Michael Hiltzik

Another 'fact-checker' gets Social Security wrong

No, Social Security can't add to the deficit, no matter what PolitiFact says

The rise of fact-checking websites, which aim to run the statements of politicians through the truth wringer, should be a positive development for the Republic. In theory.

The problem is that these outfits claim to be faultless arbiters of truth. That's a claim they can't back up. When they get something wrong, it's worse than if they said nothing at all.

That brings us to PolitiFact.com, which operates an Oregon edition in conjunction with the Oregonian of Portland. On Monday, PolitiFact Oregon analyzed a statement by Sen. Jeff Merkley (D-Ore.) that "Social Security has never contributed one cent to the deficit. Not one cent."

They rated Merkley's statement "half true." They're wrong. It's 100% true.

They would have known that if they made a better effort to understand how Social Security works. And I don't mean merely by quoting me, which they did, or quoting several experts who told them Merkley was correct. Instead, they relied on other PolitiFact websites, which is a bit like asking your mother if you're the sweetest little snookums who ever lived.

Unfortunately, those sites also got Social Security wrong. Wildly wrong. PolitiFact Oregon also quoted the Congressional Research Service in support of their conclusion, but they quoted the CRS selectively, missing the part where the CRS would show them they were wrong.

Leaving aside the sheer illogic of PolitiFact's ruling -- a categorical statement like Merkley's can't be half true, but can only be true or false -- let's look at where the site went off the rails. That's important, because Merkley's electoral challenger, Monica Wehby, will probably be citing the PolitiFact finding against him as though it's some kind of authority. 

First and foremost, PolitiFact errs in stating that "after years of rolling up surpluses, Social Security in 2010 began paying out more in benefits than it was collecting." It said the program is "leaking money." It said that it "bleeds red ink." It said "the program has chalked up increasingly large deficits each year since (2010), requiring money to be taken from its bonds to make up the difference."

All these statements are factually incorrect, which should be a sin for a "fact-checking" organization.

Social Security is still in surplus, and its trustees expect it to remain in surplus at least until 2020. The raw figures, from the 2014 trustees report, are right here. Social Security has not taken a single cent "from its bonds" to pay for benefits. Saying it has done so is incredibly inaccurate, and if PolitiFact is a respectable reporting organization, it should retract its assertion, now. 

In 2010, the trustees reported, the program took in $781.1 billion and spent $712.5 billion, most of it ($701.6 billion) on benefits. That yielded a surplus of $68.6 billion, which went into the trust fund. Last year, Social Security took in $855 billion and spent $822.9 billion, for a surplus of $32.1 billion.  

Where PolitiFact went wrong was in arbitrarily deciding that among the program's numerous income streams, only some revenue, chiefly that from current payroll taxes, should be counted. This is an arbitrary judgment, and factually insupportable.

The trustees report three major revenue sources: the payroll tax, income taxes on Social Security benefits (which are credited to the program), and interest on its $2.8 trillion in Treasury bonds. These are all legally equivalent revenue sources, and if PolitiFact is going to unilaterally rule any of them second-class or nonexistent, it needs to explain why. It doesn't.

It's proper to point out, moreover, that the Treasury bonds on which that interest is paid were themselves purchased with payroll tax revenue. Instead of being used for current benefits, the excess was banked by investing it in T-bonds. That's the trust fund. It belongs to all the workers who paid into Social Security. 

PolitiFact would have known that, had it only read deeper into the CRS report it cited. It quoted the report as stating that "because the federal securities held by the trust funds are redeemed with general revenues, this results in increased spending for Social Security from the general fund." 

But only two sentences later, the CRS says this: "It is important to note the program is relying on revenues collected for Social Security purposes in previous years that were used by the federal government at the time for other (non-Social Security) spending needs." (Emphasis added.)

In other words, it's all from the payroll tax.

PolitiFact writes: "The senator argues, reasonably, both that Social Security is by law a closed system, and that its trust fund is sufficient for now to cover the current gap. It’s also true, however, that these gaps do affect other parts of the federal government because they require borrowing elsewhere to make up the difference."

Lots of problems there. The trust fund is not covering "the current gap," because there is no current gap, as the trustees' numbers show. Even when the trust fund begins to be spent down, it's inaccurate to interpret that as "contributing to the deficit."

The money accounted for in the trust fund was borrowed by the federal government and spent on non-Social Security needs, as PolitiFact's own source says.  When the bonds are redeemed, that's a repayment transaction exactly equivalent to what happens when you repay your mortgage, not a deficit-creating transaction. Even if you want to say that paying interest or principal on the bonds adds to the deficit, it's the spending on those non-Social Security needs that created the deficit, not Social Security.

Nor is it simply a matter of moving money from one pocket of the government to another. Payroll taxes are mostly paid by the middle- and working class; income taxes, which have been kept low thanks to the borrowing from Social Security, are paid mostly by higher-income taxpayers. The loans made by Social Security represented money flowing from lower-income to higher-income Americans; the redemptions involve that money flowing back down, as the wealthy meet their obligations. 

The bottom line is what Merkley said: Social Security by law can't contribute to the deficit. If it doesn't bring in enough money to pay benefits, those benefits will have to be cut, by law. It can't spend more than it takes in, so it can't add to the federal deficit. Period. But we're nowhere near that point, and won't be at least until sometime in the 2030s.

This may seem complicated to the people at PolitiFact, but that's no excuse. They got Social Security wrong because they didn't fully understand what they were writing about, and as a result they badly misled their readers.

Keep up to date with The Economy Hub by following @hiltzikm.

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