Monday, July 11, 2011

Social Security and the Deficit: FactCheck

Earlier this year many Democrats and progressive bloggers argued that Social Security payments do not contribute to the national deficit. This claim is not true, and provides relevant analysis.

Now that Obama has put Social Security on the table in debt-reduction negotiations, a political storm over the subject has erupted. Progressives must approach the stability of Social Security from a realistic perspective. This blog post does not suggest any particular course of policy, but facts should inform public debate on the subject.


Caro said...

Social Security only adds to the deficit because the Congress decided to put the FICA taxes in with the general revenue, thereby stealing the money that many of us have paid in for our entire working lives.

We have PREPAID OUR RETIREMENT, and George W. Bush gave it all away to the already rich in tax cuts and war funding. Now Obama is shoveling money to the same people.

They're not going to get away with it. Trust me.

Carolyn Kay

Darren Lenard Hutchinson said...

Caro: Absent a benefit reduction or payroll tax hike, the benefits will exceed revenue -- meaning it will run at a deficit. That has already happened before - absent the government taking some of the revenue.

CMike said...

I'm not an accountant nor a lawyer but I'm pretty sure both Factcheck and DLH have this wrong.

Take a quick look at this link, The Debt to the Penny and Who Holds It.

The confusion is that some people think that when the government rolls over its debt that it is creating new debt. When there's a shortfall between Social Security revenues and benefits the Social Security Administration redeems some of the bonds which it holds by cashing them in at the Treasury. The Treasury simultaneously finds members of the public to buy bonds for the amount it is redeeming.

There is no new debt created, rather there's a transfer of debt from the Intragovernmental Holding column in the chart at the link to the Debt Held by the Public column. The amount in the Total Debt Outstanding column stays the same.

The only negative affect on the deficit going forward is if the replacement debt instruments cost more to service than did the ones the Social Security Trust Fund held and, actually, I think Social Security gets inflation plus 3% on its bonds which is a higher return than what the public can get these days but I'm not sure about that detail.

Or let me put it another way. What's really going on here is that a bunch of reprehensible Ken Lay types like Alan Greenspan, Arthur Laffer, George W. Bush, and Barack Obama have been borrowing money from Grandma Millie for years with the intention of telling her to "stick those IOUs" that they've been selling her, "where the sun don't shine" if she were to ever came around asking that they make good on one. Well now she's finally shown up to cash in a few and she's caught them out in the front yard which means the neighbors are all watching to see how these swindlers are going to handle the situation.

For the present they've decided they don't want to make a scene so one of them says, "Let me have those and I'll be back lickty-split Grandma Millie." He runs down the street to Red's house, sells him the IOUs, gets the cash and comes back and says, "Here you go Grandma Millie. Didn't we always tell you you could get some or all of your money back anytime you wanted it?"

By the way, you know Red, right? He's that Chinese guy who lives down the street. Now the thing about Red is not only does he have some pretty nasty associates but he swings a pretty mean lead pipe himself.

So, that being the case, here's how the scorecard reads after Round 1: Grandma Millie has cashed in a few of those IOUs she was holding that the boys weren't ever planning on paying off, Red is holding on to them now and therefore the boys know that that's debt that they really are going to have to pay off at some point.

Now Alan and Arthur and George and Barack can abide this one setback, and maybe a few more. But their plan is to turn the neighborhood against Grandma Millie before long so that at some point, when she shows up with more IOUs, they can get away with calling her a "crazy old bat" and telling her to "get lost."

Sorry to say it, but it seems to me like these slicksters are making a lot of progress toward getting the people in the neighborhood on their side by telling them, in a very convincing way, a bunch of nonsense about how those IOUs Grandma Millie has aren't real IOUs.

Darren Lenard Hutchinson said...

CMike: see -

Also, I think your analysis rests on the myth that social security is "off budget." Yes, the tax revenue is not available for general government spending. But even the CBO projects that SS will have a major deficit in the next two decades. Also, some reports offer more disturbing projections. That shortfall can be fixed by raising taxes, cutting benefits or tapping into the bonds held on prior contributions. But it appears that the entire assets of the plan, including future contributions, will be less than benefits in the near future. Putting SS off budget cannot conceal the economic reality. Also, the link I posted says that the CBO includes SS shortfalls in its overall calculation of the deficit and that, regardless, the health of the program affects the nation's credit worthiness. So, I don't think we are wrong.

CMike said...


Thanks for the link. Always interesting to read the latest New York Times column intended to help manufacture consent among the elite on a particular issue. This particular column seems to be targeted at those who need an introductory explanation of the approved position.

I, too, can recommend some reading on this subject. At the head of my list is Dean Baker and Mark Weisbrot's Social Security: The Phony Crisis (1999, 2001).

Also, I think your analysis rests on a misunderstanding of what "off budget" means. Earlier, during this phony debt ceiling crisis that is just winding down, the issue as to whether the banker's friend, Barack Obama, could avoid paying out Social Security benefits was discussed by experts who bring plenty of credentials of their own to the table.

>>>>>Jason J. Fichtner, a former deputy Social Security administrator during the Bush administration now at George Mason University...notes that Social Security holds $2.6 trillion in special-issue Treasury securities. Those bonds are part of the $14.3 trillion debt amassed by the U.S. government, and benefits are paid out of those securities.

So, the theory goes, if Treasury redeemed the needed Social Security bonds, and issued new marketable Treasury bonds to make good on the Social Security bonds, it would be a one for one swap and the debt ceiling would not be increased.<<<<<

So, I do think we're right and, what is more, we're in the right.

Darren Lenard Hutchinson said...

"Always interesting to read the latest New York Times column intended to help manufacture consent among the elite on a particular issue."

Your post begins with this conversation stopper. I must admit it was quite effective. [stopped]

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