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Measuring Social Security's Financial Problems

Author

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  • Jagadeesh Gokhale
  • Kent Smetters

Abstract

The U.S. Social Security system has helped keep many retirees out of poverty. However, according to the Social Security and Medicare Trustees, Social Security faces a future financial shortfall of $10.4 trillion in present value. This enormous imbalance has received little attention in public debates about Social Security. Instead, the media and policymakers continue to focus on the program's trust fund and several other ad-hoc measures that create a misleading impression of the size of Social Security's financial problem. Although the Social Security Trust Fund is not projected to be exhausted until 2042, Social Security's $10.4 trillion present value imbalance is accruing interest and will grow by $600 billion during 2004 alone. The current cash-flow federal budget, however, is biased against reforms that would improve Social Security's finances. As shown herein, a new federal accounting system would remove this bias.

Suggested Citation

  • Jagadeesh Gokhale & Kent Smetters, 2005. "Measuring Social Security's Financial Problems," NBER Working Papers 11060, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11060
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    References listed on IDEAS

    as
    1. Kent Smetters, 2004. "Is the Social Security Trust Fund a Store of Value?," American Economic Review, American Economic Association, vol. 94(2), pages 176-181, May.
    2. Sita Nataraj & John B. Shoven, 2004. "Has the Unified Budget Undermined the Federal Government Trust Funds?," NBER Working Papers 10953, National Bureau of Economic Research, Inc.
    3. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    4. Gary V. Engelhardt & Jonathan Gruber, 2004. "Social Security and the Evolution of Elderly Poverty," NBER Working Papers 10466, National Bureau of Economic Research, Inc.
    5. Jagadeesh Gokhale & Kent Smetters, 2003. "Fiscal and generational imbalances: new budget measures for new budget priorities," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Dec.
    6. Kent Smetters & Jagadeesh Gokhale, 2003. "Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities," Books, American Enterprise Institute, number 52628, September.
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    Cited by:

    1. Zijun Wang & Andrew J. Rettenmaier, 2008. "Deficits, Explicit Debt, Implicit Debt, and Interest Rates: Some Empirical Evidence," Southern Economic Journal, John Wiley & Sons, vol. 75(1), pages 208-222, July.
    2. Laurence Kotlikoff & Ben Marx & Pietro Rizza, 2006. "Americans' Dependency on Social Security," Working Papers wp126, University of Michigan, Michigan Retirement Research Center.
    3. Miao, Jianjun & Wang, Neng, 2011. "Risk, uncertainty, and option exercise," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 442-461, April.
    4. Kobsak Pootrakool & Anak Serichetpong, 2007. "Safeguarding out Nation's Nest Egg: Necessary Reforms to our Social Security System," Working Papers 2007-05, Monetary Policy Group, Bank of Thailand.
    5. Gourio, François, 2011. "Putty-clay technology and stock market volatility," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 117-131, March.
    6. Erling Holmøy, 2007. "Fiscal sustainability: Must the problem be diminished before we can see it?," Discussion Papers 499, Statistics Norway, Research Department.
    7. William R. Emmons & Anthony Pennington-Cross, 2006. "Editor's introduction," Review, Federal Reserve Bank of St. Louis, vol. 88(Jul), pages 221-234.
    8. Biggs, Andrew G. & Brown, Jeffrey R. & Springstead, Glenn, 2005. "Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(3), pages 483-504, September.
    9. Mar Devesa Carpio & José E. Devesa Carpio, 2009. "El coste y el desequilibrio financiero-actuarial de los sistemas de reparto. El caso del sistema Español," Working Papers. Serie EC 2009-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    10. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," Tax Policy and the Economy, University of Chicago Press, vol. 26(1), pages 125-164.
    11. Laurence J. Kotlikoff, 2007. "Is the U.S. Bankrupt?," Boston University - Department of Economics - Working Papers Series WP2007-015, Boston University - Department of Economics.
    12. Anjan V. Thakor, 2006. "Commentary on \\"Is the United States bankrupt? \\"," Review, Federal Reserve Bank of St. Louis, vol. 88(Jul), pages 251-258.
    13. Nippani, Srinivas & Smith, Stanley D., 2010. "The increasing default risk of US Treasury securities due to the financial crisis," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2472-2480, October.
    14. Laurence J. Kotlikoff, 2006. "Is the United States bankrupt?," Review, Federal Reserve Bank of St. Louis, vol. 88(Jul), pages 235-250.
    15. Laurence Kotlikoff, 2005. "Pension and medicost reform - averting the demoghaphic/fiscal demise," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(4), pages 37-41, December.
    16. Laurence Kotlikoff, 2005. "Pension and medicost reform - averting the demoghaphic/fiscal demise," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(04), pages 37-41, December.
    17. Srinivas Nippani & Stanley D. Smith, 2009. "The Increasing Default Risk of U.S. Treasuries Securities Due to the Financial Crisis," NFI Working Papers 2010-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.

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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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