Financing and policy option. Thank you all for being here with us today. I want to start by just getting a show of hands and sing humming of the people in this room think they would financing and policy option. Get at least a penny from Social Security. All right. Probably twothirds, threequarters. So theres a gallup poll that came out i think a year or two ago that asked all working age americans that question. And 51 of them said they didnt think they would see a penny from Social Security. You get a trooper that several ways but i think its pretty shocking to see how ittle faith people have when theyre planning for their own retirement of how much they will get. Whether they actually believe that order was more symbolizing their lack of faith or mr. Ross in the political system is up for question. It was pretty shocking to me it was that high a figure. That really brings to the discussion we will have here today in looking at social securities longterm sustainability and the financing structure and how we do make it sustainable for the long run so it will be there in some shape or form probably with modifications for when you all need and ready to claim benefits. So i just want to start very briefly by letting everyone know about a commission with at the Bipartisan Policy Center was called the commission of Retirement Security and personal savings. It was cochaired by former senator kent conrad and jim lockhart who is the senior official both bush administration, the number two at the Social Security administration and that a group of 19 who worked for two years took was a labor of love. They met about a dozen times fullday meetings. They dealt with not only Social Security ut also the private sector and now that contributes personal savings contributes to peoples Retirement Security. But they ultimately on a spectrum purdy wideeyed spectrum came to agreement on a package of policies that would make Social Security sustainable. I didnt think they would get there in the beginning. Several of the member said i think we should put Social Security aside because will not Reach Agreement but audibly with modeling some of the reform proposals, they did Reach Agreement. That just shows how difficult this is. It took them now that contributes personal savings contributes to peoples two years and theyre not even elected officials of the deputy one to go back to district and respond to and actually vote on this back home, but they were able to reach that agreement and i think it shows a model, of groups have done this, but it shows what our policy makers will need to do sometime in the near future in order to get the system by contractor i encourage you to check it out. A digital an overview of the system and what the options are to fix it. You can find it on bipartisanpolicy. Org. Today we are here with steve and curate and im so lucky to be joined by them because both people who i have long admired in the so Security Policy space. There are very few people who know more about the program then the two of them. They been working on for a number of years. What i love about both of them is that they are actuaries of the mind and so you can estimate question of what percent toy need to increase the payroll tax line ordered to solve half of the social scale problem and they would give the answer like that. If they try really, really hard they condemn it down enough for the rest of us we could understand whats going on in this policy issue. You can find their full issue. You can find their full bios in the packets that you have but steve is the chief actuary, has been for many years at the Social Security administration. Hes responsible for scoring all the proposals that members of those outside groups like this commission, submit and request assistance with seeing what the impact would be on the program as well as for contributing to he annual Trustees Reports and many other responsibilities that i wont detail here. And karen is the deputy chief actuary of the solstice could he administration. So without im going to turn over to them for a brief presentation on the financing and some of the policy options that are on the table for fixing Social Security. If you have a question at the end please resent it will do some q a. When it is returned as question please make sure you speak loudly for everyone in the room can hear you. So with that i think terrible start off. Qatar one comment on your initial question to the group, shai, just cant resist. Something like 20 years ago or so something about which a lot of people in the room would not have familiarity, there was a survey done the some of us older folks were fully with that was asked a bunch of young people if youre more likely to see Social Security benefits or space aliens in their lifetime. The answer was almost unanimously space aliens. I was at a point short after the talked a bunch of people a little bit older than you all as interns that were payroll administered for various corporations all over the place. They were all people very much in the 20s. I raised that question to them and all the hands went up for space aliens of course. How cool is that . And i said so you you are making a pretty good income here now and since you know you will not get anything from Social Security you are probably saving a huge portion of your salary. You are probably saving like crazy, right . There was molding around and one guy stood up and said we didnt really mean nothing. So i think really its kind of a cool thing to say to be cynical, not expect stuff but when it came right down to it they were not walking, they were not voting with their feet. More psychology than the actual exactly, yeah. With that, sorry, karen will tell you the eal story. All right, thank you thank you so much, shai, and welcome everyone. We are just going to give you a little bit