00:00:02
so Kent there's a lot of talk that Social Security just won't be there for
00:00:06
younger people right so my question is will Millennials receive the same Social Security benefits as their parents under
00:00:14
current law the answer is no in fact we're projecting that the trust fund will be exhausted by
00:00:21
2031 just 14 years so what the law actually says is that benefits across the board have to be cut um in order to
00:00:30
Simply match the current payroll tax revenue that they're getting at the time
00:00:34
so that's about 30% reduction and more that means 2034 or so in 2031 31 yeah if
00:00:44
nothing changes then Social Security uh benefits payments monthly payments would
00:00:49
have to be cut by 30% for everyone and that's the key it's not just for new
00:00:54
retirees which could be a little less painful but your 90-year-old grandmother who's Maybe just surviving that Social
00:01:01
Security the benefits would be cut for her as well okay so um so of course everyone's scrambling to figure out what
00:01:08
are some things that could be done about this uh one of the uh common ideas is to
00:01:13
raise the retirement age for Social Security how much does that help it doesn't help much for the short term in
00:01:21
particular barely moves the trust fund exhaustion date um from 2031 um and the reason why why is that
00:01:30
under current law Social Security retirement age is creeping up to age 67 even if you push it out to age 70 it
00:01:40
this idea that's been battered around for a couple decades in Washington we just kind of waited too long to do it um
00:01:45
and so it barely moves the trust fund exhaustion date over the long term it's
00:01:50
actually has a a much bigger impact but for the immediate term on the Social Security trust fund it barely moves it
00:01:58
simply because we waited too long to do it and what's the difference between the
00:02:02
immediate and the long terms in other words at some point we'd be better off
00:02:06
if if not fully whole but how long would would the lag time be so uh the Trust on
00:02:12
exhaust in 2031 um because this we would phase in toward age 70 along the current path
00:02:20
which is about two months per year it takes too long so um the trust fund barely moves um over what's called a
00:02:27
75-year window which is how so Security Act R typically look at this it helps by
00:02:33
uh improve the uh finances by almost a third so it actually has a big impact over time is just that it takes a long
00:02:41
time for it to phase in oh okay and the other solution often put forth is well how about if we increase taxes on people
00:02:48
with high incomes because there's a cap right now on who on how much people pay
00:02:52
that's right in particular you pay taxes up to the first $118,500 that's in index with wages so
00:03:01
it it kind of grows over time and we call that the tax Max and it's the maximum that your uh income that your
00:03:09
taxes are are are levied over and so if you increase that from 118,000 500 to all the way to 400,000
00:03:18
for example um it it basically moves the trust fund exhaustion date from 2031 to
00:03:25
2036 and going above 400,000 has almost no impact because there just not enough people there in fact going from 250,000
00:03:33
to 400,000 has very little impact so again it can be part of of a bigger solution but by itself it's not going to
00:03:40
solve the problem what about um reducing benefits for high income people who presumably don't need the money as much
00:03:49
as that that 90-year-old grandmother does right and that's another idea that's been um discussed in Washington a
00:03:55
lot of people don't understand that that the benefit formula is actually extremely Progressive for poor people
00:04:02
replace 90% of their average income before retirement and then then that decreases quite a bit um for Middle
00:04:10
income and then higher income uh households and so the idea has been let's keep poor people kind of whole 90%
00:04:17
replacement rate but lower it for middle class and kind of upper income households yeah even the uh very um
00:04:25
aggressive uh across the board uh a change um is for the trust fund by itself it's it's basically too late I
00:04:34
mean it barely moves the trust fund as far as the 70E fiveyear solvency it again has a much bigger impact in fact
00:04:43
if you combine that with increase in the retirement age we actually solve the 75-year problem um with those two
00:04:51
combinations however it we still would have to come up with a mechanism for the trust fund to somehow borrow against its
00:04:59
future um to essentially be able to not just hold assets but be be uh in debt for a
00:05:05
while and how many years would that have to cover it would uh so that covers 75 years which is uh the standard
00:05:12
projection window right but you're saying there there'd be this interim when there would be a shortfall there
00:05:18
