes and in order to pay for an extended transition. that means the higher debt

scenario would require a change n law to make c.b.o.'s projections correct. it is bad economic medicine and bad pension policy medicine and something in my view that argues strongly for trying to move up the base at which we address the projected long-term deficit in social security as early in the 20's as it is possible to do. >> so i want to tharpg the chairman for being here today and i want to acknowledge the work of steven, not just this year but the public service that i think is to recognize.

my job is very simple. y job is to explain henry is right and far too calm. as he pointed out, there isn't a lot of news in this report for those who have been following the evolution of this system. the thigs i said was in 2003. a lot of this was foreseeable and structure of the program. the numbers do move around a bit. a lot of care is taken to characterize the outlook for it and what we have found out is that as we expected, you've got a problem, mismatched and revenue dedicated to the system. that is the problem. it needs to be dealt with. needs to be dealt with very quickly for a different reason. i am the problem.

it's usually true, but in this ase, i'm the problem because from the shift, i'm 60 years old and after lieu ept person who can afford my retirement and if you grandfather me and you do not perform social security for me, you have grandfathered the problem. and we are close to doing that. i think the urgdepesi hub heightened of what henry is saying. for that reason as a mat of social security system. this is one of the most effective and sustained social insurance programs we have ever seen. social insurance is to remove financial risks particularly those who are not affluent and aging. if we leave it in its current

condition, it is a financial risk. people don't know what their benefits will be as congress proceeds to not take any action. that is ironic and disappointing. and we don't want it to be the source of the risk. we should move quickly to fix the risk and at least two other reasons. one is this challenge comes from the context of many ladger dgetary challenges and knows that. there is red ink elsewhere. the medicare program runs a deficit of $350 billion. some payroll a taxes and a whole lot of

revenue. e have them looking at general revenue and pretend we can borrow. so it takes place in the larger context and that is a reason to move. the other reason to do it, it's pretty even to fix. if you get on the metro, you can fix it. there are payroll taxes coming in and benefits going out and benefit formulas and different variations on all sides that will get system but we can get there. and in my view, congress should take an easy problem and take on a hard problem and there is no way it's going to get around taking on both the next 10

years. the bottom line is simple, fix this now. we should have fixed it before now. but my life is one of repeated do policy work ndc, that is what your life is, sorry. academy foraud the holding this every year. i want to thank the trustees and staff for what they do to eliminate the problem. the issue is to fix it. >> let me step in for second and put in a plug for the national academy of social insurance, who recognized steve goss with its first memorial award. >> well over 15 years ago. hasecognized that steve been an absolutely invaluable resource on both sides of the come, has whoever has

gotten straight answers and good information, and has done as or more than anyone else to educate the american public on social security. add the academy has done a better job since that year. every year, they come up with that are an better people for the ball award and there is one such person on this panel. henry.k you, >> 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%. the program also provides an sure its young workers and their

dies,es if a young worker leaving behind a spouse and two young children, they would benefitsurvivors' valued at $700,000. if the young worker with a spouse and two young children became disabled, the family $725,000 ine about disability and retirement benefits. many, if not most families would not be able to afford this kind disability,n from insurance, or life insurance in the private market. social security is critical for children, too. over 3 million children under the age of 18 receive benefits as dependence of workers who died, became disabled, or retired. this is greater than the number of children who received temporary assistance to needy families in 2015. social security is responsible for lifting over one million

children out of poverty. women, social security is a invaluable source of income. 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 a -- is vital to their own work history. women are more likely to spend time out of the labor market carrying -- caring for family members. social security benefits, the formula helps to compensate for counting the 35 highest earning years rather than typically 40 years. thereby eliminating five years fromro or lower earnings the benefit calculations. and second, because women continue to face a gender wage

gap, ar helped by the benefit formula which is progressive. so lower wage earners receive a benefit that represents a higher share of their preretirement earnings than higher work errors -- wage workers receive. this formula also helps to compensate for 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 to work part-time, even though they want full-time positions. the benefit formula, which 5, 0, or lower 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 retirementonsored 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 important for workers of color because they are disproportionately represented in sectors with the highest rates of illness and injury. ' 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 improving

the benefitsrity, are modest. the average benefit in 2016 was $1250 a month. although the benefit formyl real helps to reduce the disparity and -- 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. for an effective minimum benefit that provides a at at least the poverty level. there are several proposals including the basic minimum benefit that was offered by the bipartisan policy center's 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 benefits or 100% of their own benefits, whichever is higher. this can result in a substantial reduction for the surviving spouse and their income. one proposal is to provide the surviving spouse with 75% of with the couple would have received and cap this so 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. a fourth proposal is to reestablish the benefits for students up to age 22.

