The difference in the SSA's and PWBM's projections comes down to how the different models account for debt-to-GDP levels. (AP Photo)

The exhaustion of Social Security's primary trust fund may come sooner than actuaries at the Social Security Administration are projecting, according to new analysis from economists at the Wharton School of the University of Pennsylvania.

The SSA's 2018 Trustee report projected the asset reserves in the Old-Age and Survivors Insurance program will run dry by 2034, at which time retirees would see a 23 percent across-the-board reduction in scheduled benefits, absent Congressional action.

But the Penn Wharton Budget Model Social Security policy simulator shows the trust fund will be exhausted by 2032.

Wharton's latest version of its Social Security Module makes projections for the trust fund on both static and dynamic bases; SSA's modeling is based strictly on static modeling, which assumes “economic conditions are expected to remain stable over time,” according to a recent report from Wharton.

The difference in the SSA's and PWBM's projections comes down to how the different models account for debt-to-GDP levels, which the Congressional Budget Office says will grow from its current level of 78 percent of GDP to 110 percent by 2035. PWBM's dynamic modeling puts debt at 153 percent of GDP by 2035.

“Official Social Security Trustees estimates do not incorporate key future macro-economic variables, including the nation's growing debt path,” write economists at Wharton.

While the SSA's static modeling provides a “rich level of detail,” it falls short of factoring how individuals and economies respond to changes in future macroeconomic factors like the nation's growing debt, say economists at Wharton.

At the core of Wharton's dynamic assumptions is the wonkiest of time-honored debates among economists: the relationship between federal deficits, aggregate debt levels, and spending in the private sector.

A 2014 paper from the CBO concluded that government borrowing “generally draws money away from (that is, crowds out) private investment in productive capital in the long term because the portion of people's savings used by government securities is not available to finance private investment.”

A 2016 paper from the Tax Foundation noted that when individuals and institutions purchase new debt, they save, and create wealth. But the bonds don't result in private investment in infrastructure. “Instead, it simply creates a new paper asset, but no physical investment,” the paper says.

In expediting the projection of the depletion of Social Security's reserves to 2032, Wharton's economists clearly expect mounting debt levels to crowd out private investment and ultimately slow economic and wage growth.

“Increased national debt reduces resources available for private investment, thereby reducing the size of the wage base that is used to finance Social Security benefits,” say Wharton's economists. “We project that the increase in national debt will slow future growth in capital formation, labor productivity, wages, and the payroll tax base.”