would be a shortfall for depending exactly the policy combinations it could be between 10 and 25 years okay so it
00:05:26
might might involve some borrowing before things kind of off a little bit uh the other item is the cost of living
00:05:35
uh allowance or raise the cola that is provided each year although there wasn't
00:05:39
one last year right um based on inflation uh and if that were adjusted how much would that help of course in a
00:05:46
way that's cutting benefits if you cut that yeah it it is and so under current
00:05:51
law what happens is that the uh Social Security benefits are adjusted every year for using What's called the CPI W
00:05:59
which which was just what they happen to choose at the time and one of the concerns that economists have had is
00:06:06
that that index doesn't uh account for what's called substitution um where you you might have
00:06:15
a product price that goes up on you and you substitute toward lower prices we're
00:06:20
seeing this with for for example with the Affordable Care Act as a lot of plans go more expensive people
00:06:25
substitute toward cheaper plans and so a true measure of inflation would allow for that substitution that's called The
00:06:31
Chain wited index that's been something that's been discussed a lot ever since
00:06:36
the bosin commission and other groups um it actually turns out it doesn't have
00:06:40
that big of an impact um even though the long term it has a positive impact on the trust fund not that big and another
00:06:48
concern that sometimes people raise is that it's not even clear even the chain
00:06:52
weighted is actually the right measure for older people in particular older people have a lot of out of-pocket
00:06:59
Medical expenses that is not representative of the average person in the economy that the that the chain
00:07:06
weighted cares about or even the CPI the current law so that that will be something that there's a lot going to be
00:07:12
a lot of discussion about in terms of the numbers it doesn't really have a big
00:07:16
impact um if Americans together paid more taxes uh would that save Social Security as we know it sure I mean if
00:07:26
you increase taxes or cut benefits you know you're going to solve the problem
00:07:30
and so if we just uh right now if we think about the tax side right now we currently Levy uh a a payroll tax rate
00:07:38
of about 12.4% for Social Security and also the disability program and then an additional tax to cover Medicare so if
00:07:47
we increase at 12.4% to say 14.4% um and that's 2% uh points but as a percent you know that's that's shared
00:07:57
by the employer and the employee it's shared by the uh by both sides now truth
00:08:02
be told most economists believe that ultimately the employees bear the the the brunt of even the employer side that
00:08:08
the incidents get shifted through competitive labor markets um if we did that if we went from 12.4 to 14.4 we
00:08:16
would um increase the life of the trust rund from about 2031 under our projections to about
00:08:21
2043 you would have to actually go all the way up to about 16.4% to actually have the trust fund U
00:08:29
be solvent until about 2085 um and even then eventually it's going to uh it will go negative because
00:08:36
benefits continue to rise but if you if you took some of the other measures you were talking about earlier and then also
00:08:42
did this for the inter to say get over the hump yeah sounds like that might work yes yeah there there our policy
00:08:50
simulator allows for 4,096 combinations and so lots of different combinations that people can
00:08:57
try and they get instant feedback on that it's from a very sophisticated model but we've used advances of cloud
00:09:04
computing to pre-calculate everything for you so you get instant feedback so there's lots of combinations even ones I
00:09:11
haven't had time to explore yet that could potentially uh uh work here well we'll get to the model that you're
00:09:17
talking about that you help develop soon or soon we'll get to it U and as a matter of fact that's going to be
00:09:23
something that anyone can go on the web and use is that right everybody can use it polic policy ERS we're hope um we've
00:09:31
had a lot of conversations with them they're excited about they want access to tools that they can use while they're
00:09:36
actually writing legislation but the average person can use it and um we've been uh showing it to various professors
00:09:44
around the country and they want to use it for their classroom just to give students tools that they can start to
00:09:50
see these tradeoffs so an interesting new tool yeah so K the whole idea of immigration I guess illegal immigration
00:09:59
and documented workers has been a big part of this presidential primary process and now the presidential race so
00:10:06
uh I guess The $64,000 Question is uh will providing a path to to legalization for
00:10:15
