,efusing police protection saying that the people wanted to touch him and not hurt him. watch the report from 1968. himhey decided to transfer to good samaritan hospital where the facility was better. mrs. kennedy was with him from one hospital to the other. identifiedect is now and was grabbed by the kennedy ballroomed through the and the hotel. some officers had to protect him from the crowd. there were several who were close to hysteria and there was concern for the safety of the sus deked.

>> watch on sunday. >> now, a look at the social security system and fiscal solvency. this is 1.5 hours. >> ok, 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 skim him 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. 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 policy on introduce our panel. c-span is filming but not airing it live. that will mean if you do askquestions, 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. or --is the outlook f i'm vice president for policy at the academy. the academy is a nonprofit,

non-partisan 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 scher is in the back, that's available, many of you picked it up on the way in. today's briefing is atfirst 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 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 rememberthat 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 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 introduce our speakers, steve goss, steve acuary of the social security administration. karen glen, deputychief 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 ourspeakers, 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. 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 inthe 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 goodnews, 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.

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 ofwhich 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'llget less payroll tax. low and behold, we are suggesting some of that this year for a couple ofreasons. 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 hadbeen 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 the other factor on that is that as many have noted and i think we have a slide showing this inmore detail later, that what we call labor productivity, the amount of output per hour of work by u.s. workers has no the been -- 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 reservedepletion 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 it 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 beup to 2.88% of payroll. it's not gone up that much. sorelative to our expectation of last year, all otherthings, assumptions, methods and realized data, have on balance been better than we were estimating in lastyear's report. on 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 towardsour 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 forthat 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 blue line shows d.i. couple things to note on this graph. 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 wasmentioning 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 andchildren, 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 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 about it 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 ofcases 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. you can see the black line and we had a pretty steady rise on the number of people receiving benefit. along comes the recession and you can see that people lose the jobs and they are looking for more ways to find income and we had extra applications and some qualified. you have seen a drop and we have gone below the number of workers and beneficiaries that we were

projecting a new one lower than the last report. ok. balances andnual shortfalls. it is last year versus this year. so this is this year's report and you can see the things are a little worse in the near term in this report, but they get better and fluctuate in between. why does that happen? the biggest thing is the payroll tax revenue and we will get into that later. expecthat, we demographic effects to kick in.

we have some changes to our assumed fertility rates in the near term. and longer-term mortality. 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 the net change in our balance is a -.02% of payroll which is a slight worsening from last last year. >> through quickly, we will not

go into all of the numbers. you can see the bottom of the the with a net change in balance as -.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. we're picking up a year. every year our valuation period is 75 years long and the last 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 rate. you may have 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. 2r long-term assumption is lifetimeper woman in a and that is the lowest since 1976. one of the things we look at all all the time is birth expectation surveys and that has consistently been around 2.2. lower birth rates are bad for program.l security mortality as i mentioneddeath rates are worse than expected which is good forthe 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 focuson it. if -- focus on it. 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 ofincrease that has historically been the case. in fact it has been higher than that. you can see that it averaged2%. 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 the. 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

expected. the black line is deathrates, 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 issort 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 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 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 outanymore 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 -- of gdp. the focus 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 by the next 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 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 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 toillustrate why this graph is going up. it is exactly as karen said, demographic. specifically it's more than anything else,

birthrate. the black line is what we are projecting that you can see blue and red lines are what if 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 methodology.ur 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 beertainty that we ought to building into this and expanding our range on.

i'm probably in trouble for mentioning it, but we are hoping another chart we want to show you is something that 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 of looking at these numbers 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 by the public that a lot of those are based on a scoring convention which is if the reserves deplete and it presumes that all of those benefits will keep getting paid.

by having money somehow transferred over from thegeneral fund of the treasury which will be borrowed from the public in 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. >> all right we have shown you , quite a few slides focusing on the funding shortfalls. 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 ofthe 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 >> i would like to start by referring to the last slide. the reference to their site.

