Social Security Con Artists Are Lying About One of the Strongest Arms of the Program
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You’ve no doubt heard about how the Social Security Trust Fund is projected to run out of cash a few decades down the line. What you may not have heard is that it might not run out at all; in fact, it may well continue to back-stop the popular program indefinitely.
If you want to know just how contrived the Social Security "crisis" really is, consider that the trust fund, created by a bipartisan act of good governance that’s almost inconceivable today, is doing exactly what it was designed to do, and more so. It is nonetheless cited by “entitlement” fearmongers as evidence that the program is unsustainable, a fiscal trainwreck just waiting to happen.
In fact, the opposite is true. In 1983, when we still had a somewhat functional Congress that was capable of tackling real problems facing the nation, Democrats and Republicans got together to address a very modest shortfall in funding for the Social Security system. But they went a step further. They thought long-term, raised payroll taxes and in doing so created the Social Security Trust Fund, a surplus that could be drawn down as the baby-boomers reached retirement age. Today, with $2.5 trillion worth of assets, the fund is so fat it’s projected to continue growing on just its own interest decades into the future.
The “reforms” were a victory for neither side -- Republicans agreed to a tax hike on businesses, and Democrats accepted a regressive tax on working people, while giving up an issue they had used to win 26 House seats in the 1982 midterms.
But 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.
What the media never mention is that, according to the latest Social Security Trustees’ report (PDF), under an alternative “low-cost” projection, the fund might just continue to grow larger throughout the period of the trustees’ 75-year projection, increasing from 3.5 times the cost of a year’s benefits today to more than 6 times the annual benefits projected for the year 2084.
The trustees caution that it’s an absolute best-case scenario, and they also offer a “high-cost” alternative that paints a far bleaker picture than the “intermediate” assumptions used in the headlines. But the context that is largely missing from the debate is that those official, intermediate assumptions that lead to so many reporters making definitive statements about the fund running out in 2037 are very, very conservative.
In his analysis of the 1998 report (the assumptions are virtually unchanged, but look a bit better today), economist Doug Henwood noted, “At every turn there’s a bearish assumption in the Trustees’ numbers.” He looked at the projections for population growth, the growth of the workforce, the age of the workforce, and concluded that some of the trustees’ projections would represent a “violation of all historical precedent.” As I write in The Fifteen Biggest Lies About the Economy, the Social Security trustees’ intermediate projection “assumes that during the next 75 years the U.S. economy will grow by half the rate of the last 75 years. That may well prove to be the case (and there are certainly good reasons for using conservative estimates), but it’s an ahistoric assumption.”
If we were to use a different set of assumptions in our projections, we would see a “problem” that can be addressed with any number of relatively painless fixes, none of which need to be implemented now. Americans currently pay Social Security taxes on the first $106,800 they earn. But because the distribution of income has skewed toward the wealthy for the previous three decades, the amount of income falling under the cap has shrunk—in 1983, when the payroll tax was tweaked, 90 percent of all income fell below the cutoff; by 2006, that number had fallen to 84 percent (PDF).
Eliminating the cap entirely would instantly close the Social Security "gap” over the long run, and then some. Yet according to economist John Irons, even just rejiggering the number so it once again captured 90 percent of Americans’ wages would narrow three-quarters of the long-term “shortfall.” And in the process, only 6 percent of the population—the highest-earners—would feel any tax bite at all.
The larger point, of course, is that we have $2.5 trillion set aside to keep our older citizens from living in squalor during their Golden Years. Americans should be happy about that, and feel secure in the knowledge that Social Security will be there for them when they need it. After all, even if the trustees’ pessimistic intermediate assumptions should come to pass and the government took absolutely no action to shore up the program’s finances over that very long-term, Social Security would still be able to pay 75 percent of “scheduled benefits” for the entire 75-year projection, right through 2084. (And after 2037, those bennies would still be higher, adjusted for inflation, than what retirees get today.)
But that’s not the case; polls show that many younger workers aren’t confident that the benefits they’ve been promised will be there when they hit retirement age (one ABC News/Washington Post poll conducted in 2004 found that only 7 percent of people in their 20s and just 15 percent of those between 30 and 40 expected to get full benefits when they retire). Call it a testament to conservative propaganda (über-wealthy activist Pete Peterson has sunk a billion dollars of his own money into the effort), specifically the false narrative that the trust fund has been looted, and is left with nothing but “worthless IOUs.” Ron Johnson, a wealthy self-financed candidate facing Wisconsin Senator Russ Feingold, recently aired an ad pushing the lie. “Politicians of both parties raided the Social Security trust fund of trillions,” Johnson solemnly tells viewers, “and left seniors an IOU. They spent the money… It’s gone.”
In the real world, the Social Security Trust Fund has trillions in interest-bearing Treasury Bills, which are essentially the same as those sold off to private investors and considered among the safest places to put one’s money. The $2.5 trillion in special issue T-bills in the fund are backed by the full faith and credit of the United States government, just the same as the other $11 trillion in public debt outstanding, almost $9 trillion of which are sitting in investors’ retirement accounts. They earned 5.1 percent interest in 2008, and 4.8 percent last year.
The kernel of truth here is that conservatives have long labored to de-link taxes and spending in the minds of the American public, promising they could deliver an endless series of tax cuts without gutting the public services that people have come to expect from the government. Economist Paul Krugman described the result of the Right’s “tax cut crusade,” as a “fundamental mismatch between the benefits Americans expect to receive from the government and the revenues government collects.”
So, the truth is that the government does routinely spend more than it takes in -- it’s only broken even or run a surplus in 12 of the 70 years since entering World War II (and since the establishment of the trust fund, we only took in as much as we spent for a few years during Bill Clinton’s second term). The government makes up that shortfall by issuing debt. Whether it sells that debt to your pension fund, the Chinese Central bank or the Social Security Trust Fund doesn’t make a lick of difference.
But if the system isn’t tweaked at some point over the next few decades, those debts will eventually have to be paid off in order to give retirees their promised benefits. And this gets to the nub of the matter: if benefits aren’t trimmed and payroll taxes aren’t increased, the Social Security “shortfall” will have to be paid out of general revenues, which are financed by taxes that are, on average, far more progressive than payroll taxes. So the rush to “fix” a system that is anything but broken is at least in part motivated by fears among the wealthiest Americans that their taxes may rise, disproportionately in their view, some 30 years down the road.
Just how effective is the corporate Right’s campaign to terrify the public into believing in their all-encompassing “entitlement crisis”? So much so that the standard rallying cry among even savvy progressives has been that we need to “strengthen Social Security now for the future.” The truth is we don’t need to do anything anytime soon; while the $5.4 trillion "shortfall" projected over the next 75 years is a scary number, it represents just 0.7 percent of the country’s total economic output over that period, according to the trustees’ assumptions. And the annual gap can be fixed anytime. Even if nothing at all were done before then, the program’s 2084 shortfall would represent only 1.4 percent of our economic output (in a country that currently has the 27th lowest tax burden out of the 30 wealthy countries of the Organization of Economic Cooperation and Development).
These are all things to keep in mind when digesting the granny-bashing blather emanating from Washington. And consider, too, that the entirety of the 75-year “Social Security gap” is equal to the value of extending George Bush’s tax cuts for the wealthiest 2 percent of Americans. As the Center for Budgets and Policy Priorities pointed out, “Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat.” But that’s just what they’re doing.