unauthorized workers immigrants uh in the US will that improve the economy or does it hurt the economy by hurting uh
00:10:24
some lower wage workers yeah and it turns out and this is one of the surprises that uh we found and this is
00:10:31
really one of the advantages of having this really detailed model is that the impact on economy from legalization is
00:10:38
is basically a wash and here's what's going on when it comes to jobs legalization actually slightly reduces
00:10:48
the number of jobs and the and what's number of people working and the reason
00:10:54
why is that when you're illegal you pretty much have to be working because you're not you don't have access to
00:11:01
unemployment insurance you don't have access to going to schooling like college and things like that we probably
00:11:07
came here to work to begin with you came here to work and you pretty much have to
00:11:11
work to eat um once we have legalization and we're able to track at the census level data the differences
00:11:18
between uh undocumented and legal uh what we see is legal immigrants have a slow a little bit of a lower um labor
00:11:27
force attachment rate and the reason why is because um they can uh uh spend more
00:11:33
time looking for appropriate work they qualify unemployment insurance and they also can get a college degree and up
00:11:39
their skills and so that that's the reason why they effect on GDP is basically a wash in particular less um
00:11:47
employment but more at more skills and it's it has almost no impact so the implication is that
00:11:54
deporting uh illegal immigrant workers isn't going to help the economy uh yeah in fact um some people on the
00:12:03
other side say well deportation should be good for the economy that turns out not to be true either um in fact uh we
00:12:11
we F calculate that deportation actually will substantially lower GDP and lower jobs and the intuition behind that is
00:12:21
that native workers native born workers their labor force participation rate cannot possibly increase in enough to
00:12:30
offset the loss of jobs and so the impact on GDP is actually uh fairly negative uh another question is can
00:12:41
increasing the proportion of authorized immigrants uh with college degrees can that help our economy so where a lot of
00:12:49
kids come here they get their degrees from other countries and um and they're
00:12:53
not able to stay right and it's really critical as you just noted the The Sting
00:12:59
between these are legal immigrants as opposed to illegal immigrants we have about 800,000 legal immigrants per year
00:13:07
about 35% of them have a college degree so a lot of the proposals have been let's keep the 800,000 the same number
00:13:15
but shift that 35% upward maybe make it half 55% and so forth to our surprise and then this the value of having these
00:13:24
detailed models it actually has a positive impact by increasing the amount of college educated uh immigrants it has
00:13:31
a positive impact but it's not that big and um and as you dig into the numbers
00:13:38
what uh what you see is that first immigration itself as a legal immigration as a total is only about 1%
00:13:46
of the US population and then when you go from 35% to 55% you're actually increasing the college educated
00:13:54
Workforce in the United States by only about half of 1% so the impact again is positive but it's not a huge impact
00:14:03
instead what you ultimately need to do is increase not just the uh the kind of the shift you don't just just change in
00:14:10
the composition but actually increaseing in the number the the number of h-1bs without uh uh a change in the number of
00:14:18
unskilled uh immigrants that that actually has a much bigger impact what about lifting the total number of
00:14:25
immigrants yeah and so uh above 800,000 yeah um so increasing more immigrants basically means more jobs and more uh
00:14:36
GDP um in fact what we find that if we actually increase legal immigration from 800,000 uh by an additional 400,000 by
00:14:45
roughly 50% um and by 2050 we'll have a GDP that's about 15% larger than what we
00:14:52
see today what is that annually do you happen to know I'm just curious like how much would GDP go up
00:14:59
per year if you if you increase by that number well it's over a trillion dollars
00:15:03
um and so we're we're talking about a pretty significant uh and so in current
00:15:08
dollars um I would have to do the exactly well that I'm sure yeah um what what effect would an increase uh in
00:15:17
Immigration have on Social Security and say Medicare yeah um and that it used to
00:15:22
be a very controversial issue there's those always this concern that immigrants are coming in right before
00:15:27
they qualify for Social Security and and Medicare and that a lot of that debate is uh was not correct and a lot of
00:15:35
changes have been made in the laws in the mean time um nowadays U increased immigration is actually a slight
00:15:42