the actuary site on the web. it is a gold mine. anybody who is serious about social security and does not fit into that is not availing him or herself of the available information. changes fromed the last year and the details of the projections. i would like to step back a bit from that and suggest the major important take away from this report is that there is very little news in it. 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 18

years. at that point, or somewhere around there, there is a financial problem. we will not have enough money to pay schedule benefits. something needs to be done at that point. that is the take away from this report. one can get to some degree into details. two of themntion for purposes of underscoring what i think is an important point about the methods they use doing their projections. i want to focus on two important assumptions that go into the long run estimates. the first one is the one they emphasized at the beginning. the improvement in prospects for disabilities. 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. incorporated fully

that trend into their long run assumptions. in fact, it influences their numbers only over the next four or five years. then everything goes back to the same baseline that existed before. i will come back to why that's important, why it opens them to criticism, and why i think it's the right thing to do. the second assumption that is key is the fertility assumption. this year, their projection is based on an assumed fertility rate considerably above that reported this year. that number has been trending down. that's a very important assumption in estimating long-run costs. they have not adjusted their numbers yet. as they have not adjusted the long-run assumptions with

respect to disability. at year-to-year ornges in the values specific parameters that go into their estimates. they say, you are off the trend, things have changed, and expect and want the actuaries to change their projections based on the latest news. consistently, they don't do that. rather, they wait for trends to become well-established, until there is a logical basis and informational basis for explaining why trends have shifted. then they move gradually in the new direction. explain, in- helps made,the observation i the similarity of projections from year-to-year. ask yourself how useful these projections would be if they jumped up and down year-to-year

by large amounts. those jumps would discredit the projections themselves. they would be responding to the , indeed,at very often much of the time, reversed themselves because they are deviations from long-term trends . i think in looking at the projections and looking at the observations you will hear about the projections, keep in mind that this is a very damp adjustment mechanism. 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-run trends. you may hear disagreement about whether particular values should be different. i'm not going to defend

everyone. the general approach is exactly the right one. you should keep that in mind. if the bottom line bottom line is there is not a lot of news, this brings us directly to the critical question, which one of their slides referred to. how are we going to fix the financing problem, and when originally to fix it? i think -- when are we going to fix it? not likely this year. indeed, not likely for the rest of the current administration. inmight have an opportunity the next administration, whether the next president is a democrat or on the off chance it is a republican other then the incumbent. i want to suggest the consensus

among close followers of social security is that congress is going to punt this as far down the road as it can. the reason it is going to do so is whether you are a republican or a democrat taking steps necessary to close the financing veryare politically dangerous in your consistency. if you try to raise taxes as a republican you are in deep trouble. if you try to cut benefits as a democrat, you are in deep trouble. ahead, many people would argue that a likely solution to this problem in the long run is going to include both. time to takey long the necessary steps is in my view exceedingly dangerous. this is the key point i would like to leave you with. let us imagine we have come to

2033, or a couple years later, when the trust fund will have dropped below 100% and steve or his successor, maybe karen, will report that the system is no balance close actuarial and red flags get raised. could solvet, one the problem -- the financing problem -- entirely by raising taxes. technically. you can raise taxes quickly. it would result in a small take-home pay for workers. -- drop in take-home pay for workers. it is not a major event. we moved taxes year-to-year anyway. at that point you cannot solve the problem by cutting benefits quickly. you can't solve the problem because it would involve the estimate of cutting benefits by

now oner for everybody the roles at that time and everybody now coming on to the roles in the next -- following that date. it is impossible to conceive that members of congress, of either party, would vote for a 25% cut in benefits for every retiree in america. all right, you say, well they don't do so much of that, they don't cut benefits for people now on the roles. you would have to cut more for people coming on to the roles fresh. telle going to 64-year-olds, 65-year-old, you are going to get 35% less in social security. not likely. that leads to what i think is a scenario that should scare both conservatives and progressives. that is that congress in that

situation and acts sizable benefit cuts that do not take effect immediately, sustains benefits for those already on the roles, does not raise taxes, and borrows funds in order to pay for a very extended transition. that means the higher debt scenario that steve pointed out told require a change in law make cbo's projections correct could become a reality. it's bad economic medicine. pension policy medicine. it is something in my view that argues strongly for trying to move up the date at which we address the projected long-term asicit of social security early in the 20 20's as it is possible to do.