if they have a deceased, disabled, or retired parent, and there pursuing postsecondary education. terminated inas 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. is necessaryacy but so is restoring solvency of the program. restore solvency and pay for benefit improvements, the following proposals have been offered. one is to gradually raise the maximum amount of wages subjected to the payroll tax. $128,000 --nly 128,400 dollars is taxed.

this is regressive since lower wage workers pay tax on all of their wages while higher wage workers pay taxes on a fraction of their wages. historically, the maximum tax has covered 90% of national wages. but this has declined to about 83% today. raising the maximum taxable wage to capture 90% of national wages again would increase the income to the trust fund and would allow 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 her own work history or 50% of spouse's work-- history, whichever is higher. given the growing share of women in the workforce, earning

benefits through their own work a proposal is to cap the spouse benefit. a final proposal is to gradually increase the payroll tax for all workers and employers. the national academy of social insurance estimated that an 7.2 overfrom 6.2% to -- and it is for workers and employers, over 20 years would require someone earning $50,000 year to contribute about $.50 more per week. social security is essential at all ages. it benefits are modest and leave some families in poverty, even after a lifetime of work. proposed changes can be made to increase economic security and

the equity of the program, as well as restoring program solvency. >> thank you, everyone. up tod like to open it questions. to my panel, 2018 is the first year we have had to tap reserves toward the end of the year to pay scheduled benefits. what is the significance of that? start with one of the actuaries and move on to our other panelists. that, anytime we expend any money on any benefits , that results in tapping into trust fund reserves. investments.deem we are moving in 2018 because dropt exclusively, of the

in tax revenues coming in. it was a little bit of a surprise. we are going to have to redeem more in reserves then we will be investing. the total nominal dollar amount will again dropping partly through 2018 as opposed to 2022. that is significant from a budget scoring perspective. that can be argued to have some significance but from the point of view of paying benefits, assuming that our investments are interest bearing securities backed. those will be available so this does depend upon the reserves depletion date created does not have any significance in that regard but it does in other regards which i am sure mike and doug will opine on. ofi do think there's a lot

operational significance. i look at the outlook for the program and the same way i looked at it a year ago. the problem was understood to be there and has not changed. >> what steve said, what dogs said. said.g on in thes going program in terms of finances. applications claim the incidence rate was going down. another item, initial benefits are lower. i understood that u.s. this question on my behalf earlier today. >> i will let them answer it for you. downre initial benefits and this has to do with the backlog. >> it is interesting, it is more about a mix of the new awarded benefits.

a -- the backlog was growing. there were fewer awards at the alj level, the administrative law judge level. more at the initial determination level. what we discovered is awards at about 10% to are 12% lower than those at the initial level. this was news to us, something we just discovered as we were digging into it. while the backlog was growing, there were more of those and benefits were elevated a little bit at that time. now the backlog is going down, we are seeing more normal levels of benefits and they have come 12% because we have 10% to difference. average benefits are down about

half a percent. >> the key point here is it does not have anything to do what -- s are doing.j' it has to do with the characteristics of the workers who are receiving final decisions from alj's. -- andve lower benefits comes and get lower benefits. >> we have speculation as to why that is the case. >> it is interesting that people get awarded after their initial application at the administrative law judge hearing 10 to have lower as henry indicated because their earnings histories are weaker. part of that might be because people who are awarded quickly, people who have very obvious disabilities, in many cases, cases wherey may be they had a sudden elevation of

their impairment or had an accident. therefore, they might have had a good earnings history right up to the point where they became disabled and have a higher benefit level. people get awarded at the administrative law judge level are likely to have a complex case. these are people who are gradually getting worse over time and may have compromised their earnings ability sometime before becoming disabled. >> quickly identify yourself. >> thank you for today's panel. if you have taken a look at what is driving the lower di incident rate as well as the lower application levels that we have been seeing over the last two years, if there are any variables you ruled out and if you have any hypothesis for what is driving this.

>> yes, we have looked quite a bit at it. it is sort of a mystery to us. we have looked at things like, is there geographic variation, is there a rural-urban divide, are there differences by each group? the answer is no. it is down all across the board. we do not know. if you have any great ideas, please let us know. >> we know much of the drop since the peak in 2010 which was post the start of the recession. the drop has been steady from then. we were expecting some drop, and we got some drop, but the degree of the decline, our applications are down between 1.4 and 1.5 million which is well below the 2007.we had in at the peak of the last economic of ourgiven the nature population age distribution, we would expect quite a bit more

applications and we are getting. this comes as a bit of a mystery. we are looking into it, but there is nothing that is left out. it is something in general in our society where people are viewing this -- themselves as more able, that would be wonderful. we are always looking forward to any thought you might be able to offer to help us understand this. >> if we were [indiscernible] >> would you identify yourself, please? a i am representing institution, i work as a physician in the v.a.. we have a tax-- i increase, [indiscernible] >> that would be up to the congress to decide what they

want to do. by one is needed, essay third, that is 4% more short. >> we would need a one third increase in revenue, which over that remainder would be 4% of payroll. they could be smaller than that initially in 2034 and have it rise up. >> [indiscernible] >> that would be a solution. 2% for each. benefitsrstand that are adjusted for inflation and indirectly, the [indiscernible] is also adjusted for inflation. sometimes, there is a provision adjusted by wage inflation if it is lower than inflation, is that correct? and how would that affect

