WaPo WAY Off on Social Security

April 9th, 2012 at 8:26 am

I was about to go after Robert Samuelson’s terribly misleading attack on Social Security this AM—it has become welfare!…FDR would hate it!—when it occurred to me that this is just the type of spurious attack the drives Dean Baker nuts (Dean and Mark Weisbrot were early recognizers of the Soc Sec crisis mongering).

So, if you’re unfortunate enough to read Samuelson, here’s the antidote.

Two points I’d add.  First, amplifying one of Dean’s points, be aware of the Social Security bait and switch.  In order to make the finances of the guaranteed pension system sound worse than they are, Samuelson, toward the end of the piece, switches from “Social Security” to “Social Security and Medicare,” the latter of which is truly on an unsustainable path.  That’s a separable issue, but it’s characteristic of the “no-more-social-insurance” crowd to jam them like this.

Second, none of us are arguing that we should ignore the actual fiscal imbalances faced by Social Security.  Our point is that they are manageable with known solutions (whereas controlling costs in health care is less certain—although frankly, that too is less elusive than we generally think—every other advanced economy is doing much better than we are with some form of single payer or highly regulated delivery system and cost controls).

Here are the relevant facts about Social Security’s future (as we at CBPP see them):

–The trustees estimate that the combined Social Security trust funds will be exhausted in 2036 —a year earlier than they forecast in last year’s report.

–After 2036, Social Security could pay three-fourths of scheduled benefits using its annual tax income [Samuelson implies all benefits expire in three years!]. Those who fear that Social Security won’t be around when today’s young workers retire misunderstand the trustees’ projections.

–The program’s shortfall is relatively modest, amounting to 0.8 percent of GDP over the next 75 years (and 1.45 percent of GDP in 2085).  A mix of tax increases and benefit modifications — carefully crafted to shield recipients of limited means and to give ample notice to all participants — could put the program on a sound footing indefinitely.

–The 75-year Social Security shortfall is only slightly larger than the cost, over that period, of extending the 2001 and 2003 tax cuts for the richest 2 percent of Americans (those with incomes above $250,000 a year). Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable [or like the Ryan budget, add trillions more in tax cuts] while the Social Security shortfall constitutes a dire fiscal threat. And the shortfall is well under half the cost over 75 years of making all of the 2001 and 2003 tax cuts permanent.

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19 comments in reply to "WaPo WAY Off on Social Security"

  1. Fred Donaldson says:

    The Democrat geniuses are not protecting the future retired much better than the Ryan plan. Alternatives suggested by Washington “centrist” insiders include raising the retirement age, means-testing benefits, reducing COLA through a new formula, and hiking the minimum retirement age.

    Everyone in Washington knows that Social Security here pays far lower benefits than other industrialized countries, as little as half as much. Now, the goal is to reduce these benefits even more with a fake crisis, nurtured by many, and promoted by WAPO, as they run Fiscal Times reports without mentioning their funding by Peter Peterson.

    The rich want Social Security cut, hoping that this will result in lower employer share of FICA taxes, or at least maintenance of the current rate. The middle class needs benefits hiked to what they get in Germany, not cut to some Third World country “benefit.”

    Social Security is not just for protecting the poor, as mentioned in this article, it is also the foundation of retirement for most Americans. A lousy $1,200 a month seems to generate a huge concern by the selfish elite in America, as though that might afford some average Joe one night in a ritzy hotel if they didn’t have to pay Medicare premiums and co-pays, food and rent.


    • Michael Bloomer says:

      Excellent points. I’d not actually considered this before: we’re in essence begging the question about soc-sec. It’s about financing it, certainly, bute more so it’s about whether our benefit structure is at all realistic or just. Thanks for this, Mike


    • Jeff Joseph says:

      Excellent post thanx. Kevin Phillips in his book Bad Money said SSA benefits are 30% less than what they should be because of what Bush Sr did in 92 to our Cola Calculation.


  2. jawbone says:

    Part of what Ryan is doing is pushing the Overton window further to the right, which Obama can them say makes his attackson SocSec and Medicare “centrist” and “moderate.”

    The utter outrageousness of Ryan makes Obama’s outrageousness seem more plausible. Alas.


  3. coberly says:

    Jared is a good guy, but even he is a little bit confused about SS.

    In the first place, SS does not and will NEVER contribute a dime to the deficit. So there is no need to compare it to the Bush tax cuts… which do.

    Second, SS can pay for its own “actuarial shortfall” by raising the payroll tax one half of one tenth of one percent per year… that’s forty cents per week per year.
    So why would you want to include ANY benefit cuts, however “carefully crafted.”

