Donald Trump recently claimed that he and his administration are “making Social Security stronger.”
The fact checkers have said that’s not so. They collectively agreed that Social Security’s finances have worsened since President Trump assumed office. Moreover, they asserted that his economic policies and legislation were in part responsible for the deterioration.
When the 2018 trustees report was released in June, few experts saw that the program was getting stronger or weaker. Overall, most experts on the subject saw “little change” in most measures of the program’s finances over the 75-year timeline. The fact-checkers, on the other hand, focused the first seven years, where there was a drop in projected revenue, and ignored the improvements in the decades that followed.
The story here isn’t about who is right. It’s that the fact-checkers, through their claims, have exposed a serious misconception about the data provided by Social Security’s trustees and how that information fits into the discussion of the program’s future. This isn’t just flawed; it’s fairly dangerous.
The fact-checkers treat the trustees’ annual reports as an absolute truth that foretells the path that the program will follow over 75 years. They assume the variance between this year’s numbers and those reported last year reflects a fair apple-to-apple comparison of facts, where any difference is attributable to the current president, whoever that is. In this case, Trump gets blamed for the deterioration.
There is a small problem with this line of reasoning. The trustees’ forecast isn’t a picture of what will happen. It shows what might happen over decades in a synthetic economy built on a framework of economic assumptions. The fact is those assumptions fluctuate over time simply because the actuaries have changed their mind about the future of the economy or the path of demographics.
The trustees and their actuaries, as diligent as they might be, aren’t fortune tellers, and we need to stop treating them as such. Today, the trustees’ report should serve as a dire warning of what might happen even in a good economy. Instead, many — including lawmakers, policy makers, advocates, financial experts and pundits — read the information as an assurance that benefits are safe for now and will remain so until 2034. The fact is that the most recent trustees’ report says that the odds of whether we can pay scheduled benefits into 2034 is about that of a coin flip.
What really happened in the last report? The projections showed a large drop in the revenue projections through 2024, both in payroll tax revenue and cash coming in from the taxation of benefits. Unfortunately, that change does not by itself tell us whether Trump’s economy failed to make Social Security stronger. The lower-than-expected revenue may mean that the economy underperformed, or it can mean that the previous estimate was out of line with economic possibility.
What might cause the inflation of revenue projections? When the Affordable Care Act passed, it was assumed that the tax on particularly pricey health-care benefits (“Cadillac Tax”) would alter the way businesses pay employees, allocating more compensation to taxable wages. It is a very reasonable assumption that has failed to materialize because the tax has been deferred a number of times.
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And while more jobs likely does mean better revenue, the challenge is that the revenue envisioned by Trump has to exceed the revenue expectations of the trustees. Ahead of the release of the 2017 report last year, I questioned the president’s promise to address the financial gaps in Social Security by expanding the revenue base through a growing economy for that very reason. His reasoning seemed like a stretch given that the trustees were already expecting strong revenue growth.
The questions about projections, however, are not isolated to revenue. In 2015, researchers from Harvard and Dartmouth found that overly optimistic demographic assumptions have statistically inflated the financial health of the program’s trust funds since 2000. In 2016, Jed Graham, who writes about economic policy at Investor’s Business Daily, questioned the reasonableness of the trustees’ GDP assumptions, describing the numbers as a “$2 trillion unicorn.”
Social Security Trustees’ 2018 report Different assumptions lead to different forecasts for Social Security finances.
It is entirely possible that the forecasts on which we depend may be imbued with a sense of optimism that is dangerous. These forecasts are not guaranteed. In last year’s report, for example, the trustees believed that the program would not need to use the reserves in the Trust Fund for nearly five years. One year later, that entire buffer is gone because of fluctuations in the assumptions. There is no reason that changing assumptions couldn’t do the same to the projected solvency date.
This isn’t meant to criticize the Social Security trustees or the actuaries who prepare the report. They are doing a fine job at a difficult task. The fact-checkers, and most voters, unfortunately are using the information outside of its intended purpose.
The annual Trustees Report at this point is a stern, fact-filled warning that the program is heading for crisis to a degree of mathematical certainty. Let’s stay focused on that.
Now read: Fixing Social Security starts with us, the voters
Brenton Smith writes about Social Security and is the founder of the website Fix Social Security Now.
