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Study on Social Security Shortfalls Impact on Senior Poverty Flawed

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January 18, 2005

Study on Social Security Shortfalls Impact on Senior Poverty Flawed

SSA Uses Questionable Assumptions to Support Warnings of a Crisis

For Immediate Release: January 18, 2005

Contact: Debi Kar, 202-387-5080

A recent Social Security Administration (SSA) study relied on questionable assumptions to conclude that a projected shortfall in Social Security in 2042 would double the senior poverty rate from 2 to 4 percent. The flaws are enumerated in a new paper from economists at the Center for Economic and Policy Research (CEPR), entitled, Growing the Social Security Crisis: The Social Security Administrations Poverty Rate Projections. The SSA study assumed that the income gap for women and minorities would not improve from 2022 to 2038. It also relied on projections from the 2001 Social Security trustees report, which is considerably more pessimistic than the 2004 report. In addition, it assumed that Congress would not act to cushion the impact of the potential shortfall on the poorest of the elderly.

Furthermore, even if benefit cuts and poverty increases did occur in 2042 as described in the study authored by Andrew Biggs, the money needed to keep seniors from falling into poverty would be a relatively small amount, equivalent to about 0.02 of the federal budget in 2042. To put the number in better perspective: Fixing this problem would cost about the same as 16 hours of the Presidents tax cuts.

The usefulness of this analysis from the Social Security Administration seems rather questionable. Several dubious assumptions, most importantly the disappearance of any reduction in gender- or race-based income gaps between 2022 and 2038, appear to play an important role in its finding, write Dean Baker and Mark Weisbrot, CEPR co-directors and co-authors of the paper.

Baker and Weisbrot point to the surprising assumption that the pay gap between women and minority groups and white males will fail to decrease over a 16-year period from 2022 to 2038. This assumption inflates the poverty increase projected to occur among seniors in 2042 by assuming additional women and minorities will be poor. Such a failure to improve income equity over those years would represent a significant departure from the recent historical record, in which the relative median income for women and minorities has risen substantially.

Additionally, while the most recent report from the Social Security trustees projects that the Social Security trust fund will not be depleted until 2042, the SSA study relied on the 2001 report, which projected that the trust fund would run out in 2039.

Finally, the SSA report assumes that Congress will never do anything to avoid a sudden cut in benefits to retirees in 2042 or to soften its impact for the poorest seniors. As seniors will comprise over a quarter of eligible voters in 2042, Baker and Weisbrot find this to be unlikely.

Still, even if the SSA-projected benefit cuts occur in 2042, Baker and Weisbrot note that they would be a tiny percentage (0.02 percent) of the Federal budget and that the cuts would actually be less on average than those proposed by Plan 2 from the Presidents Social Security commission.