of background on Social Security financing and some options to hange it for the future. So to begin, Social Security is to legally distinct trust funds. Theres the oas i find which is survivors insurance. Thats begin, Social Security is to legally distinct trust funds. Theres the oas i find which is survivors insurance. Thats really the retirement and survivors fund. And then theres the Disability Insurance fund which is for disability benefits. Really those two are separate legally. Oftentimes will talk about them on a combined basis but really they are separate and cant begin, Social Security is to borrow from each other. The Financial Operations are overseen by the board of trustees. There are six trustees typically. There is the secretary of the treasury who is the managing trustee. The secretary of health and human services, secretary of labor, commissioner of Social Security and then there are two Public Trustees dominated by either party. Right now those positions are vacant and they ave been for a couple of years but were hopeful we will get some on board soon. As i mention the two funds are often looked at on a combined basis, but were hopeful we will get at the end of last year and were about 2. 85 trillion in those trust funds. Those combined funds have run on surpluses since the early 80s nd their expected to do so through about 2021. Beginning through about 2021. Beginning in 2022, those reserves will start to go down until we expect him to be depleted in 2034. Thats what, about 17 years from now. When they are depleted we still expect that bout 77 of benefits will be able to be paid, and thats if able to be paid, and thats if nothing else is done, if the legislative changes are made, still 77 benefits will be aid. Looking separately, the di fund is in a little bit di fund is in a little bit worse shape. Its expected to be depleted in 2028. So i ttention needs to be paid to that evelyn that sooner. And little bit sooner. This graph just shows you as a percent of gdp how much the trust funds hold in reserve. So you can see that evelyn that sooner. And that back in the 1980s, the fund was getting very low. At that Time Congress got together, made a compromise and passed the 1983 and then mens which are brought more revenues into the funds and cut benefits a little bit. At that point as i started as it started the way up until about, this is all as a percent of gdp but until very recently as these were going up, now theyre expected to decline until 2034. So how did Social Security get its income . I think most of you ave seen in your own paychecks employees and employers each ay 6. 2 of the earnings into the trust funds. Selfemployed pay both of those pieces so the employer and the employee peace to make it 12. 4. That is on earnings up to 127, 2000 or at the taxable maximum, the taxable cat. But basically earnings above that level are not taxed for Social Security purposes. Another piece of the income is taxes on social ecurity benefits. Retirees and disabled folks in the fisheries with high incomes pay some taxes on the benefits, and that goes into the trust funds as well. And finally there is interest on those trust Fund Reserves. The trust funds are invested in interestbearing securities, and we get interest from treasury on a regular basis. So now where does the money go . Mainly benefit payments. The vast majority is benefit payments. About 61 Million People were getting benefits as of the end of last year. 44 million of those were retired workers and their dependents. 6 million were survivors of deceased workers, and about 11 million disabled workers and their dependents. Administrative expenses are another piece of very low,. 7 of the expenditures. This is and about 11 million disabled just a little graphical way to see what i just told you. This stuff on the top is the income. You see that payroll taxes are the vast majority of the income. Taxed on benefits are pretty small, interest is a little bit bigger, and on the bottom of the graph you see the benefits going out, the vast majority. Theres a little bit of, this little technical think that we have an exchange with the Railroad Retirement board. Then there is the administrative expenses, 6 billion sounds like a lot of dollars but in comparison with the benefits it is really retty small. Okay, so why do we have trust funds at all . The trust funds really provide reserves so benefits can be paid even when there isnt enough income coming in. A lot of people think of it as you need at least one years reserve in a trust fund to make it easonable. Right now weve got about three years of reserve the we do expect those to go down, and as i said before we expect them to become depleted in about 2034. One important thing to note. The funds cant about three years of reserve borrow. They can only spin what is being collected. So when there is not enough money coming into the fund, they wont be able to pay full benefits. One thing you will often hear is other are the trust funds real . Other just and i are you sitting in a file cabinet somewhere . What does real mean i guess is the question. It reserves the plates full benefits cant be paid. These funds are real in the sense that they are onsequence. The trust fund really do force congress to act in order to keep benefits really do force congress to act going. As happened in 1983. Trust funds were about to deplete. They didnt just let them deeply. They are real in the sense that congress had to change things in order to keep the program going. Okay. Quickly, we want to get to questions eventually, how do we express the future shortfall . To look at things on a comparable basis, we usually look at things as as a percent of the taxable payroll of the program. This is a good way you can look at something in 1940. You can look at something now and put it on a comparable basis. So for example, in 2045 we expect taxable payroll to be about 24. 