"Social Security has nothing to do with the deficit"

[_Kevin Graham]

FactCheck Gets It Wrong on Social Security and the Deficit


Written by Dean Baker

Saturday, 26 February 2011 21:12

FactCheck.org, a project of the Annenburg Public Policy Center, wrongly attacked a number of prominent Democrats for correctly pointing out that Social Security does not contribute to the deficit. The people attacked included New York Senator Charles Schumer, Senate Majority Whip Richard Durbin, and President Obama’s Budget Director Jacob Lew.

This point should be pretty straightforward. Under the law, Social Security is financed by a designated tax, the 12.4 percent payroll that workers pay on their first $107,000 of income each year. The money raised through this tax is used to pay benefits. Any surplus is used to buy U.S. government bonds. All funding for the program comes either from this tax or from the bonds held by the program’s trust fund. (The Social Security system is also is credited with a portion of the income tax paid on Social Security benefits.)

Social Security is prohibited from spending any money beyond what it has in its trust fund. This means that it cannot lawfully contribute to the federal budget deficit, since every penny that it pays out must have come from taxes raised through the program or the interest garnered from the bonds held by the trust fund.

The one exception to this rule is the roughly $120 billion being credited to the Trust Fund in 2011 to offset the lost payroll tax revenue due to the 2 percentage point reduction in the payroll tax. Apart from this special 1-year exception approved by Congress at the end of last year, Social Security is literally prohibited under the law from adding to the deficit.

FactCheck argues that Social Security will contribute to the deficit because it will be drawing on the interest on the bonds that it holds beginning in 2016 and later will begin selling these bonds. This would be like claiming that Peter Peterson, the Wall Street investment banker and vociferous proponent of cutting Social Security, is contributing to the deficit if he sells a billion dollars in government bonds to finance his anti-Social Security agenda.

In both cases the government would need someone to buy up the bonds to replace the bonds that were already sold. However, this is just a redistribution of the debt. The decision by the Social Security trust fund to sell its bonds no more increases the debt of the U.S. government than the decision by Peter Peterson to sell his bonds.

FactCheck’s confusion probably stems from its reliance on figures for the “unified budget.” This budget adds in the annual surplus or deficit from Social Security.

However, every single budget document put out by the government also includes the “on-budget” budget that treats Social Security as the distinct program it is under the law. This budget would show that Social Security has no effect on the deficit (except due to the payroll tax cut for 2011), since it is a self-financed program.

Obviously Senators Schumer and Durbin and Mr. Lew were referring to the on-budget budget. It is hard to believe that Factcheck did not understand this basic fact about the U.S. budget. They were right and FactCheck is wrong.

Social Security does not contribute to the budget deficit. That is the law.

[_Kevin Graham]

Maybe Cinepro can explain how these economists have gotten it so wrong?

And most importantly, how Lord Reagan, the God of all Conservative doctrines, managed to be so wrong as well...

[_ajax18]

Because wealth has more to do with what your parents do for you than what you do for yourself. I'd like to give my children that opportunity and let them have things that I didn't.

Could you give me some examples of what you're talking about in the above? What do you mean, what your parents do for you?

Paid college education vs. paying interest on student loans, help purchasing necessities like a first car or house rather than signing your life away to the bank. What if you're a dentist and have a choice as being hired out or have a family who has the capital to help you get your own business started. That's how wealth is honestly accumulated through generations.

If you came from parents who couldn't/wouldn't help you, than you're not going to get as far. It seems obvious to me. Where are you really going with this question?

[_canpakes]

Paid college education vs. paying interest on student loans, help purchasing necessities like a first car or house rather than signing your life away to the bank. What if you're a dentist and have a choice as being hired out or have a family who has the capital to help you get your own business started. That's how wealth is honestly accumulated through generations.

If you came from parents who couldn't/wouldn't help you, than you're not going to get as far. It seems obvious to me. Where are you really going with this question?

Ajax -

Given your view on social security dollars being taken from your paycheck as taxation, do you perceive any benefit to the program as regards allowing older/retired citizens a better chance to participate in the overall economy, and from a family standpoint of being able to do so while imposing less of a direct financial impact on their working children?

[_ajax18]

Given your view on social security dollars being taken from your paycheck as taxation

First off it's not just my opinion. It's a tax. Even the supreme court maintained that the Obamacare penalty for not purchasing health insurance was a tax.

do you perceive any benefit to the program as regards allowing older/retired citizens a better chance to participate in the overall economy,

For some people it was a benefit, for others it was a bad deal. Those getting the good deal are many who have already passed on who paid very little and got back way more than they ever put in. As the program ages, takes on more debt, and with the rise of disability, more people are going to get the bad end of that deal. Many people are living longer but they're not necessarily willing or able to work longer.

The tragedy lies not so much with whether a parent ends up being a financial burden but with the loss of freedom for the individual to choose what risks he takes in life, what he can afford and what he cannot afford.

[_Jersey Girl]

Could you give me some examples of what you're talking about in the above? What do you mean, what your parents do for you?

Paid college education vs. paying interest on student loans, help purchasing necessities like a first car or house rather than signing your life away to the bank. What if you're a dentist and have a choice as being hired out or have a family who has the capital to help you get your own business started. That's how wealth is honestly accumulated through generations.

If you came from parents who couldn't/wouldn't help you, than you're not going to get as far. It seems obvious to me. Where are you really going with this question?

I'm not "really going" anywhere with the question. I made an attempt to probe your thinking in the hopes that it would forward the dialogue with better understanding and clarity.

Where did you think I was "really going"?

[_Brackite]

Men don't live that long in my family. I'll be dead and gone long before I ever reach 70 or whatever the age ends up being by the time I get there. Both my granfathers paid into that damnable program their entire lives as well. They never collected a penny, just worked to pay for other people to have their golden years.

If it were insurance, you'd have a choice to purchase it or not. Then I might agree that nobody got cheated. The worst cheating is yet to come, but I would accept social security going bankrupt for just the hope of my children being liberated from the program.

I also think that I will be dead before I reach 70 years old. I am now in my early 40s.

[_ajax18]

I'm not "really going" anywhere with the question. I made an attempt to probe your thinking in the hopes that it would forward the dialogue with better understanding and clarity.

Where did you think I was "really going"?

I don't know. What do you think? Does inheriting money give you advantages that you wouldn't otherwise have? Would you like to leave money for your children?

[_Jersey Girl]

I'm not "really going" anywhere with the question. I made an attempt to probe your thinking in the hopes that it would forward the dialogue with better understanding and clarity.

Where did you think I was "really going"?

I don't know. What do you think? Does inheriting money give you advantages that you wouldn't otherwise have? Would you like to leave money for your children?

Of course it gives you advantages...and so do the choices that we make regarding money and how we live. Some folks come into a bundle and blow it entirely.

Well, you are talking to a once poor girl from Jersey who lied about her age at 17 to get a job, whose friends gave her a ride to work and who socked away money to buy her own first car. I could go on, but I don't know how much of my personal life I want to share here.

[_ajax18]

I also think that I will be dead before I reach 70 years old. I am now in my early 40s.

I don't want to live if I can't take care of myself anymore. I've seen several million dollar family savings accounts passed down and slowly grown for generations eaten up to nothing with nursing home care. Why work and save all your life for that?