[indiscernible] >> what you are saying here, we have a provision here. level, it isfund 20% of annual outgo. there is a law that we may have to adjust our cost-of-living adjustment which is based on cpi . 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. otherwise, we always use the cpi. >> with such a choice -- would such a choice affect [indiscernible] >> we do not expect to be living in the range between zero and 20 for -- twine percent trust fund ratio.

historically, all of the policymakers and policy wonks like all of us have said that for this program, even though we are not an advanced funded system, we have to keep this reserve level at one years worth of outgo, that is the target. we are almost three years worth of outgo in the trust fund. to get and stay below 20% and 0% for a time would be tricky. we are -- recessions still happen and we have estimated a normal recession, not a great when but a normal recession might result over two or three years of dropping our trust ratio by as much as 20 percentage points. our trustd to keep fund ratio above 20. >> i am terrified of the idea -- of waiting until 2034. someone asked me if you can

wait, what does it take to hold retirees harmless? you have to raise taxes enough to have no shortfall. my homework toss the trustees to get the math checked. have six percentage points for the payroll tax increase. four seems optimistic to me. spirit -- neither for nor six might be right. that is a big increase in payroll taxes overnight. we waited. -- we waited. another perspective which is an argument for not waiting. wronghave my arithmetic and invoke steve or you, doug. because of the recent tax cuts,

one would raise revenue and when i say reverse it, i am assuming the cuts are permanent, not phased out. 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. >> as long as you have -- [indiscernible] >> until candidates before -- bring the issues to the public to which they want to devote their administration, it was a long shot in regard -- and it turned out to be a dangerous .ne, but a long shot i for one did not believe it would happen.

i was surprised. 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 as doug and i both agreed, in the near term, if we act reasonably quickly to deal with it, and we could get action, whether -- i'm not suggesting it would involve reversing this tax cut. what i am suggesting is that it is a measure of the magnitude of these steps that would suffice. we had an even -- and easy enough time cutting taxes. 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 this thought experiment if we were to raise and 2035,l tax rate, we indicated in the report that our shortfall is 3.4% of taxable payroll, which means at that time, in that year, 3.4% of payroll additional would be what we would need by the time we get out to 2090 -- 2095, it is 4.45%. that would have to be raised by 4%. he could be as little as 1.7% each from employers and fromyees rising up to 2.2% employers and employees each by the time we get to 2095. not that anyone is advocating that as a solution. looking over 75 years, you

-- do things gradually. the rest of the federal government has melted down in not takend we have care of and extort nearly large ledger problem that exists outside social security. i worry about those things which counsel far to much patience. we do not have that kind of room. >> let me remind you of the chart that steve showed us, which is the magnitude of the deficit gap outside social security is smaller than that suggested by the cbo projections . since those projections include the counterfactual or counter alll assumption that scheduled social security benefits would be paid by borrowing. the gap between that and revenues. i have a question for steve

goss, this is relating to methodology rather than the latest results of these reports. would you explain how the trust fund assets are valued in preparing the financial projections? if they're taken at their principal value. if so, what is the rate as applied from social security income and proceeds? would a different result be obtained by graduating [indiscernible] and an appropriate discovery. flows affected by the interest rate environment, whether the rate on 10 year treasuries is 2% or 4%? that will let steve answered.

an actuarial thing. but it is important. thecharacteristic of investments i mentioned earlier, the law requires that any of the investments which is every dollar that comes is immediately invested in interest bearing securities backed by full faith and credit. that covers a fair amount of territory. is invested innd market will treasuries, that would be important. for quite a few years, all the investments have been made and what we call special issue bonds to the trust fund and they have interest and characteristics, there is no arbitrage because the interest rate, the coupon rate assigned to any investment rate made by the trust funds is based on what is the actual effective market yield on all outstanding marketable

treasuries in the prior month with remaining time until color maturity of four years. it is straight up, the initial assigned is right at market. however, when we have those bonds, if we hold them to redeem the bond at maturity, we will every june 30 with the coupon. the hard valueed of the bond at that point. if we are required to redeem a bond before it reaches its --urity, of the market value there is no market value per se because it is a nonmarketable security. that is a special feature. it depends on the interest rate

