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

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On March 17, 2003, the trustees of the SocialSecurity program released their annual reporton the system’s financial status. Many observerstook the report’s extension of the trust fund’ssolvency one year to 2042 to mean that SocialSecurity’s financial health had improved. In fact,Social Security’s actuarial balance declined andits cash flow deficits over the next 75 yearsincreased to $25.33 trillion (in 2003 dollars).

More important, the report contained significantnew methodologies that are central to thedebate over personal retirement accounts.

The trustees now measure Social Security’sdeficits over the infinite horizon, providingremedies to the previous 75‐​year scoring windowthat substantially understates the costs ofthe current program and overstates the costs ofpersonal account plans. Under this new perpetuity benchmark, the present value of SocialSecurity’s cash flow shortfalls totals $11.9 trillion,versus only $4.9 trillion over 75 years. Tocover Social Security’s cash deficits permanentlywould demand an immediate tax increase equalto 4.47 percent of payroll.

The 2003 report also includes a “stochasticanalysis” accounting for the variability of theeconomic and demographic factors affectingSocial Security’s finances, finding there is lessthan a 1‑in‐​40 chance of Social Security remainingsolvent for even 75 years without reform.

The 2003 Trustees Report shows that SocialSecurity’s cash deficits are large, growing, andunlikely to fix themselves without action. Onlypersonal account proposals have been certifiedto eliminate Social Security’s multitrillion dollarcash shortfalls.

Andrew G. Biggs

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