    And while Jared doesn’t mention it, i know there are good progressives out there who want to “fix” SS by “raising the cap.” That would be a mistake. By making “the rich” pay for something they won’t get the benefit of, you turn SS into welfare… and FDR knew better than that . We should to.

    And, oh, yes. The payroll tax holiday DOES contribute to the deficit. But that is NOT Social Security. That is the opposite of Social Security. Interesting that our “dysfunctional congress” could come together and pass that over a weekend with the full support of the Democratic President… all of whom are crying real tears about the huge horrible scary deficit that is going to eat us and burden our youth.


    • richard rosenberg says:

      Actually the cap at the onset of SS was widow dressing 99 % of the covered population were under the cap. So don’t credit FDR with political wisdom for having the cap.The revenue lost by the payroll tax cap today is far greater than the founders of SS ever imagined. The cap includes much of today population because for many years SS benefits and the cap were not indexed to inflation therefore more people found themselves over the cap. The cap is not necessary for political acceptance of the system if it is raised one could give some additional benefits to the higher paid beneficiaries but not in proportion to the increased revenues or higher taxable wages.The benefit structure is and always has been progressive and this has never hurt the political support for the system.


      • coberly says:

        richard

        you might be right as to the history. but this is the wrong moment in history to be calling for raising the cap. the “rich” are being told they are paying for “huge” costs of SS.

        when we can pay for it ourselves for forty cents per week, it seems stupid to give the enemy that argument.


        • ComradeAnon says:

          The cap is around $110,000 now. After a few years of $107,000. That’s not a very high limit. Probably hasn’t kept up with income gains. I wonder how much an increase to only $150,000 would affect things. Plus, based on articles written about people struggling on $250,000 a year, they’ll need Social Security.


    • Don Levit says:

      The author implies, as did Stephen goss, Medicare’s chief actuary, that there are no financial repercussions of the SS trust fund until it is exhausted.
      That is not true.
      Since 2010, the cash outgo has exceeded the cash income.
      Treasury interest had to be redeemed to make up for the cash shortfall.
      The financial dynamics of this transaction is that new general revenues are needed,which is an immediate budget expense, and adds to the deficit.
      Actually, the 2% tax holiday is very similar to the trust fund, in that the entire principal and interest have been lent to the Treasury. This money is gone, even though the “special” Treasuries were supposed to be exclusively for SS beneficiaries. Instead, the princiapl and interest were lent to the Treasury, paid for current expenses, and lowered the deficits.
      Redeemng Treasury interest, and eventually, principal has the same financial effects as when the trust fund is exhausted: new general revenues will be needed AS IF THE TRUST FUND DID NOT EXIST!
      Don Levit


      • coberly says:

        Levit

        you still seem to have trouble with the idea of paying your debts. the money the treasury borrowed from SS needs to be paid back just as if they had borrowed it from China or Pete Peterson.


        • Don Levit says:

          Coberly:
          I did not say the U.S. was not indebted to paying off the loans.
          I am merely saying that when the trust fund is tapped, the financial dynamics is the same as when the trust fund is exhausted: new general revenues must be raised, for the trust fund does not represent a store of wealth, but promises that are paid back on a pay-as-you-go basis, not promises paid back with a “sinking fund” already pre-funded.
          From a paper entitled Fiscal Year 2013 Analytical Perspectives, Budget of the U.S. Government:
          Page 66 “As a result of reforms legislated in 1983, Social Security had been running a cash surplus with taxes exceeding costs up until 2009. The surplus in the Social Security trust fund helped to hold down the unified budget deficit.
          The cash surplus ended in 2009.”
          Page 69 “The debt securities are assets of the funds but are a liability of the general fund to the funds that hold the securities. These balances generally provide the fund with authority to draw upon the U.S. Trasury in later years to make future payments on its behalf to the public.”
          Drawing upon the Treasury is the way we pay all government expenditures, whether from a trust fund or for example, Medicaid beneficiaries.
          With the trust fund running a cash flow deficit since 2009, the draws from the Treasury have already begun, with an immediate expense, and raising the deficit.
          http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/spec.pdf.
          Don Levit


  4. urban legend says:

    It is still to early to adopt definitive measures to deal with a potential shortfall in the retirement fund a quarter of a century from now. Between 1997 and 2003, a mere six years, the projected exhaustion date moved out from 2029 to 2042. In other words, in that period, the Chicken Little date got two years further and further into the future for every elapsed year. That, of course, was due to the strong economy during at least the first four years of that period. That also means that the Social Security Administration, despite its best efforts using acknowledged experts, was unable to project with much accuracy even six years into the future. Overall, for almost 20 years, actual experience has more closely tracked with the most optimistic of the three scenarios that are used, rather than the intermediate scenario that is used for making the black-letter projections.