Improvement for Social Security and Medicare and the reason why is immigrants are coming in during their
00:15:49
working years typically younger and as result that that the What's called the
00:15:54
old age dependency ratio is improved and in particular we have more young people
00:16:00
relative to old people and that helps improve uh the finances it's not it's
00:16:05
not huge um but nonetheless it is positive so we've talked about this model that you've helped to develop why
00:16:12
don't we go take a look at how it works great hi I'm Kent Smothers a professor
00:16:18
here at the Wharton School and I'm going to give you a quick overview of the new
00:16:23
social security policy simulator that's available at the pen Wharton budget model group and you can see from the uh
00:16:32
screen here is that you have a choice of various graphs that you can be looking at things like trust fund reserves
00:16:39
non-interest Surplus which is the difference between uh benefits paid and tax income receive uh Social Security
00:16:46
taxes benefits uh interest income lots of other varieties and we also compare our results against those from the
00:16:55
Social Security Administration and the Congressional budget office and first off before we do even think about any
00:17:03
policy changes you can see that our model projects that we will um uh exhaust the trust fun exhaustion date
00:17:13
will be about three and a half to four years earlier than the Social Security um trustees uh project in particular we
00:17:22
uh uh see a deficits happening around 2031 and uh come 2031 we're we're seeing
00:17:32
um projecting that we'll actually have a non-interest surplus of about $350 billion in today's dollars
00:17:41
eventually growing to um over 1.2 trillion dollars per every single year again in today's uh uh dollars and our
00:17:51
75e shortfall is about a third larger than what you see from the Social Security Administration and the
00:17:59
understand why you can look at the uh Social Security tax revenue and we have a more pessimistic projection of tax
00:18:06
revenue coming in over time and the reason uh behind that is that um our model starts with census level data and
00:18:14
we construct these uh transition rules based on various big data sets across many different key attributes age uh
00:18:22
race marriage divorce number of kids education and many other attributes across law population subgroups so we're
00:18:30
really working kind of bottom up and as a result of that we can see how productivity in the economy is changing
00:18:37
as you have these large labor force um composition changes as people uh are going into retirement um they're being
00:18:45
replaced by younger people and average productivity per worker for example goes down as a result of that our benefits
00:18:51
also go down um a little bit relative to Social Security um but there um our tax
00:18:58
revenue is is uh is the main uh difference and our numbers line up a little bit closer to uh the cbo's own
00:19:07
model on this all right so now let's consider some different policy changes and we have six options to pick from
00:19:13
here um increase in the payroll tax uh increase in taxable maximum and lots of other options there's uh alt together
00:19:21
there's uh six options each has uh uh four different combinations associated
00:19:27
with it so there's actually 4 to the six power different combinations 4,096 policy combinations that you can run now
00:19:35
our model you know it each one takes about 30 minutes to an hour to run so you might be wondering how you're
00:19:41
getting instant feedback as as as you move things around in different policy changes and we the reason is we're using
00:19:48
cloud computing to do all the computations ahead of time and so that gives you um instant feedback let's
00:19:54
consider a couple policy changes that uh uh policy makers for years have been kind of talking about let's for example
00:20:01
talk about raising the normal retirement age this one down here and we have a little tool tip here with it basically
00:20:07
says um what the current law is uh in particular the retirement age is going up to age 67 uh roughly about two months
00:20:16
per year and if you want more info it can give you even more expanded info information and so this would be a
00:20:22
policy change to continue that increase if you wanted to do that say even to age
00:20:26
70 and now when we do that you'll notice here that the um impact on the trust
00:20:34
fund exhaustion date from increasing their retirement age is basically less than one year it's it's a very small um
00:20:42
uh change and by the way if you wanted to you could even kind of zoom in on a particular years and kind of get get
00:20:48
more information you can you can actually uh uh look at particular years the values and so forth and it doesn't
00:20:55
have a big impact however um over time uh increase in retirement age does have a much bigger impact on the non-interest
00:21:04
