Questions Missing from Ron Gebhardtsbauer's Chart

["Steven H. Johnson" <info@sscommonsense.org>]

Dear Ron-

There are several key indicators that would be useful additions 
to your chart.

1.  What's the year 2075 level of benefits that's expected to be
paid to beneficiaries, as a percent of taxable payroll?  From the
ongoing Social SEcurity program?  

Last year's Kolbe-Stenholm proposal, as mentioned earlier, cut the
payments to beneficiaries to about 10.5 percent of taxable payroll.
As of the 1998 Trustees' Report, their cuts represented roughly
a 45 percent benefit cut, by the year 2075.  

The Weaver-Scheiber proposal, floated as part of the Advisory
Council report about three years ago, cut benefits by about 55%.

The year 2075 program cost, as a percent of taxable payroll, is 
a key indicator that needs to be spelled out for all the proposals
being put before us.

2.  What happens to the size of the Trust Fund, preferably measured
as a percent of GDP, over the course of the forecasting period?

The Nadler proposal sounds great.  

But, if implemented as spelled out, my hunch is that the Trust 
Fund would do a disappearing act.  It would probably peak at 
about 35% of GDP is 2025, or something like that, and then head
slowly downward, on its way toward zero percent of GDP not long
after the end of the current 75 year forecasting period.

AS I say, I suspect that that's the case.  I don't know.  It would
be good to know.  

The Archer-Shaw proposal, I suspect, may have a similar defect.
Aiming for actuarial balance, given the way the term is defined
by the Social Security actuaries, constitutes little more than 
a recipe for insolvency one or two years after the end of the
forecasting period.  We need to know the size of the Trust Fund,
and the size of the PRA, over the whole course of the forecasting
period.

Genuine solvency, to me, is achieved only if the Trust Fund is 
just as large, as a percent of GDP, in 2075 as it is in 2050.  If
the numbers for any given proposal show that the Trust Fund will
be on the verge of going belly-up in 2075, the program may produce
actuarial balance, measured as of now, but it certainly doesn't
produce lasting solvency.

The only way to tell for sure is to know what's going to happen
to the size of the Trust Fund as the year 2075 approaches.  And 
knowing the size of the Trust Fund in raw dollar terms won't help.  
We need to know its size as a percent of GDP.

3.  I'd also like to know what's happening to the size of the capital
pool held by PRA's, also as a percent of GDP.

The Sanford proposal, and the Porter proposal, both promise to grow
PRA's to a pretty substantial mass.  I wouldn't be surprised but
what they'd hit 100% of GDP, or more, in size.  Considering that
the average market capitalization of the U.S. stock market has only
been about 65% of GDP, over the past seven decades, a PRA-based
pool of capital equal to 80%, or 100%, or 120% of GDP represents
a truly huge pool of capital, especially if half of those PRA 
portfolios are likely to be invested in stocks.

Do we as a nation think it would be a good idea for PRA's to own
fifty percent of the whole stock market?  Or eighty percent?  Or
even ninety percent?  Probably not.  We need to know how close
PRA proposals like Sanford's and Porter's would bring us to that
possibility.

It's important to know the projected size of PRA's as a percent
of GDP, over the course of the forecasting period.

4.  If a given proposal promises not to cut benefits (and not all of them
take this position), it would be nice to know the predicted rate
of return that makes this possible.  Do PRA's require a 5% rate of
return in order to keep beneficiaries whole, vs. the benefits 
intended by current law?  Or a 4% rate of return?  Or six percent?

For reasons that I laid out earlier, in my response to a comment
made by Senator Santorum, it seems unlikely that future
stock market returns are likely to match past returns.

Knowing the rate of return that's needed to keep beneficiaries whole,
if they are to be kept whole, is another important indicator.  What's 
anticipated rate of return for PRA's?  Or for the Trust Fund?  Or
both?

In the traditional pay-as-you-go framework, the categories listed
on the Gebhardtsbauer chart make perfect sense.

But we may well be on the eve of an important shift, to a Social
Security program in which the gap, at least, is funded.  The gap,
that is, between monies due to be paid out, and monies due to come in.
Since the anticipated gap is expected to be about 2.5% of GDP, and
since the size of the capital pool that's needed if we are to fund
the gap fully would be about 65% of GDP, I believe your chart
needs to add those categories which are critical in assessing 
any proposal that moves us toward a partially funded Social
Security program.  

My thanks to you, and all the participants, for the seriousness and
sincerity with which everyone has been taking up this issue.

Steve Johnson, Director
Common Sense on Social Security
http://www.sscommonsense.org