think the national council for the chance to be here today. i want to acknowledge the work of steve and karen, not just this year, but as a sustained contribution to public service. as is too infrequently recognized. my job is very simple. my job is to explain that henry is 100% right and far too calm. [laughter] out, there really is not a lot of news in this report for those who have been following the evolution of the system. the things i can say today i said in 2003. a lot of this was entirely foreseeable. the numbers do move around. a lot of care is taken to correctly characterized the outlook for it.

and what we have found out is that as we expected, you've got a problem of mismatch on a sustained basis in scheduled benefits. that is the problem. it needs to be dealt with. i think it needs to be dealt with quickly, and for a different reason than henry laid out. i am the problem. that's usually true, but in this case, i am on the trailing edge of that demographic shift. i am 60 years old, i am an affluent person who can afford my retirement more than most. if you grandfather me and you do not perform social security for me, you have grandfather the problem. we are peerless lee close to hairless -- peril

ously close to doing that. one of the ironies about the social security system is that this is one of the most effective and sustained social insurance programs we have ever seen. social insurance is designed to remove financial risk from the lives of americans, particularly those who are aging. if we leave it in its current condition, every year that passes becomes a source of financial risk. people do not know what their benefits are going to become 2034. as congress proceeds to not take any action on one side or the other. that is incredibly ironic and disappointing. we don't want the system to become the source of risk. we should move quickly to fix this for at least two other reasons. one is this challenge comes in the context of much larger budgetary challenges.

anybody who looks at the congressional budget office baseline projections knows that there is an norma's amount of red ink elsewhere -- enormous amount of red ink elsewhere. medicare does not have a dedicated source of financing like payroll tax. a whole lot of reliance on general revenue. we have a whole lot of the budget looking at general revenue and there is not enough. to borrow our way out of that problem is to court economic disaster. it takes place in the larger context. that is a region -- a reason to move. the other is it is easy to fix. you can fix it couple of different ways everyday. there are payroll taxes coming in, benefits going out. there are formulas and you can imagine different variations on all sides of that that will get this system into balance quicker

or slower. that's not true for some of these other problems. medicare is going to be incredibly hard to address. much harder. in my view, congress should take an easy problem as a warm-up exercise. there is no way it's going to get around taking on both over the next 10 years. the bottom line is simple. we should fix this now. i believe we should have fixed it before now, but my life is one of repeated disappointments. [laughter] d.c., do policy work in that's what your life is, sorry. i would applaud the academy for holding this every year. i want to thank the trustees and ian staffnd -- actuar 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 bob ball memorial award. we recognized that steve has been an absolutely invaluable resource on both sides of the aisle with whoever has come, has gotten straight answers and good information, and has done as or more than anyone else to educate the american public on social security. so, thank you. >> henry, that is nice of you to say, but i would add the academy has done a better job since that year. every year, they come up with better people for the ball award, and there is one such person on this panel. thank you, henry. >> my job here today is to talk about the role of social security in people's lives. social security is a retirement benefit that is critical to the

economic security of the elderly, but it is also an insurance program that is needed at every stage of life. social security retirement benefits reduce poverty for the elderly from about 41% to about 9%. however, the program also provides insurance protectors for young workers and their families. if a young worker dies, leaving behind a spouse and two young children, they would receive survivors' benefits valued at $700,000. if the young worker with a spouse and two young children became disabled, the family would receive about $725,000 in disability and retirement benefits. many, if not most families would not be able to afford this kind of protection from disability, insurance, or life insurance in the private market. social security is critical for children, too.

