Briefing Paper No. 82

Failing by a Wide Margin: Methods and Findings in the 2003 Social Security Trustees Report

By Andrew G. Biggs
April 22, 2003

Executive Summary

On March 17, 2003, the trustees of the Social Security program released their annual report on the system’s financial status. Many observers took the report’s extension of the trust fund’s solvency one year to 2042 to mean that Social Security’s financial health had improved. In fact, Social Security’s actuarial balance declined and its cash flow deficits over the next 75 years increased to $25.33 trillion (in 2003 dollars).

More important, the report contained significant new methodologies that are central to the debate over personal retirement accounts.

The trustees now measure Social Security’s deficits over the infinite horizon, providing remedies to the previous 75-year scoring window that substantially understates the costs of the current program and overstates the costs of personal account plans. Under this new perpetuity benchmark, the present value of Social Security’s cash flow shortfalls totals $11.9 trillion, versus only $4.9 trillion over 75 years. To cover Social Security’s cash deficits permanently would demand an immediate tax increase equal to 4.47 percent of payroll.

The 2003 report also includes a “stochastic analysis” accounting for the variability of the economic and demographic factors affecting Social Security’s finances, finding there is less than a 1-in-40 chance of Social Security remaining solvent for even 75 years without reform.

The 2003 Trustees Report shows that Social Security’s cash deficits are large, growing, and unlikely to fix themselves without action. Only personal account proposals have been certified to eliminate Social Security’s multitrillion dollar cash shortfalls.

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Andrew G. Biggs is a Social Security analyst and assistant director of the Cato Institute’s Project on Social Security Choice.