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hi I'm Ken Smithers professor here at the Wharton School and I'm getting give
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you a quick overview of the new social security policy simulator that's available at the pen
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Wharton budget model group and you can see from the screen here is that you have a choice of various graphs that you
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can be looking at things like trust fund reserves non-interest surplus which the
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difference between benefits paid and taxes income receive Social Security taxes benefits interest income lots of
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other varieties and we also compare our results against those from the Social Security Administration and the
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Congressional Budget Office and first also BP before we do even think about any policy changes you can see that our
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model projects that we will exhaust the trust fund exhausting day will be about three and a half to four years earlier
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than the Social Security trustees project in particular we see our deficits happening around 20 31 and what
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come 20 31 we're seeing projecting that will actually have a non interest surplus of about 350 billion dollars in
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today's dollars eventually growing to over 1.2 trillion dollars per every single year again in today's dollars an
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hour 75 years shortfall is about a third larger than what you see from the Social
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Security Administration and to understand why you can look at the social security tax revenue and we have
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a more pessimistic projection of tax revenue coming in over time and that the reason behind that is that our model
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starts with census level data and we construct these transition rules based on various big data sets across many
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different key attributes age race marriage divorce number of kids education and many other attributes
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across a lot of population subgroups so we're really working kind of bottom-up
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and as a result of that we can see how productivity in the economy is changing as you have these large
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labor force composition changes as people are going into retirement they're being replaced by younger people and the
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average productivity per worker for example goes down as a result of that our benefits also go down a little bit
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relative social security but there are tax revenue is is is the main difference in our numbers line up a little bit
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closer to the cbo's own model on this all right so now let's consider some
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different policy changes and we have six options to pick from here increase in the payroll tax increase in taxable
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maximum and lots of other options there's altogether there's six options
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each has four different combinations associated with it so there's actually four to the sixth power different
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combinations 4096 policy combinations that you can run in our model you know each one takes about 30 minutes than our
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to run so you might be wondering how you're getting instant feedback as you move things around and different policy
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changes and we the reason is we're using cloud computing to do all the computations ahead of time and so that
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gives you instant feedback let's consider a couple policy changes that policy makers for years have been kind
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of talking about let's for example talk about raising the normal retirement age
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this one down here and we have a little tool tip here with it basically says what the current law is in particular
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the retirement age is going up to age 67 roughly about two months per year and if
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you want more info it can give you even more expanded info information and so this would be a policy change to
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continue that increase if you wanted to do that say even to age 70 and now when we do that you'll notice here that the
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impact on the trust fund exhaustion date from increasing the retirement age it's
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basically less than one year it's a very small change and by the way if you wanted to you can even kind of zoom in
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on the particular years and kind of it get more information you can you can actually look at particular yours the
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values and so forth and it doesn't have a big impact however over time increase
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in retirement age does have a much bigger impact on a non interest surplus the big deficit over time goes down and
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then what's going on here is essentially that we're increasing the retirement age
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is is simply basically too late to solve the problem at least for the trust fund
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it can be part of a longer term solution but it just simply faces in too slowly over a time and then we have some other
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things that you can consider here when is a progressive benefit reduction and you hear it explains the tooltip
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explains how benefits are currently calculated in particular the government you currently calculates your benefits
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equal to 90 percent replacement rate up to a certain value called a bend point then thirty two percent and then fifteen
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percent and so this is a policy where you keep the ninety percent replacement rate for poorer households constant but
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you decrease the replacement rate on Richard households and you can see the impact on the trust fund is actually
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also a fairly small and the current policies are blue line the red policy is kind of the new line and it barely kind
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of moves the trust fund exhausting a date and saying the intuition behind that is again it just is a bit too late
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they have an impact on things that phases into slowly however again over time it has a much bigger impact and
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then you can start to do interactions like you know suppose I want to do a progressive benefit reduction increase
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the normal retirement age and you can now start to see that it has a much bigger impact over time in terms of the
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trust fund reserves themselves again not a huge impact at least in the short run okay so now let's
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consider you know other things I mean you can a lot of people have argued for like increase in the taxable maximum
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right now your payroll is being taxed up to 118 thousand dollars 500 per year a 12 point four percent tax rate and so
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some people have argued that maybe we should levy that tax over our larger income base and what we can see is for
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example as we go to the say increase that $250,000 it actually has an impact on on the trust fund as we go to 400,000
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as a slightly bigger impact not much of a difference going from 250 to 400 thousand households there's just not
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enough households there and if you go above 400,000 house of dollars it has almost no impact going forward but again
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we get some life but you know over the long term it starts like you know I get a little bit bigger this is one of those
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policies as a much bigger impact on the short run because it's immediately happening then but the relative to the
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long term and so you can now start to think about different combinations I mean there's a 4096 combinations here
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that for you'll explore I I haven't even explored the every single accommodation
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and so you can see the trade-offs yourself especially between the long run and the short run by giving your own
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combinations a try thank you