    When we project that the surplus collected in the Social Security Trust Fund to fund the retirements of the Baby Boom generation, it means that the fund will have lasted about as long as originally intended because Baby Boom retirements will begin dropping in 2030. When we project that returning to a pay-as-you-go system at that time will result in benefits about three-fourths what current law would project them to be, that is based on a projection of economic conditions — wages, productivity, immigration and various factors — almost 25 years from now. We really do not have much of a clue what those conditions will be that far into the future. The Congressional Budget Office will not go more than 10 years out because it considers such projections unreliable.

    While it may be unlikely that we will see economic growth matching that in the 1997-2001 period, another period of a strong economy will once again push the exhaustion date further into the future. We obviously need to continue watching the Trust Fund and projected financing carefully, but we should see what the next upturn does to the projections before we do anything to change the obligations or the benefits of anyone. We will have time to make the necessary adjustments if we merely keep watching.

    In order to maintain middle class aggregate demand, it would be stupid to reduce benefits at all, including by way of extended retirement ages when we can barely employ people in the 55-65 age group for whom a lost job may never be replaced. We should be thinking entirely in terms of modest increases in payroll taxes for everyone, and perhaps some but not a radical lifting of the cap to keep it from being a welfare program by preserving the interest of everyone, even those in the upper middle class, in the system.


    • Stuart from Australia says:

      Thanks for you very clear and informative post. Here in Australia the system is structured as welfare – but regarded as earned by the retired who have “paid taxes all their lives” – so you have helped me understand some of the very different issues coming out of the US system.


      • coberly says:

        stuart

        structuring it as welfare would not work in America. we have long political history of hating welfare and cutting it to the bone and beyond.

        and the workers have absorbed the ethic.

        even I think we are better off if we pay for it ourselves. directly and transparently.


      • Jeff Joseph says:

        How can it be considered welfare if you pay Taxes to earn your benefits. Are we talking in English ?


    • coberly says:

      urban

      i agree. l am author of “plan” to raise payroll tax one tenth of one percent WHENEVER the ten year forecast is that the Trust Fund will fall below the one year reserve. it would be easy enough to include in the plan a requirement to lower the tax should the Trust Fund (after 2040) exceed, say 300% of one year’s reserves.

      but it would be foolish to, for example, not raise the payroll tax one half of one tenth of one percent now and each year until the “actual future” is more evident. no one would feel the raise, and it would “fund” SS forever, and so presumably shut up the Liars.

      if it overshoots, that can be corrected very timely with no disruption to anyone or anything.


      • urban legend says:

        Coberly,

        You may be right about the wisdom of that if it could be sold as a way of taking the subject off the table — the political football table, that is, because I agree that because our official way of projecting future financial viability shows a potential problem, we must continue watching carefully and preparing contingency plans.

        Whatever approach is taken — that it does not belong in our discussions at all right now (as I originally suggested) or that we can make some very modest payroll tax increases now (or beginning when, say, unemployment drops below 6%) to make it more certain we never have a problem) — there will be attacks from those who have doubled down on the need for “entitlement reform.” It will have to be supported by a firm commitment to long term defense against those attacks, a determination to paint the attackers into a corner as out-of-touch opponents of what Americans want. I haven’t seen a willingness or ability of any liberals or progressives in office to paint anyone into a corner, especially not the so-called Beltway Centrists who are most wedded to undermining Social Security. The Democrats seem to be very afraid of those VSPs (Very Serious People) as they are sometimes called.


  5. steeve says:

    “every other advanced economy is doing much better than we are with some form of single payer”

    Leave it to a liberal to understate what the general public is wholly unaware of.

    By “much better” you mean HALF PRICE. Copying the whole world (together with sane tax policy) would literally solve our entire budget.

    Is it really too much to ask that we crib from the answer sheet?


  6. Kenneth Almquist says:

    The projection that Social Security trust funds will be exhausted in 2036 is one of three projections generated by the Trustees. Another projection (the “high cost” scenario) uses more pessimistic assumptions shows the trust funds being exhausted about five years earlier. A third (the “low cost” scenario) uses more optimistic assumptions, has the trust fund solvent and growing 70 years from now.

    In other words, there is a good chance that the Social Security trust funds will eventually run out of money (forcing a reduction in benefits) if no changes are made to the program, but it’s not a certainty. One defensible approach to reforming Social Security is to leave it alone as long as the projections don’t make it clear whether any changes are needed.


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