1 trillion. This is all the earnings that will be taxed by the program. Incomes to the program is expected to be about 3. 2 3. 2 trillion. So if you divide those two, income is 13. 24 of payroll. Similarly, we look at the cost of the program which is expected to be about 4 trillion, and thats 16. 72 of payroll. So to get the shortfall in that year you just take the difference between the cost and income and thats really the gap that needs to be filled. They shows the exact same thing graphically. If you focus on the 2045 line that we just talked about, you will see that the cost of the program, the dotted blue line at the top, is a good bit above the income we expect to become into the program. So there is a gap. There is a shortfall at that point, and its the job of congress and all of you to pick up the way to fill that gap. And now steve is going to go over a few slides and then i will come back and talk about some of the options that weve ot for fixing the program. Thanks,thanks, karen. Thank you all for being here. Remember an eclipse is not the same as space aliens, so it will just be the moon sort of oing to be moving over. I want to add luggage what karen had already put forth about the basic nature of Social Security program and how it is financed, talk about the size of the shortfalls which will be addressing later, and beyond that the reason why we are looking at having a shortfall coming. As karen indicated were looking at this notion of when the reserves deplete. As karen mentioned reserve depletion is what forces congress into action because who if you are a member of congress, 77 have a, once took 23 reduction in monthly benefits from one month to the next for your constituents who will not be happy, your chance of getting reelected will probably be affected by that. Congress has overstepped up on a timely fashion. You can see a picture of where we are here karen showed the same graph. This expresses level of the reserves we have been building up and are now bringing down as a percent of the annual cost of program. Historically, we have maintained a contingency eserve about one years worth of outgo. Why . Because of outgo. Why . Because recessions have a we discover that recently at the end of 2007 and they can take away some of your reserves and having a reserve cushion allows Congress Time to Pay Attention o realize whats going on with help of our Trustees Report and take timely action. You can and take timely action. You can see the interesting one is the light blue line, Disability Insurance program. Back in 1994 the reserve ratio was dropping down precariously low and we projecting in 1995 it would hit depletion. So congress of course realizing that we told them, they acted and in 1994 the enacted a little projecting in 1995 it would hit reallocation of putting oasi tax rate over to the di fund. That cause moving up the di fund. In 1995 we projected that would carry the di fund to eserve to depletion not in 1995 but we are estimating about 201616. Lo and behold fastforward to 2015 we were still estimating the reserve 1995 but we are estimating depletion would be in 2016. Pretty lucky guess back in 1995. We were projecting 2016, and congress acted again with another tax allocation, putting some of the revenues that are directed only to oasi over to di and thus give it a further bump. Well get to this in a slight in a moment you can see the dashed line, the dashed line is where we are projecting reserve depletion to be going out in 2023 just a year ago in the last Trustees Report. That was without obviously having this tax reallocation. Now as can indicate when apartment 2023, talking 2028 for disability. Why do we have an extra five years . Why the set line look so better . Even might as karen indicated we are a much better financial shape in terms of reserve depletion than the oasi, the pinkish line that are for di and combined is dominated by oasi of course. So why have things gotten better on disability . We have this thing called disability incidence rate. For those who do not familiar, incident rate is just the number of people newly become disabled fighting for starting to get Disability Insurance benefits. As a percentage of all the people who are insured not receiving a benefit. Its called the expos population to the number of people to potentially could come in to offer benefits us are getting a historically it is averaged a little over 5 , or that is a little bit what, ive per, 5. 4 per thousand. Well, whatever. I. 4 per thousand which is about half a percent feature of the exposed population becomes disabled, files for and start getting benefits. You can see it goes up and that there not surprise me if this up in a recession. Back around 2010, 2009, ten, ten, 11 we had a peak level in our disability incidence rate. A big recession comes, a lot of people does work. People under normal circumstances in a Strong Economy who could qualify for our benefits and have significant impairments me if this up in a recession. Will nonetheless be able to hold down a job. They will retain the job, still productive but then when a recession comes along and dilutes the work like everybody else they will try to find a way to feed themselves and her family. If people can possibly file for benefit whether retirement benefit our disability, people will file for it. Our actual allow a trade goes down a lot in a recession because a lot of people file for benefits that are not sufficiently qualified but a number are. We have a boost in the incident rate will look at whats happened to the solid line going on after the peak in 2010. Disability incidence rate. You can see the 012, 13, 14, 15 and not even the 2016 Trustees Report we had been projecting this drop in incidence rate after the peak from the recession would