AP Passes Off Dishonest Editorial About Social Security's Finances as a News Story
The insidious ways that conservative narratives bleed into our mainstream economic discourse as objective truths is a dominant theme in my book, and this story by the Associated Press's Stephen Ohlemacher -- ostensibly a piece of reporting rather than opinion -- is one of the most egregious examples I've encountered. Check out the lede:
Sick and getting sicker, Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037, congressional budget experts said Wednesday in bleaker-than-previous estimates.
Is it "sick"? Social Security has $2.5 trillion in T-Bills sitting in a trust fund, is financed through 2037 and if nothing were to change it would still be able to pay out higher benefits than it does today, indefinitely.
Is it getting sicker? Well, the 2000 Social Security Trustees's report (PDF) projected that the trust fund would run out in ... 2037. But the 1997 report (PDF) expected the trust fund to be depleted by 2029 -- 8 years earlier than currently projected. So in that sense, it's "healthier" today than it was 13 years ago. More from the AP's thinly veiled editorial:
The massive retirement program has been suffering from the effects of the struggling economy for several years. It first went into deficit last year but had been projected to post surpluses for a few more years before permanently slipping into the red in 2016.
This year alone, Social Security will pay out $45 billion more in retirement, disability and survivors' benefits than it collects in payroll taxes, the nonpartisan Congressional Budget Office said.
OK, this is just incredibly dishonest. Let me explain why.
When he says the program is "in the red" what he's talking about is that current tax revenues being paid into the system have fallen below current benefit payments. Which should be unsurprising with wages stagnating and an unemployment rate of 9.4 percent.
But what's unsaid is that the Social Security's revenues aren't limited to current tax receipts, thanks to the interest earned on those T-Bills in the trust fund. They earned 5.1 percent in 2008, and 4.8 percent in 2009. When you include that earned interest, as any honest reporter must do, the program has not "gone into the red," and -- if we define "going into the red" as total annual outlays exceeding total income, including interest income -- it won't until at least 2018, according to the Trustees' latest report (PDF).
Yes, the Trust Fund grew last year, is growing this year, and will continue to grow for several more years, until it reaches a projected $4.2 trillion dollars. Back to the AP misinforming the public:
That figure nearly triples - to $130 billion - when the new one-year cut in payroll taxes is included.
Congress has promised to replenish any lost revenue from the tax cut, but that's hardly good news, either, adding to the federal budget deficit. In another sobering estimate, the congressional office said government red ink this year will increase to $1.5 trillion, the most in U.S. history.
Could any ordinary citizen reading that possibly know that, by law, Social Security's financing is separate from the rest of the federal budget, and that the program has not added a single penny to the deficit?
These are two wholly separate issues -- there's Social Security's financing, which has been in surplus since 1983, and then there's the federal budget, which is in deficit because of the downturn, tax breaks showered on the wealthy and trillions in war spending. (Note: unlike the Social Security program, we don't have a War Trust Fund with its own dedicated revenue stream.)
The AP then turns the program's greatest strength into a weakness. Behold the sleight-of-hand:
Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 - unless Congress acts in the meantime.
No, Congress could raise taxes to cover the shortfall anytime -- nothing need be done in "the meantime."
But more to the point, this narrative ignores the fact that the Trust Fund had a specific purpose: to ease the glut of baby-boomers entering the system. As I wrote in September, it "was a far-sighted act of governance."
At the time, the oldest boomers were 37 years old, and the youngest were just 19. In 2037, when the fund is projected to be tapped out, the oldest baby boomers still kicking will be 91 and the youngest will be 73 years old. Not to be morbid, but given that the life expectancy of Americans is 78.1 years today, that means that the “glut” of baby-boomers receiving benefits will be receding in the nation’s rearview mirror. In other words, the trust fund will have done exactly what it was intended to do.
This point never seems to wind up in the conversation.
But it gets even worse, as Ohlemacher advances perhaps the most dishonest spin in the entire debate -- that the trust fund is not a huge pile of T-Bills, but just "IOUs" -- that the funds have been "borrowed" by the government.
The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment, with interest.Again, this conflates two wholly separate issues. Let's run it down.
The national debt is (approximately) $14 trillion. None of that debt is a result of Social Security, which is fully funded and has run surpluses for years.
The federal government issued $14 trillion in T-bills to cover its budget shortfalls -- that's the national debt. It exchanged those $14 trillion in T-bills for cash (which it spent on programs other than Social Security). It must pay back that cash, with interest, as those T-bills are redeemed.
So, yes, it borrowed money -- it borrows money by issuing Treasury Bills, which are held by individuals, institutions and governments.
One of those institutions happens to be the Social Security Administration -- $2.5 trillion of those T-Bills were exchanged for cash paid into Social Security by workers (and the interest is earned). Which is good, as it's a safe investment for the surpluses that have been generated. They couldn't just stick those trillions under a mattress.
But those T-Bills could just as easily have been exchanged for cash from China, or from private pension funds -- there would be no difference at all.
That would have happened if there had never been a Social Security program in the United States. The $14 trillion in debt would be exactly the same -- it doesn't matter who holds the T-Bills.
All of the above is why the deficit has nothing to do with SS -- they are two completely separate issues being conflated by the "entitlement crisis" crowd. And no "neutral" reporter should ever write a story that simply carries their water for them.