over 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 in 2015. social security is responsible for lifting over a million children out of poverty. for women, social security is a valuable source of income for working -- income as a spouse. for women who have been in the labor market for a long time and for those who are entering the labor market in increasing numbers, the program is vital to their own work 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 or lower earnings from the benefit calculations. and 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 their preretirement earnings than higher 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 eliminates 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 employer-sponsored retirement savings plans, even after controlling for education. social security is the only retirement benefit that many workers of color have, and the progressive benefit formula helps to compensate for lower wages received. social security disability insurance is important for workers of color because they

are disproportionately represented in sectors with the highest rates of illness and injury. survivors' benefits are important to african-american families because they have a lower life expectancy. while social security already plays an important role in reducing poverty and improving economic security, the benefits are modest. the average benefit in 2016 was $1250 a month. although the benefit formula helps to reduce the disparity in benefits across workers, the actual dollar amount received by low-wage workers can leave them and their families in poverty, even after a long work life. so, benefit improvements are needed. there is a need for an effective minimum benefit that provides a

floor 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 worker's benefit or 100% of their own benefit, whichever is higher. this can result in a substantial reduction for the surviving spouse in their income. one proposal is to provide the surviving spouse with 75% of what the couple would have received and cap this so 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 they are pursuing postsecondary education. this benefit was terminated in 1981 as a cost-cutting measure, and under current law, unmarried children can receive benefits through age 18 or 19 if they are students in elementary or secondary school. so, benefit adequacy is necessary, but so is restoring the solvency of the program. and to 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. $128,400 ofnly annual income is taxed. 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.

a 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 their spouse's work history, whichever is higher. given the growing share of women in the workforce, earning benefits through their own work history, a reform that has been proposed forap 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 increase from 6.2% to 7.2% over a period -- and that would be for workers and employers, over a periodf rning $50,000

a year to contribute about $.50 more per week. social security is essential at all ages. but benefits are modest and leave some families in poverty, even after a lifetime of work. proposed changes can be made to both increase economic security and the equity of the program, as well as restoring program solvency. >> thank you. i would like to open it up to questions. i would like to take moderators panel, 2018d ask my 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? perhaps we start with one of the actuaries and move on to our other panelists. >> one note on that, anytime we

expend any money on any benefits paying karen or my salaries, that results in tapping into trust fund reserves. we have to redeem investments. the real question is we are moving in 2018 because almost exclusively of the drop in tax revenues coming in. surprise here. a we are going to have to redeem more in reserves then we will be investing. the total nominal dollar amount will begin 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

therein, securities backed by the full faith and credit of the u.s. government, 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. >> i do not think there is a lot of significance. there is 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 doug said. [laughter] i may.more question, if a lot is going on in the disabilities program in terms of finances. one of the applications claim its incidence rate was going down. another item, initial benefits

are lower. i understood that you asked this question on my behalf earlier today. >> since they answered it for me, i will let them answer it for you. >> why are initial benefits down and this has to do with the backlog? >> it is interesting, it is more about the mix of the new awarded benefits. let us see if i have this straight. while the backlog was growing. there were fewer awards at the alj level, the administrative law judge level. more at the initial determination level. one thing we discovered this year is that awards at the alj level are about 10% to 12% lower than those at the initial level. this was news to us, something we just discovered as we were digging into it. while the backlog was growing, there were more of those and

so benefits were elevated a little bit at that time. as the backlog is starting to go down, we are seeing more normal levels of benefits and they have come down because we have 10% to 12% difference. average benefits are down about 0.5%. is that right? >> the key point here is it does not have anything to do what -- with what alj's are doing. it has to do with the characteristics of the workers who are receiving final decisions from alj's. on average, they have lower earngs, and hence get lower benefits. -- the aljng the la 's are doing. >> we have speculation as to why that is the case. >> it is interesting that people who get awarded after their initial application at the administrative law judge hearing tend to have lower as henry

indicated because their earnings histories are weaker. we suspect part of that might be because people who are awarded who havekly, people very obvious disabilities, in cases, maybe disproportionately, we need to check this, there may be cases where 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 who get rewarded 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. >> questions from the audience. quickly identify yourself. >> thank you for today's panel.

i was curious 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 few years, if there are any variables you ruled out and if you have any hypothesis for what is driving this. thank you. >> 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 -- age groups? 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 level we had in 2007. at the peak of the last economic cycle, given the nature of our population age distribution, we would expect quite a bit more disability applications than 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 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. >> would you identify yourself, please?