be coming back up to our longterm expected average. It just has not been. The incidence rates have been dropping, dropping, dropping two levels weve not been expecting and that a quite frankly surprising. We are doing a lot of work trying to understand why this is happening. Asas a result of that big drop that weve had this extension you saw in the prior slide going from the dashed line to the solid blueline for disabilities. For the broader oasi program as a hole, we tend to look at not only combined basis most of the only combined basis most of the time in part because even though we give two separate funds, when one of them is in trouble and the other is that, congress will step in as it did in 1994 and did it again in 2015 and do some reallocation of tax rates to true up the funds and make them operate a little bit more on the same path. We look at them on a combined basis, in 2034 were projecting for the combined Social Security trust fund to deplete our reserves which means at that point or thereafter we would only under he law be able to pay out as much money as we are continuing to come in which is the sort of income rate, a percentage of much money as we are continuing our taxable payroll for all the money all earned, on up to the first 127,200. Across our whole economy for a body was covered we can see we would drop down to pay only what we can and then at the point of reserve depletion in 2034 we only have 77 cents of continuing tax revenue for every dollar of benefit obligation. That modifies a bit over time not dramatically to 73 cents for every dollar of obligation by revenue for e the time we get way out there in 2095. Something probably more important for some of you all then maybe to me. 2095. Why in the world is the cost rising so much as you can see on the slide . You can see the cost rate, the blueline which continues to the dashed line, thats what the cost would be. This is rising. Why is the cost rising so much . We tried to emphasize this because of policymakers on the hill and later this afternoon, understanding why you have a problem, why have a challenge is important in deciding what you want to do about it. Why do we have it . The first cut of this is the number of beneficiaries compared the number of workers is whats important. We are a payasyougo system. Youve all heard this. The money comes in from todays workers is what finances the benefits paid to todays beneficiaries. The relationship, the ratio the number of beneficiaries per 100 workers is important. Over the next 20 years that is writing a lot. So again the question, if thats what the cost is going up because beneficiaries is rising faster than workers why is that . Lets look fundamentally at the population. Maybe some people too young this old ads about demographics is destiny. Its actually true. If you look at the black line this gives you another ratio would look at, a pure populationbased ratio. The number of people 65 and older divided by the number of people working age, rough approximation of what the benefit group is, the Beneficiary Group compared to the people who are contributing or working in our society. That was rising for a long time up to about 2008 and all of a sudden we had this big blast up, a big level shift in this curve that is going to happen over the next 20 years. The question is why is that . Look at the blue and purple lines and you can see those continued to grow up at a low rate. Those lines are ones we done a simulation of what it at the end of the baby boom time during which on average when were we having 3. 3 kids over a lifetime and since it is dropdown to do, what is the number of kids for women, for a couple in our society stayed at three or 3. 3 . This age of dependency ratio would not have this big hump up with gothic ben wittes date on a very gentle increased if we would be talk about shortfalls of Social Security and medicaid for that matter. Because the rise we have here would be just from the continued aging. We see the big shift that has occurred in the age distribution of our population is really not so much matter where living longer. Death rates have been dropping, thats nice but its a matter of the change in the birth rate. Real simple way to think about that back in the think about that back in the day when there on average three kids born for every couple, a retired couple would be retired in the workforce exhibiting directly or indirectly to support them. Now we will move into a time where we will on average per couple, when this couple moves into retirement there would be to get back in and it would be three kids back workforce supporting them. To get after you to contribute more to support the two elders than the three of the elders will get mass. Basically thats the question that faces congress. Look at this demographic movement this is somewhat the same of the age dependency ratio. This tells more. This tells you the age 25 and older population in our country going back to 1940 come first ship in panama for benefits paid out of Social Security all the way up to 2100. What share of that Adult Population was in these different age groups . The eason this is significant, this tells you in the band between 19701990 what you will notice is the share of those under 55 that were in the older group which is sort of the pinkish purple oranges band, 4564 that is 64 that is working age people by people or older working age more likely to be disabled than the 2544. You can see the share of the 2564 in the older group by shrinking. The costs were not really rising. However between 19902010 look at the relationship. They share of the eople up to 64 were about 44th was increasing dramatically and this is basically the reason the cost was rising so much during that period relative to our taxable payroll, our taxpayers. People got all excited about that what we had