Surplus um the big deficit uh over time goes down um and and what's going on
00:21:11
here is essentially increasing the retirement age is uh is simply basically too late to solve the problem at least
00:21:20
for the trust fund it can be part of a longer term solution um but it just simply phases in uh too slowly over uh a
00:21:29
time and then we have some other uh uh things that you can consider here one is a progressive benefit reduction um and
00:21:39
uh here it it explains the tool tip explains how benefits are currently calculated in particular the government
00:21:46
um you uh currently uh calculates your benefits uh equal to 90% replacement rate up to a certain value called a
00:21:55
bendo then 32% and then 15% um and so this is a policy where you you keep the 90% replacement rate for
00:22:04
poor households constant but you decrease the replacement rate on richer households and you can see the impact on
00:22:12
the trust fund is actually also uh fairly small um and the current policies are blue line the red policies kind of
00:22:21
the new line and it it barely kind of moves uh the trust fund uh exhausting date
00:22:29
and and the intuition behind that is again um it just it's a bit too late to
00:22:35
have an impact on on things it phases in too slowly however again over time it has a much bigger impact and then you
00:22:43
can start to do interactions like you know suppose I want to do a progressive benefit reduction increase the normal
00:22:49
retirement age and you can now start to see that has a much bigger impact over time in terms of the trust fund reserves
00:22:56
themselves again not a huge um impact at least in the the short run okay so now let's consider you know other things I
00:23:07
mean you can um a lot of people have argued for like increase in the taxable maximum right now your uh payroll is
00:23:14
being taxed up to $118,000 um 500 per year at at a 12.4% tax rate and so some people have argued
00:23:23
that maybe we should Levy that tax over a larger um income base and what we can see is for example as we go to um uh uh
00:23:33
the say increase the $250,000 it actually has an impact on on the trust fund as we go to 400,000 has a
00:23:42
slightly bigger impact not much of a difference um going from 250 to 400,000 households there's just not enough
00:23:48
households there and as you go above 400,000 house uh dollars it it has almost no impact going forward but again
00:23:57
um uh we get some like life but you know over the long term it it starts to you know get a little bit bigger this is one
00:24:03
of those policies that has a a much bigger impact in the short run because it's immediately happening then um but
00:24:10
relative to the long term and so you can now start to think about different combinations I mean it's a 4,096
00:24:17
combinations uh here to for you to explore I I haven't even explored every single combination and so you can um see
00:24:25
the tradeoffs yourself especially between the long run and the short run by giving your own combinations a try
00:24:32
thank you now I'm going to give you a quick overview of the new immigration uh
00:24:38
reform policy simulator that's available at the pen Wharton budget model group
00:24:43
notice that you have uh several different graphs that you can look at things like total population size and uh
00:24:49
number of jobs the old age dependency ratio that's very useful for things like
00:24:55
understanding how many young people that we have uh uh per older retiree and then of
00:25:02
course gross domestic product GDP that people often care about so now let's consider different policy combinations
00:25:09
each one dial control here um is has five selections and we have three uh policies Al together so that's 125
00:25:17
different policy combinations that you can um uh get and and see yourself for each policy combination you know the the
00:25:26
actual simulation model takes several hour hours to run in the case of immigration but we use advances and
00:25:31
cloud computing to give you instant feedback on the results um because we've
00:25:36
pre-computed everything for you all right let's go through the different policies um let's think about increasing
00:25:42
the net amount of legal immigration right now from this tool tip you can see that uh net legal immigration to the
00:25:49
United States currently amounts about 800,000 people per year and uh some of the policy ideas out there is to maybe
00:25:57
increase that maybe 25% a year and not so so surprisingly population goes up total number of jobs are going to go up
00:26:06
and um GDP um is also improved because of more um workers in the economy and the old age dependency ratio is slightly
00:26:15
improved as well in particular we're going to have a fewer older people per worker because immigrants are coming in
00:26:22
typically during working age and we are able to track that fairly precisely Us in census level data all right let's
00:26:30
