It’s been several weeks since the Social Security Trustees released their 2016 Trustees Report. I’ve been waiting to see if either Donald Trump or Hillary Clinton or anyone in the press core would say a peep about the astounding $6 trillion deficit implied the Report’s table VI.F1.
Not a peep.
As you may know from looking at www.kotlikoff2016.com, I’m running for President as a write-in candidate. UCLA economist, Edward Leamer, is my running mate. We’ll be on the ballot along with the two party candidates and their veeps if voters simply write Laurence Kotlikoff for President and Edward Leamer for Vice President on the ballot in the space provided. It’s that simple.
Unlike the other two candidates, Ed and I are very deeply concerned about our country’s fiscal condition, which is grave to say the least. If we don’t address it, we can kiss our children’s economic futures goodbye.
I’ll get back to the overall picture, but let me tell my opponents and the press what they will find if they care to do their job and look at Table VI.F1. They will learn that Social Security, according to the system’s own actuaries, is now $32 trillion in the red! The $32 trillion is the present value difference between all the system’s projected future benefit payments less the sum of a) all its projected future taxes and b) its current almost $3 trillion trust fund.
We economists call this measure Social Security’s infinite horizon fiscal gap. Last year, the Trustees reported a fiscal gap of $26 trillion. So the system’s fiscal gap grew by $6 trillion over the past year, i.e., Social Security ran a $6 trillion deficit!
The system is now 32 percent underfunded. In other words, Social Security’s 12.4 percentage point payroll tax rate must be raised immediately and permanently by 32 percent, which is 4 cents out of every dollar we earn (up to Social Security’s covered earnings ceiling, which is now $118,500). The longer we wait, the higher the tax hike will have to be, which means the larger the fiscal damage our children will face.
Social Security’s fiscal child abuse is only a small part of a far bigger and far more alarming overall fiscal expropriation of today’s and tomorrow’s children. Last year, based on the Congressional Budget Office’s long-term alternative fiscal scenario, the nation’s overall fiscal gap was $199 trillion, making our entire fiscal enterprise 53 percent underfunded. Consequently, while Social Security is in horrific fiscal shape, the rest of the fiscal system cannot bail it out, because it’s in even worse shape.
If the 2015 overall fiscal gap was $199 trillion, what is it today? The answer is that, at least so far, we can’t tell. Keith Hall, the Director of the CBO, just oversaw the release of CBO’s long-term fiscal forecast. But it did not include the Alternative Fiscal Scenario, which is what CBO staff really forecast will occur under current policy. So far this information has been censured. Instead, the CBO served up a long-term forecast that was based on implausible assumptions, which no one inside the CBO itself believes are valid. I’m hereby calling on the Director of the CBO to immediately produce and publicly release the CBO’s Alternative Fiscal Scenario. If the fails to do so, he doesn’t deserve his title and should resign.
The CBO Director works for Congress, but his first responsibility is to the truth. Hall’s predecessor, Douglas Elmendorf engaged in the same deception, i.e., he too failed to produce the CBO’s Alternative Fiscal Scenario until enough people like myself publicly embarrassed him into doing so. Of course, when the figures were finally made public, the news cycle was well passed and no one in the press picked up on the truth about the country’s long-term fiscal position.
Elmendorf and Hall are both PhD economist. But you won’t find their names on the list of over 1,300 economists from every top university and college in the country and many less well know schools who have endorsed infinite horizon fiscal gap accounting. The list includes 17 Nobel Laureates in economics. The reason is not because Elmendorf and Hall have a better handle on economics. The reason is that they have sold out to the politicians.
Speaking of selling out, many people who read my Ask Larry column posted on my company’s website and at Forbes may think I’ve sold out by selling software and co-authoring a book that helps older generations maximize their lifetime benefits from Social Security. Why, one might ask, should anyone who understands Social Security’s dire fiscal condition help anyone get more money out of the system?
My answer is that everyone in a given cohort should be treated the same. This means they should all have the same information about which benefits are available and how best to receive them. But we also need to treat our children fairly. This is why I propose in our book and in my platform the immediate freezing of the existing Social Security system and the simultaneous introduction of a very simple, modern version of Social Security that is fully funded and that won’t leave our children to pick up an even larger tab for our benefits.
I don’t know if Clinton or Trump have ever heard the term fiscal gap, let alone know what it means or its magnitude. Certainly, neither has mentioned the term nor discussed the fact that we need a permanent 53 percent hike in every federal tax rate starting today, or an even larger hike down the road, given all the spending that will arise under current policy.
Since neither Clinton nor Trump get our fiscal problem, neither has a solution to it. In contrast, my platform would eliminate our country’s massive fiscal gap in its entirety and remove the Fiscal Sword of Damocles we’ve suspended over our children’s economic lives.
Clinton and Trump aren’t alone in missing or ignoring the fiscal calamity we face. Social Security’s Trustees, political appointees all, presumably examined table VI.F1, which, after all is in their report. True, they buried it as deeply as possible in the Report’s Appendix, but it’s there and it’s the single most important table in the entire document. Yet the Trustees don’t even mention the system’s $32 trillion fiscal gap or the fact that it rose $6 trillion over the last year. Maybe they don’t have children or grandchildren? Or maybe they do and they just sold out.
I think they’ve sold out. And they’ve done so, in part, by selling themselves on a proposition that economists, as a group, reject based on standard economic theory. The proposition is that we can read our fiscal condition from a truncated fiscal gap of, in the case of Social Security, 75 years. We can’t. Looking out over 75 years ignores almost two thirds of the system’s long-term fiscal problem. It includes taxes young and future generations will pay, but leaves out most of the benefits they’ll receive. It’s Enron accounting, simply in a different guise.
Moreover, the 75-year fiscal gap is not a theoretically well defined measure of anything since, unlike the infinite horizon fiscal gap, its measurement depends on our choice of fiscal labels. Let me be crystal clear on this. From a scientific perspective, 75 year fiscal gaps for Social Security or for our entire fiscal enterprises are meaningless numbers, i.e., complete and utter garbage. Yet the 75-year fiscal gap is the only summary measure of the system’s fiscal condition that the number the Trustees mention.
Politics is the art of lying. But when we let politicians, trustees who are anything but, or politicians masquerading as economists lie about our children’s futures we become complicit in their immorality.