a hard time conveying the people is what happens beyond when we go to 20102030 as the baby boomers move out of 4564 age group into the heart age groups, moving out of the prime physical ages and as a result the cost of the Disability Insurance program is no longer a big issue. On the earlier graph, almost like icing on the cake. Its something really dramatic about how much the concept is the Insurance Program is dropping. You can compared to what youre expecting based on the demographics. So what the reason i got the nod from all the folks to talk about aging, an obvious. When you talk but something, it could have some experience in it so i have more experts that anyone else or from our office today on aging. Speaking of aging one of the other things is the other part of the aging metric which is mortality rates, death rates. Death rates have been dropping pretty consistently. This is the age sex adjusted death rates for all ages combined. Thats been dropping that a lot of people up to about 2000 and were saying this will drop really fast forever and ever. Rom 2009 on death rates have kind of too good degree level off. They are not dropping out as fast and the little colored lines indicate weve been projecting after drops that have been occurring. A lot of people in the past evincing we were not projecting enough ecline and death rates, we have been projecting too much. The next graph you can see a little bit more of what matters most to the cost of our program which is whats happening for death rates at 65 and older. This is really leveled off since 2009. We fed very little dropping deatherage. We project too much. Were hopeful expecting death rates will begin to decline again more rapid in the future but the key is one of your kind of project of something in the future, dont be surprised if things turn it different from what you expected. You got to look at the longterm average trends and not just the things, we should not get all upset and think theres never going to be in a decline and death rates just like in 2000 and we tried to tell people dont get so encouraged we will have dramatic drop in death rates for ever and ever. Benefit levels. Just to get a sense of the benefit levels which is something you will think about as youre working through the afternoon work of making your pick of how we should make changes to Social Security, you can look at the benefit levels would put these in terms of what we call benefit replacement rates. This is the ratio of the benefit amount you would start to get. In this case if you start receiver benefit at 65 which a lot of people do, start early, the level you would get as compared to your career average earnings level as we measure it essentially, it is sort of wage index version, earnings level. For a low earner, 25 percentile of earners you would be getting around half of what you have been earning back in Social Security benefits for a very, very high owner person who been steadily working at taxable max is like a quarter. Part of the deal is to say Social Security is one of the three legs of the stool. You should be having some personal savings, mployers doing something but Social Security get you this much. If people come on the roles at 62 instead as you all know we have a reduction for starting your benefits earlier than the current 66 normal Social Security get you this much. If people come on the retirement age. You can see that 50 for the low earner drops down to 40 . 25 for the very, very high honors top stand only 20 . If you start benefits early you hopefully will have even a better augment from other two legs of the retirement age. You can see stool. This is sort of the unpleasant picture of if congress does not act, what would have to happen in terms of the benefits that would be payable. This shows 2327 reduction in the level of benefits that would be payable and, therefore, the benefit replacement rates would drop. If congress doesnt act by 2034 and we dont have enough money to pay out the full schedule of benefits. The last thing im going to mention before passing the baton back to get is how we fix it, bottom line and this is vident on the cost relative to payroll that i should you and across relative to gdp that karen should you. Basically what weve got is in the future 4. 6 of gdp is the not a scheduled coming in for the payroll that i should you and current law. The cost of paying the full schedule benefit as more like 6. 1 of gdp in the future after the point of reserve depletion. What does that mean . We have to either pull up the amount of revenue by about onethird from what his schedule in current law and in order to pay the full benefits or we need to pull down the level of the scheduled benefits sometimes called promised. The scheduled benefits have to be pulled down by a quarter, or some commendation of those two. In ost Amendments Congress gets together, i think there were make the change. One other item im not sure if its on your docket is our 2. 85 2. 