>> it doesn't matter. i am not representing any institution, i work as a physician in the v.a.. if in 2034, do i understand that 2% to fix is it? it?ixes >> that would be up to the congress to decide what they want to do. what is needed? you say by one 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 because our deficit is -- for 30 -- >> that would be 2034. a solution.

2% for each. >> i understand that benefits are adjusted for inflation and indirect way, the elections also are adjusted for inflation. sometimes, there is a provision that can be adjusted by wage inflation if it is lower than inflation, is that correct? and how would that affect that? >> what you are saying here, we have a provision here where if getsrust fund level, if it below 20% of annual outgo, there is a law that we may have to adjust our cost-of-living adjustment which is based on cpi w. 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 affects materially? >> we do not expect to be living 20%he range between 0% and 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, and because we can't borrow at least at current law, 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. part of the reason for that is because recessions still happen, and we have estimated a normal recession, not a great when but -- one, but a normal recession

might result over two or three years of dropping our trust ratio by as much as 20 percentage points. we have always targeted to try to keep our trust fund ratio above 20. >> i'm terrified of the idea of waiting until 2034. someone asked me if you can wait, what does it take to hold current retirees harmless? i do the calculation where you have to raise taxes enough to have no shortfall. i'm going to pass my homework to the trustees to get the math checked. i have six percentage points for the payroll tax increase. four seems optimistic to me. when i did the math, i got a far more dramatic increase. it --k the spirit of nor six mightfour

be right. that is a big increase in payroll taxes overnight because we waited. >> there is another perspective which is an argument for not waiting. i may have my arithmetic wrong 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. if one reversed that, one would go most of the way if not all of the way in terms of financial flows to closing the long-term gap in social security. >> i believe it just won't happen. >> we don't know what will happen until candidates for the presidency identify the issues

they want to bring before the american public and to which they want to devote their administration. i think it was a long shot, it turned out to be a very dangerous one, but a long shot that got us major health care reform in the obama administration. i for one 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 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 easy enough time cutting taxes. 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 this thought experiment if we were to raise the payroll tax rate, in 2035, we indicated in the report that our shortfall is 3.4% of taxable payroll, which means at that time, in that year, 3.4% of payroll additional would be what we would need by the time we get out to 2095, it is 4.45%. that would have to be raised by 4%.

it could be as little as 1.7% each from employers and employees rising up to 2.2% from employers and employees each by the time we get to 2095. not that anyone is advocating that as a solution. >> in terms of understanding how different people think about it looking over 75 years, you can do things relatively gradually and get the system into balance. my concern is that the rest of the federal government has we -- down in your 30 and year 30 and we have not taken 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 legal assumption that all 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 result of the latest trustees report. 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? if that is so would a different , result be obtained by evaluating directly the expected cash flows from maturity

proceeds at an appropriate discovery? are the trust flows affected by the interest rate environment, whether the rate on 10 year treasuries is 2% or 4%? >> i will let steve answer it. >> technical question this is an , actuarial thing. but it is important. one characteristic of the 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. there are marketable bonds and other things that could be invested in. if the trust fund is invested in theytable treasuries, then would become 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, first of all, 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 interest rate assigned to any new issue bond as right at market. however, when we have those bonds, if we hold them to maturity and we redeem the bond at maturity, we will every june 30, click the coupon. we will be deemed the hard value of the bond at that point.

