Skip to main content

As Washington's stalemated debate over avoiding the so-called "fiscal cliff" continues to fester, Social Security is once again in the cross-hairs of would-be deficit hawks across the political spectrum. This week, the New York Times profiled Maya MacGuineas, who "has spent years warning about threats to the solvency of Social Security and to the rating of American debt." While conservative Senator Lindsey Graham (R-SC) declared, "I will raise the debt ceiling only if we save Medicare and Social Security from insolvency and prevent this country from becoming Greece," centrist Fareed Zakaria and liberal Ruth Marcus took "the American left" to task for the "liberal uproar" over its opposition to President Obama's support for using the "chained CPI" to raise taxes and curb the growth of Social Security benefits.

Unfortunately, there's one small problem with these bipartisan calls to swing the budget axe at the pension system upon which tens of millions American retirees depend. As it turns out, Social Security simply is not a major driver of the U.S. national debt.

Now, it may be true that 1 in 5 Americans will be over age 65 by 2030 and that there will be there will be just over two workers per retiree (compared to five per retiree in 1960). But as Ezra Klein explained in "the single best graph on what's driving our deficits" (above):

What these three charts tell you is simple: It's all about health care. Spending on Social Security is expected to rise, but not particularly quickly. Spending on everything else is actually falling.
Which is exactly right.

Continue reading below the fold.

As the nonpartisan Congressional Budget Office (CBO) explained in its November analysis "Choices for Deficit Reduction," it is the rapid growth of federal health spending--especially on Medicare for almost 50 million seniors--which risks overwhelming the federal budget. (It is worth noting that the near-doubling of defense spending since 2000 means that all other discretionary spending has contracted on education, transportation, research, foreign aid and everything else.)  But while combined federal health care spending as a percentage of the U.S. economy will roughly triple between 2000 and 2030, Social Security will tick upwards from about 4 percent to 6 percent.

And while Social Security is not a major factor in the growth of U.S. national debt, its dedicated trust fund actually makes the current deficit picture look better, not worse. As David Cay Johnston helpfully summed it up in May:

Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?

Why, Social Security, of course, which ended 2011 with a $2.7 trillion surplus.

That surplus is almost twice the $1.4 trillion collected in personal and corporate income taxes last year. And it is projected to go on growing until 2021, the year the youngest Baby Boomers turn 67 and qualify for full old-age benefits.

So why all the talk about Social Security "going broke?"

The answer, as Johnston lamented, is that "the people who want to kill Social Security have for years worked hard to persuade the young that the Social Security taxes they pay to support today's gray hairs will do nothing for them when their own hair turns gray." And at the center of their argument, Paul Krugman has repeatedly warned, is a bait and switch. After the Washington Post joined the conservative chorus last year bemoaning the fact that the temporary payroll tax cut predictably resulted in Social Security is currently taking in less in payroll taxes than it's paying out in benefits, Krugman explained:
Social Security is a program that is part of the federal budget, but is by law supported by a dedicated source of revenue. This means that there are two ways to look at the program's finances: in legal terms, or as part of the broader budget picture.

In legal terms, the program is funded not just by today's payroll taxes, but by accumulated past surpluses -- the trust fund. If there's a year when payroll receipts fall short of benefits, but there are still trillions of dollars in the trust fund, what happens is, precisely, nothing -- the program has the funds it needs to operate, without need for any Congressional action.

Alternatively, you can think about Social Security as just part of the federal budget. But in that case, it's just part of the federal budget; it doesn't have either surpluses or deficits, no more than the defense budget.

Both views are valid, depending on what questions you're trying to answer.

In the longer term, Social Security's finances will need some shoring up. Its actuaries forecast that the program will start paying out more than it starts taking in by 2021. Under current tax rules, by 2033, recipients would receive only about three-quarters of promised benefits. But as Johnston advocates, there are several straight-forward options for keeping Social Security in the black for generations to come:

One would be restoring the Reagan standard that 90 percent of wages are covered by the Social Security tax, which now applies to only 83 percent of wages. If we went back to the Reagan standard, the Social Security tax would apply to close to $200,000 of wages this year instead of $110,100.
(You can test the impact of this and other changes on the U.S. debt by experimenting with the New York Times' interactive "budget puzzle.")

A variation is the one proposed by then candidate Barack Obama in 2007 and introduced to the Senate last year by Bernie Sanders (I-VT). Sanders' bill would impose the payroll tax on incomes above $250.000 a year, a move guaranteeing the program's future for 75 years.

Social Security, as Senator Sanders protested last year, "is not going bankrupt and it is not going broke." But in conjunction with Medicare, it is keep millions of elderly Americans out of poverty. As the Center on Budget and Policy Priorities (CBPP) recently reported, without Social Security, 14 million more seniors would live below the poverty line, a staggering jump from 8.7 percent to over 43 percent:


For nearly two-thirds (65 percent) of elderly beneficiaries, Social Security provides the majority of their cash income. For more than one-third (36 percent), it provides more than 90 percent of their income. For one-quarter (24 percent) of elderly beneficiaries, Social Security is the sole source of retirement income.
But not, as the fiscal cliff dwellers suggest, a cause of today's federal deficits.

Originally posted to Jon Perr on Wed Dec 26, 2012 at 02:56 PM PST.

Also republished by Social Security Defenders and Daily Kos.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site