852 we could invest in something other than treasury securities and together, i think there were compromises sometimes used as a you a little bit of this and that and we tend to split the difference. We will have to perhaps get a higher gain. Thats something thats been much discussed the probably we are not likely to go to intention but we will see. And from that i think we passed back to karen. I am going to skip over most of these because i know we want o get to some questions, but as steve said the bottom line is how can financing shortfalls be covered . You need to lower costs by about 25 , increase revenues by about 33 , or some as steve said the bottom line combination of those approaches here one other thing i think you folks will consider when you put together your own packages later today is whether the current benefits as they are structured now are adequate. Maybe we want to increase them for some targeted populations. So youll hear more about all of these in the next session and the upcoming session son going to skip to these right now. This afternoon you guys will become up with your own solution. We will give the details are all these policy options and we really look forward toseeing what you guys come up with. Additionally, this this is a great place to go if you want more information about anything we have talked about today or anything we were caught in the actuaries office. Its www. Ssa. Gov. There is a wealth of information there of changes that already been proposed, analysis of whats going on under current law, lots of data sets for any of you who are data people. Theres a time to dig in there, so please go there, take a look and you know where to find us if you have any questions. So thank you. [applause] thank you both. Incredibly insightful as always. The problem with inviting actuaries is they know too much. We are short on time for questions, but we would invite all of you to raise your hand and we can bring a mic over if you have any. Im going to start off just one or two of my own and we got about ten minutes or so. One thing i would encourage everyone to do after your done after you are done exploring these discussions today is to visit that website and just click through several of the dozens and dozens and dozens of options that steve and karen have scored already. It really shows you the magnitude of the changes and discord packages together like the package we talked about earlier so you can see of the Interactive One another. Its interesting you can spend a lot of time there. I have. I guess one thing i wanted to start off let me mention a set of provisions. We just happened to bringalong a few copies of a summary of the 150 individual provisions, not provisions, not that we made up, but members of congress and other entities make up. We will have copied at least for one each table in case you want to make reference to thatin addition to the material that is already available. I wanted to ask both of you, there are the options that are frequently discussed out there that probably everyone in this room and watching the movie with whether raising the retirement age or payroll pack. What are the more creative ones you all have come across and scored . I know in your positions you dont endorse specific options but once you the more interesting and that address certain elements of the program or certain aspects that dont get discussed as much . One of the things thats come up a little more recently that we had not seen too much in the past is whether the program should tax Investment Income and not just earnings. We are seeing that more and more. On aca introduced a tax Investment Income doesnt go to Social Security, but some folks have proposed doing something similar that would go to Social Security. I would just add not to encroach too much on some material chris chaplain will be providing, but one of the things was inack in 2010 addition to Bipartisan Policy Center commission at the panthers also simpsonbowles commission that was put together and we worked with them on developing sort of a variation of normal target age increased. Most of the time the retirement age increased their current law just rises up for anybody everybody who will be getting retirement benefits, but they had some numbers on that commission who said, people who are long career, have high stress jobs that may be can be to work as long, we dont necessary want to raise the retirement age for them. We worked out with them, and you can see the provisions here and on our website for the conference proposal. We worked out a variation for people of long career,at least 25 years and had their average career earnings of relatively low levels, like less than what was it, less than two and half times the Poverty Level for the average career earnings, that they would have no increase in the retirementage. People above that would at some increase. People at four times a part of them would have the full increase put forth. This is a way of kind of like modifying the degree to which we be doing this. A lot of research you probably all of heart about recalibrate seem to be improving more for high income people suffer low income people. Thats a creative item. One of the things youll see in our letter to the cultures of the commission, you will not seek in their commission report, because they had not gotten the details of this worked out in time for them to put together a report. They worked it out on the later for us to do our letter for them. You both have been worked on Social Security and his policies for many years, and im curious we have known this problem was coming for a long time, several decades now with the babyboomers aging to retirement. We did know the exact magnitude but when you would be a shortfall. How do you think the policy debate has changed over the course of the several decades that you have seen from maybe when this problem was a generation or more off to now when it is staring us more in the face 15 or so years down the road . I guess i would offer one thing. Back at the time of the 1983 amendments, we as an office as our group were not in position to literally overnight do estimates of the implications of proposal on a yearbyyear basis to see what would be happy. At the time the socalled Greenspan Commission were coming up with her proposals, we were not able to instantly tell them exactly what the trajectory of these trust funds would be rising up and dropping down. On the Conference Committee on that we had her estimate at the time but they ended up being locked in and we suggested maybe make it smoother but they were not able to do that. Now we can to estimate overnight and we succeeded as of 1995, and is aware of this, we have