talk about some other um uh potential changes here and the first one is or the second one sorry is is is changing now
00:26:39
the composition of the net legal immigration right now as you can see from this tool tip about 305% of the US
00:26:47
adult legal immigrants have a bachelor's or Advanced degree so the idea here is
00:26:52
that we can now increase that percentage without actually imp uh changing the 800,000 uh number of legal immigration
00:27:02
immigrants per year and so we can look at a couple things like you know what happens to um uh GDP here suppose we go
00:27:11
from 35% to 55% and notice it's a slight positive it's not huge and it's true
00:27:18
that this the values here are in trillions of dollars but you can move your mouse over and see the the actual
00:27:25
numbers or if you want to you can always zoom in on the particular set of years and get even more Precision there if you
00:27:32
if you'd like and in particular the blue line is the current policy the red line
00:27:36
is the effects of the new policy and the reason why it's it's not a big impact um
00:27:43
is that uh legal imig immigration flow at 800,000 per year um is uh not that large of a fraction of the US uh
00:27:53
population Workforce and so going from 35% to 55% uh uh of being college educated is only
00:28:01
going to add around 160,000 college graduates per year and that's only about
00:28:05
1 half of 1% of all college educated worker workers in the economy and so it doesn't have a tremendously large impact
00:28:13
all right now let's look at a couple other policies um and the one is to potentially increase deportation of a
00:28:23
unauthorized immigrant so now we're really shifting from legal status to unauthorized uh immigrants and the other
00:28:29
one is to offer legal status just the opposite um to unauthorized immigrants we can see from the tool tip that
00:28:35
there's about 11.3 million unauthorized immigrants in the United States and so
00:28:40
if you uh choose to go say this direction of legalization this is saying we're going to be legalizing roughly
00:28:48
around 10% per year so within a decade we'll have uh legalized um everyone and
00:28:54
so let's look at the impact on jobs and this may be really surprising to a lot
00:28:59
of people as we legalize and notice um jobs actually slightly go down it's not
00:29:05
a huge change but it does it's actually legalization actually leads to fewer um
00:29:10
uh jobs again not a big change but it is technically negative and the intuition there is that if you're currently
00:29:18
unauthorized you pretty much have to work and um in order to survive and so unauthorized workers actually have a
00:29:26
higher labor force attachment M rate or participation rate than those that are authorized authorized workers are able
00:29:33
to now go to school and therefore not be in the workforce for a period they're
00:29:37
able to look for a better job a more appropriate job because they can qualify for unemployment insurance things like
00:29:44
that and so that tends to reduce jobs the impact on GDP is basically a wash there's no particular theoretical reason
00:29:50
this should be the case but in terms of the our rather detailed calculations it's it's basically a wash and and it
00:29:56
has almost no impact on G GP and the intuition there is that even though the number of jobs has gone down a little
00:30:02
bit um the once you are converted to legal status again you're able to go to
00:30:08
school you're able to get more productivity and so as a result of that uh the impact on GDP is is uh next to
00:30:15
nothing now let's think about what happens when we go the opposite direction where we start deporting it
00:30:21
say 10% per year within a decade everybody would be all all the unauthorized illegal immigrants would be
00:30:28
reported now notice the impact on employment is now much more negative and the the reason behind that is that we're
00:30:36
losing um people it's like 100% Detachment now for the workforce for unauthorized immigrants um and the the
00:30:45
native born um participation rate in the labor market cannot possibly rise enough
00:30:50
to um uh uh meet that that Gap that that reduction in the number of jobs and GDP
00:30:57
um also goes down uh uh pretty substantially you can see um by uh Within by 2035 um close to a trillion dollars um
00:31:08
reduction in GDP and so you know both of these policies have been kind of advocated on both SIDS of saying that
00:31:15
they're going to increase the the number of jobs or increase GDP in fact neither
00:31:20
policy um uh works in the way that it's it's often been presented and so you can
00:31:27
try try many other combinations yourself again you have uh about 125 different combinations to choose from and again
00:31:36
many combinations I've even explored myself so try try it yourself and uh make up your own mind thank you
00:31:55
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