The Myth of the Social Security Crisis

Not for the first time, the sharks are in the water about the supposed crisis facing Social Security, part of a larger push for "entitlement reform." Nearly as a bloc, the Republican party would like to scale back, with a view to eventually privatizing, the program. And in a highly unfortunate turn, President Obama has anointed a "deficit commission" stacked with people sympathetic to cutting Social Security benefits, including the staggeringly dishonest Paul Ryan, as well as Democrats like commission chair Erskine Bowles, who have a history of working toward an unwarranted trimming of the program.

(For an especially scathing attack on the commission, here's the testimony to that commission by the eminent economist James K. Galbraith, son of the legendary John Kenneth Galbraith.)

In any event, in hopes of providing some ammunition in the coming battle against the doomsayers, here are five (far from exhaustive) points to keep in mind about Social Security:

1) The program is fully funded decades into the future

According to the most recent report of the Social Security Trustees, the program will be able to pay all projected benefits through the year 2037, nearly thirty years from now. The Congressional Budget Office projects the full payment date to be 2039. It should be noted that these projections have been depressed significantly by the economic slowdown that began in late 2007. It's very likely that, once the economy starts to improve, those projections will change accordingly (and if they don't, we've got much bigger problems than a projected shortfall for Social Security decades in the future).

That trustees' projection is their so-called intermediate projection. It assumes a substantially slower rate of growth over the next seventy five years than the United States has experienced over the past fifty years.

Perhaps that projection is correct. But under the trustees' "low-cost" projection, which assumes a rate of growth going forward much closer to what we've experienced over the previous half century (a period that also included several recessions), there is no shortfall whatsoever over the next seventy five years. (And there are other arguably flawed assumptions that make the program's future look less healthy than it really is.)

2) Even when the trust fund runs out, Social Security will still be in pretty good shape

When reporting on the expected date that the trust fund will run out of money, media and Social Security doomsayers commonly and mistakenly use words like "broke," "insolvent" and other adjectives to describe Social Security. This is false in any common understanding of those terms.

The trust fund was established in 1983 (under a reform commission headed by Alan Greenspan). Its specific purpose was to ensure that Social Security could meet its obligations when the baby boomers began to retire in about 2013. As the projections suggest, by the time the trust fund is exhausted (in the late 2030s), it will have substantially done its job -- having provided the extra money to cover the costs associated with the retirement of the baby boomers. That the trust fund will eventually exhaust its reserves is by design, not an unforeseen disaster. In fact, Social Security will always be able to provide benefit levels for all retirees at a higher level than retirees receive today, adjusted for inflation, with no changes whatsoever in the funding of the program. This is because Social Security is funded by payroll taxes, and as long as those are being collected, retirees will continue to receive their checks. Nothing will change this fact unless Congress decides that Social Security taxes should no longer be collected, or retirees should no longer receive benefits. In other words, unless Congress decides to abolish the program or deliberately reduce its scope, none of the doomsday scenarios will come to pass.

3) Repeat after me -- Social Security is not Medicare (or Medicaid), Social Security is not Medicare (or Medicaid)

One of the common errors in reporting on Social Security's (non-existent) problems is to lump it in with the (real) problems facing Medicare and Medicaid. But those programs are separately funded from Social Security. And their problems are traceable to a simple source -- the runaway costs of our bloated, bureaucratic and highly inefficient health care system. And it's the inefficiency of the private sector of the health care industry that is largely responsible for the explosion in costs. This has nothing to do with Social Security. Whether intentional or not, lumping Social Security in with Medicare and Medicaid amounts to simple fear-mongering about Social Security's future viability. (As a side note, as has been widely reported, the recently passed health insurance reform bill may gone a long way toward improving the long-term financing of Medicare). In any event, it's either out of willful dishonesty or a fundamental misunderstanding of the nature of our "entitlements" that these programs are frequently lumped together in discussions of our long-term deficits.

4) To the extent that there is a long-term hole, it's easily fixable

The Trustees calculate a 75-year projection for the program. So does the CBO. When one projects the potential shortfall over 75 years, one gets some pretty large numbers. As of the year 2084, there will be a roughly $4.5 trillion hole in the program. That sounds like a lot. But as a point of comparison, that is the equivalent of, in current spending, roughly six or seven years of Pentagon expenditures. As another point of comparison, making permanent the Bush tax cuts of 2001 and 2003 for the richest two percent of Americans would result in the same long-term shortfall. As Kathy Ruffing and Paul Van De Water write: "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."

Furthermore, closing the 75-year long hole would require a quite modest increase in payroll taxes equivalent to a roughly one percent increase in workers' deductions (or less). In other words, though the size of the very long-term social security deficit looks scary, it's not. Therefore, it's easily correctable. And to reiterate point three above -- even without any fix at all, Social Security will always be able to produce higher benefits, inflation-adjusted, than it does today.

5) As Paul Krugman observed today, the doomsayers make no sense, essentially arguing that in "order to avoid the possibility of future benefit cuts, we must cut future benefits." Some of them also claim that the trust fund itself is a fiction because it has been raided to cover general budgetary expenses. But if that's true, as Krugman notes, it cannot simultaneously be true that the program should be evaluated as a standalone program going forward. It either is or isn't part of the general budget. If it isn't, its health is exactly as I've described. If it is, then "relative size of retirement benefits and payroll tax receipts has no special significance -- benefits are just one federal expenditure, payroll taxes just one source of federal revenue." And as I've noted above, in this context, Social Security is certainly not of broader concern than the Bush tax cuts for the wealthy, or our insanely expensive commitment to the Pentagon.

Any sane cost-benefit analysis shows that Social Security has been a remarkable success, making retirement security a reality for the great majority of seniors, among whom poverty was once endemic. On the program's merits, including its long-term fiscal health, there is no reason to doubt that it can continue to perform that function decades into the future.