by JoeTheEconomist
April 24, 2013 3:32 AM
Last week, the authors of the Simpson-Bowles plan released an updated version of their plan. The part pertaining to Social Security can be found in Appendix A on page 41. The key phrase is : Unfortunately since the Fiscal Commission proposal was released, the 75 year shortfall actuarial shortfall has increased significantly"
In football, we throw to where the receiver will be. In DC, we throw to where the problem looks smallest and most remote. This is why we measure Social Security by the 75 year solvency.
The 75 year window is a bad measure of Social Security's security because it makes the problem appear smaller and far away. How? The figure does not include the financing costs of the system. It shows the payroll taxes we collect today as revenue, but does not include the cost of benefits associated with taking that revenue.
Solving the problem for 2010 through 2085 is completely different from 2013 through 2088 because you are bring on the cost of future benefits. In five years, fixing Social Security will be defined by 2018 through 2093 and once again we will have a problem. Soon enough we will be right back where we were in 2010.
This is why Social Security has been 'solvent' three times in my life.