where there is a difference, if we are required to redeem a bond before it reaches its maturity, the market value is exactly the par value. there is no market value per se because it is a nonmarketable security. that is a special feature. is that a plus or a minus if go -- minus? it depends on the interest rate environment and the time the bond was issued. interest rates have gone up a lot. we would not suffer the market lowering. if interest rates have gone down a lot. since it was issued. in terms of the 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 we use that as the annual rate of discount for our projections. that raises the question, how

about if we reach reserve depletion and we reach a point where we do not have anything invested? we use what we estimated at that point 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 yield on 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 reason is, they carry a put at par. the markets would charge a premium.

this is the latest in a series of reports where three trustee positions are vacant. the social security commissioner and the public trustees. to you, is there a symbolic importance to these agencies? and when these agencies have people in these positions, did they have a significant substance affect on the report itself? >> it is only 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. >> i think it is important to have the position filled in terms of the strength of the work that is put forth. when you have all the positions filled and the report is coming out in 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 aware of there being a difference in what the report is going to say based on the positions being filled or not. >> i think the vacancies are symbolic of a larger breakdown in the capacity of the parties to get things done. i think they are a really sadder minder of that. i believe they should be filled. -- really sad reminder of that. 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 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

candidate officials and the board of trustees and i think their voice should be heard. >> i have a question for steve and karen. is it the case that it will be a point five or six years from now where the reallocation of the disability trust fund, the moneys would be reallocated back to the oasi fund and if that is the case, what effect does it have on the estimates you have put forward? >> not in current law. in current law, the reallocation was set for three years, 2016, 2017, 2018. it will go back to the way it was in 2019. congress could always decide to reallocate again. if di experience is as favorable as it has been recently, there is a possibility to extend out past oasi, so we could reallocate the other way.

we do not know at this point. >> i have a 50 year association with the private sector. i was puzzled in that if we were presented with this report in 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 the question and his answer and your answer, too, steve, which implies that the fair market value of the bonds held in the trust fund, which there is no fair market value since you 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 generally intended to be fully funded. social security is not. it is more of a pay-as-you-go system. we do hold some reserves. right now, 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 plan. >> [indiscernible] >> absolutely not. traditionally, 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 why it is beneficial to project 75 years. people have talked about you could do a shorter window. with things is still uncertain , just theconomy benefits of a longer window. many years is just one of

durations of which we look at the prospects for the financing. in addition, we look at a 50 year and 25 year and even 10 year short-term period, we also look over the event horizon. that is considered to be the basic period over which you look. for a couple of reasons i would suggest, first of all, pretty much everybody who is a current participant in social security is not expected to live more than 75 years. except for some of the young women because they will live beyond us anyway. the remaining lifetime are likely to be covered in the next 75 years. the other is when people in the congress are considering making changes, and we have a bunch of provisions we showed you and proposals identified, when

people consider changes because of the nature of this program and because most of the kinds of proposals that come forth, they are not massive changes. oftentimes, there are changes that may not start for a while. when they do start, they phased in gradually. 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. we do work with shorter periods. >> thank you for coming. if you go to our website, you can find the video of this event

within a few hours from now. thank you. [applause] stephen this morning, goss is testifying on the social security administration's fiscal solvency. live coverage beginning at 11:00 a.m. eastern on c-span three. later, the house foreign affairs committee looks at business investments abroad in the future of trade between north and south america. live coverage beginning at 2:00 p.m. eastern on c-span three. floor, work continues on the combined spending bill for energy. they also take up a bill to resend a $15 billion in spending from unused funding appropriated in previous years.

at 10:00 a.m..ns live coverage here on c-span. the u.s.-north korea summit is set for tuesday. book tv will feature authors with books about the region. this sunday, with one book, a north korean girls journey to freedom. another author, and her book "undercover". watch on c-span2's book tv, sunday at 5:00 p.m. eastern. next, we have from health and human secretary alex azar. he testified yesterday morning. members focus their questions on the opium