Communications Project on U.S. Social Security System Finances
The Buffin Foundation has agreed to sponsor a communications project to be undertaken in cooperation with the Washington-based National Academy of Social Insurance (the Academy). The purpose of this project is to educate specific target audiences on how to interpret the financial condition of the Social Security (Old Age, Survivor, and Disability Insurance (OASDI)) system, as reported by the Board of Trustees, in a manner that fully and objectively assesses its financial sustainability. The target audience will include the news media, policymakers, and public policy researchers in the academic community, think tanks and advocacy groups, as well as the general public who might seek an explanation of how the financing of the Social Security system operates. The project is scheduled to be implemented over a three-month period commencing in May under the direction of the Chief Executive Officer of the Academy and will involve the participation of an intern, selected for this specific project, under the auspices of the Academy’s Merton C. Bernstein Internship in Social Insurance.
The focus of the project will be on analyzing and communicating the finances of the (OASDI) program using appropriate metrics that are derived from the results published in the Social Security Trustees Annual Reports. The primary deliverable of this project will be an Academy Issue Brief to be released in connection with the issuance of the 2022 Social Security Trustees Report. The Issue Brief will discuss the assessment of Social Security’s nature, history and future outlook. It will seek to counter common misunderstandings and misinformation that arise from the projected depletion of the OASDI Trust Funds. As a result, public understanding of, and confidence in, Social Security’s financial condition, is expected to be improved. Also, most importantly, Members of Congress will have a reliable framework of suitable metrics and projections to develop effective policy options, including an automatic balancing system with a timely trigger mechanism, and a graduated payroll tax, to address the system’s financial challenges of stability, solvency, and sustainability.
The structure of the Issue Brief will comprise the following topics: 1.Introduction; 2.History of Old-Age, Survivors and Disability Insurance; 3.Benefit Structure; 4.Payroll Tax (Federal Insurance Contributions); 5.Trust Funds; 6.Investments; 7.Financial Projection Model: Economic Elements; 8.Financial Projection Model: Demographic Elements; 9.Financial Projection Model: Program-specific Elements; 10.Revenue Cash Flow; 11.Expense Cash Flow; 12.Trustees Annual Report; 13.Financial Stability; 14.Financial Solvency; 15.Financial Sustainability; 16.Expected Financing Shortfall; 17.Uncertainty Spread; 18.Payroll Tax Equilibrium; 19.Sensitivity Analysis; 20.Stochastic Projection Methodology; 21. Future System Integrity; 22.Potential Parametric Adjustments; 23.Policy Options; 24.Conclusion and Consideration of Alternative Actions.
The Issue Brief will describe the two Trust Funds, the OASI Trust Fund and the DI trust fund, and will explain the purpose and function of the funds as a stabilizing mechanism for the fixed payroll tax structure, together with a description of the sources of income, including interest on the Trust Fund reserves, and types of expenditures. It will describe the special-issue U.S. Treasury securities in which the Trust Funds are invested and explain how the rate of interest on each new issue of these securities is determined. It will also provide information relating to the schedule of maturity dates of securities held in the Trust Funds. The Issue Brief will explain the financial projection model that is used to assess the actuarial status and financial operations of the OASI and DI Trust Funds. Details of the economic and demographic elements and assumptions will be described, including productivity, price inflation, average earnings, real wage differential, labor force and unemployment, gross domestic product, interest rates, fertility, mortality, immigration, total population, and life expectancy. It will also provide descriptions of Trust Fund revenues and expenses and the development of income and cost rates projected over 25-year, 50-year, and 75-year periods. It will also provide an explanation of the actuarial valuation process for computing discounted present values of future revenue cash flows, including Trust Fund proceeds. An important focus of the Issue Brief will be on the topic of financial stability and how setting the payroll tax at a fixed constant rate over a period of time, as a means of achieving stability, has the detrimental effect of compromising the long-term sustainability of the system. Another major topic to be included is the use of appropriate actuarial metrics for the assessment and monitoring of the secular trends of solvency and sustainability as indicators of the projected long-term financial condition of the system and identification of any financing shortfall. The Issue Brief will introduce the concept of “Payroll Tax Equilibrium” that represents the requisite payroll tax rate necessary to achieve 100% sustainability over specific future projection periods to meet all scheduled benefit and administrative expenditures.
Once the Issue Brief has been completed and is ready for distribution, the Academy will arrange for its widespread dissemination to key legislators and staff of Congressional Committees with jurisdiction over Social Security legislation. A media release will accompany the Issue Brief and the Academy will also submit an Op-Ed summarizing the key points to major national newspapers.