WASHINGTON (AP) – The government should change how it projects Social Security’s future finances by assuming significant increases in immigration, longer life expectancies and lower inflation, an advisory panel said Thursday.

If adopted, the system’s projected 75-year deficit would rise by $200 billion to $3.7 trillion, according to a report by a panel of economists, actuaries and demographers appointed to review methods now used to project Social Security’s future financial status.

Social Security is a pay-as-you-go system, in which workers’ payroll taxes fund benefits for current retirees. The system faces financial problems as the large baby boom generation starts retiring in five years, while there are fewer workers to pay Social Security taxes.

The most urgent change would be to assume an increase in immigration rather than a decline, the report said.

“Given the steady increase in immigration experienced since World War II, the panel believes that the current assumption of a decline in the annual number of immigrants is unrealistic,” it said.

Immigration has increased by an average of about 4 percent a year since 1950. Yet Social Security trustees assume a drop this year from 1.2 million to an annual total of 900,000 in 2023 and after, the report said.

“In light of the sustained, rapid increase of net migration over more than five decades, the panel finds this assumption to be highly implausible,” the report said. “Since immigration results in a larger and younger population, the effect of a mistaken migration assumption on projected trust fund balances should be a major cause of concern.”

The panel also recommended that assumptions for mortality rates be changed to result in a projected life expectancy of 84.4 years instead of the current 82.9 years for someone born in 2070.

On labor force participation, Social Security trustees should eliminate an assumption recently added that rates will rise because of increases in life expectancy. The report said sufficient evidence does not yet exist that points to a sustained trend of Americans working longer and postponing retirement.

Other recommendations include an increase in the assumed rate of real wage growth and a decrease in the assumed rate of inflation.

The Social Security Technical Panel on Assumptions and Methods was appointed by the Social Security Advisory Board, an independent, bipartisan board created in 1994 to advise the president, Congress and the Social Security commissioner.



On the Net:

Social Security Advisory Board: http://www.ssab.gov

AP-ES-10-23-03 0200EDT



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