Trend in Social Secuirty Expenses and Revenues

© William Larsen

Table 1 lists data extracted from Social Security's web page. The first three columns show the number of workers, retirees and Social Security's reported Worker to Retiree ratio. These values have been widely published. However, there is more to these numbers.

In 1945 not all those over age 64 received Social Security benefits. It would take some amount of time before those who had paid into Social Security could actually draw benefits based on their wage history.

Social Security's reported values are not un true, but the interpretation of these values has lead to two myths. One myth is that few workers lived to age 65 to collect Social Security. This is totally untrue. Nearly 70% of all workers at age 21 lived to age 65. In addition a person who lived to age 65 could expect to live nearly fourteen more years. The second myth is that demographics is the reason behind Social Security's problems. This is far from the truth. Looking at the worker to those over 64 ratio reveal that the change has been not very great.
Table 1

Workers, Retirees and Population (thousands)

Year Covered workers retirees worker/ retiree ratio population > 64 Worker to >64 ratio
1945 46,390 1,107.2 41.9 10,729 4.3
1950 48,280 2,926.1 16.5 12,547 3.8
1955 65,200 7,581.4 8.6 14,861 4.4
1960 72,530 13,684.9 5.3 17,068 4.2
1965 80,680 18,336.4 4.4 18,916 4.3
1970 93,090 22,704.9 4.1 20,691 4.5
1975 100,200 27,081.1 3.7 22,981 4.4
1980 113,522 30,681.6 3.7 25,871 4.4
1985 120,429 32,548.4 3.7 28,748 4.2
1990 133,689 35,181.3 3.8 31,730 4.2
1995 141,436 37,220.0 3.8 34,111 4.1


Table 2 is a compilation of benefits, revenue, expenses, tax rate and base, It is easy to see that all listed categories have increased each year. But this is not enough information to easily tell if their is a problem. Rate of change is a good measure to indicate the relative strength of these categories.
Table 2

Benefits, Revenue, Expense, Tax Rate and Base

Year Benefit revenue

(millions)

 expenses

(millions)

 tax base US Avg Wage
1945 $23 $1,285 $304 2.000% $3,000 $2,461
1950 $2,667 $1,022 3.000% $3,000 $2,718
1955 $44 $5,713 $5,079 4.000% $4,200 $3,301
1960 $10,866 $11,198 5.500% $4,800 $4,007
1965 $74 $16,017 $17,501 6.750% $4,800 $4,659
1970 $30,256 $29,848 7.300% $7,800 $6,186
1975 $118 $56,816 $60,395 9.750% $14,100 $8,631
1980 $103,456 $107,678 9.040% $25,900 $12,513
1985 $341 $176,958 $171,150 10.400% $39,600 $16,823
1990 $267,530 $227,519 11.200% $51,300 $21,028
1995 $479 $304,620 $297,760 10.520% $61,200 $24,706


Table 3 shows the rate of change for these categories. Revenue growth rates were lower than expense growth rates for every five year period except three. However, the growth in tax rates and the base, coincide with the three five year periods where revenue growth exceeded expense growth rates. However, there is one very disturbing trend that is obvious. The revenue growth rate is dropping quickly where as expenses are leveling off at a high rate of growth.
Table 3

Rate of change/Growth

Year Benefit Revenue Expenses Tax Base US Avg Wage
1945 n/a n/a n/a n/a n/a n/a
1950 108% 236% 50% 0% 10%
1955 94% 114% 397% 33% 40% 21%
1960 90% 120% 38% 14% 21%
1965 69% 47% 56% 23% 0% 16%
1970 89% 71% 8% 63% 33%
1975 60% 88% 102% 20% 81% 40%
1980 82% 78% 3% 84% 45%
1985 189% 71% 59% 15% 53% 34%
1990 51% 33% 8% 30% 25%
1995 40% 14% 31% -6% 19% 17%
Total 2018% 23606% 97847% 426% 1940% 904%


To understand the problem facing Social Security, one needs to look at the number of workers, potential retirees, the targeted Social Security Benefit and the tax rate needed to fund this benefit. Too few workers and you could collect to little tax. Too low a tax and you could collect too little tax. Too many retirees and you could collect to little tax.

Obviously rasing the payroll tax and the base since 1950 has done nothing to fix Social Security's problem. What then is the root cause behind the problem? The problem is "bad math, bad assumptions, stupidity and blind faith"