environment and the time the bond was issued. interest rates have gone up a lot. that would -- we would not suffer the market lowering. interest rates have gone down a lot. since it was issued. discount we use for doing valuations in our projections, what we do here is we, for that, we look at the portfolio yield of all of the bonds that are being held at the time which is the weighted average of all interest rates on all the bonds being held at that time and use that as the annual rate of discount for our projections. question, howe about if we reach reserve depletion and we reach a point where we do not have anything invested. we use will we estimated to be the new issue rate for the rate of discounting, which, of course, is equal to what we and the trustees anticipate would be the effective market year on for

your bonds in the marketable -- four-year bond in the marketable environment. >> the assets that social security holds are better than the ones that are sold in the best asset in the world to the public and the recent news, they put a put andy parr. -- and a par. the markets would charge a premium. i would like to direct this to henry and doug. this is the latest in a series of reports where three trustee positions are vacant. the social security commissioner and the public trustees. there is symbolic importance to this -- these agencies, and when these agencies have people in these positions, did they have a significant substitute affect on the report itself?

two positions that are vacant. we have an acting commissioner who works as a full-fledged member of the board and have for these past several years. is important to have the position filled in of thef the strength work that is put forth. when you have all the positions filled and their port is coming out with it has been approved by all, it makes the report stronger. in answer to your second question, i am not aware and i have been working on this issue since the mid-1990's, i am not aare of there being difference in what the report is going to save, based on the positions being filled or not. >> i think the vacancies are

symbolic of a larger breakdown to get things done. it is a sad reminder. i believe they should be filled. the public trust is important. steve is going to do the work. how you think about the meaning of your -- the results, what it says about where the social security system fits in the policy objectives, you will get a different set of opinions between administration and their cabinet officials and the order of trustees. their voice should be heard. >> i have a question for steve and karen. be a the case that it will .5 or six years from now or four years with the rio account -- reallocation of the disability trust fund, the moneys would be

oasiocated back to the fund and if that is the case, what effect does it have on the estimates you have put forward? >> not in current law. the reallocation was set for , 2017, 2018.2016 it will go back to the way it was in 2019. congress could always decide to reallocate again. is -- if the experience has been favorable. there is a possibility to extend so we couldi, reallocate the other way. we do not know at this point. i have a 50 year association with the private sector. we werezzled in that if

report inwith this the private sector, the first thing we would do is look at the rate of for turn on the assets, and that is the one solution that you have dismissed out of hand. it is curious in light of cans and yourand his answer 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 cannot sell them, but if you could sell them, henry implies that fair market value is higher than the book value. because of the special provision. please tell me why you are dismissing that. >> i would not say i am dismissing it. i would say the value of our assets as a person of the annual cost is way less than any private plan.

defined-benefit plans are intended to be fully funded. social security is not. it is more of a pay-as-you-go system. we do hold some reserves. it is about three times annual costs. in a private plan, that is more like 2025. just relatively speaking, the assets themselves are not as important as they would be in a private [indiscernible] >> [indiscernible] >> absolutely not. congress and policy makers have believed it is more important that the assets be safe and protected by the full faith and credit of the u.s. government, rather than investing them in the market. that is an option available. you can see on our website, we scored several provisions for putting certain percentages of assets in the market.

it is a possibility. >> time for one last question. >> i want you to elaborate more on way i -- why it is beneficial to project 75 years. people are talked about there could be -- have talked about there could be a shorter window. there are the benefits of a longer window. >> a 75 years is one of many durations of her which we look at the prospects for the financing. in addition, we look at a 50 year and twice five year and even 10 year short-term period, we also look over the event horizon. that is considered to be the riod over which you

look. pre-much everybody who is a current participant in social not expected to live more than 75 years. except for some of the young woman, because they will -- women because they will live beyond us anyway. areremaining lifetime likely to be covered in the next 75 years. in theer is when people congress are considering making changes, and we have a bunch of provisions we showed you and proposals identified, when becauseonsider changes of the nature of this program and because most of the kinds of proposals that come forth, they are not massive changes. there -- they are changes that do not stop for a while.

75 years is necessary to show the full mature ramifications of the proposal. one example is the 1983 amendments which included an increase in the normal retirement age which did not start to affect until 17 years later. its full effect will not be completed until 2022 for people reaching 62 in that year. the 75 year period has good reasons. periods.k with shorter >> thank you for coming. of thisfind the video event a few hours from now at our website. thank you. [applause] >> the house has been working on federal grants for state and local communities to deal with gang violence.

with army corps of engineer water projects for the next year. they will go ahead with nine new projects and begin work or move forward on another 30 projects. we expect members back for votes at 9:00 p.m. eastern. live coverage when lawmakers return. here is more about the water projects bill. the house is debating legislation to authorize water infrastructure project. the water resources development of thell us about some key details of this bill and its overall purpose. >> thanks for having me. the water bill is something congress tries every two years, they have made it a priority since the chairman bill shuster took over. what it does is they authorize army corps of engineer