suggested policymakers look not just of solving the 75 year shortfall which will be what most of the folks, but i dont know really include in our slide called sustainable solvency which is to make sure that, the level oftrust Fund Reserves expressed as a percentage of cost of our program not only that they stay above zero for the next 75 years but towards the end they be stable or maybe even rising and not be dropping down. That was the peril of the 83 amendments as you saw even at the time when we finally got our annual stuff together we shall invest trust and reserves were dropping very, very dramatically and so we knew we would be depleting. Ever since 1995 most proposals we have scored on a conference of basis paid attention to this and astronaut making the latest Bipartisan Policy Center strove to achieve and get by our estimates sustainable solvency. Thats one point we cant emphasize enough for people here is that while the trust funds are scheduled to exhaust in 2028 or 2035 or 2034 if you look at the combination of the disability and the combination of the disability and old age trust fund, thats not the date by which really action needs to be taken. You can raise taxes overnight on everybody in the entire country by three or 4 or whatever the exact magic is. It is much more preferable to gradually phase and things over time. Let me see if they are wanted to questions in the audience. First of all, thank you for joining us. My question is from an actuary perspective, why is the payroll tax raise 6. 2 when the whole system has many features that have dynamic adjustments for things such as the cost of limit costofliving adjustment and the primary insurance amount formula, even the ceiling on taxpayer will . On tax payroll . That is a good question. When congress lexus it limits on likes to set limits on texas set limits on taxes, they like to do it anyway that people are able to plan far, so they 6. 2 . Ts going to be Everybody Knows it will be six points to each year. It wont fluctuate depending on the status of the program. Remember also that peoples levels from year to year tend to rise and the maximum, this year is automatically indexed to the average wage of the economy going forward. Peoples earning levels are rising over time. 6. 2 every year just as the new benefit levels. It is kind of insane. Our real issue is the change indemographics. We have fewer workers relative to 6. 2 each which looks like it was just find a generation ago is not just find going forward. We need to have more revenue coming in from the workers 6. 1er than six point 6. 2. Just a choice. Any other question for Stephen Karen . Let me add one thing to the value. We know that our trustees way out there is it would be really good not to wait until the last minute as sometimes happens to enact changes for Social Security. The Real Advantage of an act and changes earlier, you cant do until later as you have more options to can better in doing now. You can give more chance noticed obviously to people and also whatever changes more gradually. The classic example was the1983 was the 1983 amendments. They start to have any effect on anybody until 2000, 17 years later. Here we are 17 years away from completion so maybe not such a bad time to think seriously about this and maybe enacting some changes. Wont be affected until later. That is the general equity point as well. Moving through is the reason for the increased cost on the system if you wait another 15 or more years to actually enact changes and assertive coming up into the system now is not going to be a major contributor. Going back to the demographics, the baby boom generation is not because theres a lot. It is because they didnt have as many kids. By the way, this is not to say having the birth rate drop from three plus down to two is really a bad thing because there was a time way back when a guy named malthus was talking about over populating the world are running out of food. Thats not a problem. We just have a different challenge. We have to live with the idea we have a different age distribution and have to beat have to meet that challenge. In a final question any final question . [indiscernible] a question about the cap. Although incomes grow, with respect to that in Social Security. There are a considerable number of income earners that are paying their full 6. 2 or 12. 4 depending on their status within days of the fiscal year. I was wondering if you could discuss solvency with respect to the cap. One interesting fact, for a long time now there has been about 6 of earners over the cap. That is pretty steady over the last 30 years or so. In that time the amount of earnings over the cap has decreased. I mean increased quite a bit because of earnings at those higher levels as income dispersion. Income at the top has gone way up. Back in 1983, about 90 wasbelow was below the cap. 82 toare down to about 83 . Back to the early 1980s, that specified in asking the question what level we have to have with 90 of all covered earnings. 1983 and 1984, we indicated the higher orders has changed in earnings distribution to directly 82. 5, 83 and the things we are looking at. We will be talking about some of this later about whether or not we should raise the cap to something more than we have under current law now. Coming of live, a discussion about diversity in sap security with professionals looking at way to broaden the workforce live at new america and 9 30 am eastern on cspan3. In the afternoon, a discussion about u. S. Taiwan relations, focus on shared interests. Our live coverage begins on the Heritage Foundation on cspan2. You can follow both events online cspan. Org or with the cspan radio app. Up next, a conversation about the future of political parties. Well hear from guy benson and other commentators. This event was a part of the world affairs