A conservative defends Geithner on Social Security--and gets it wrong
It’s not surprising that former Treasury Secretary Tim Geithner’s astonishing misconception about Social Security should be seconded by conservatives. After all, his assertion that the program adds to the federal deficit (aired in his new book, “Stress Test”) is a claim they’ve been making for years to undermine confidence in the program.
But the claim is still false.
The basic goal of those, like Biggs, who claim that Social Security adds to the federal deficit is to imply that the program is a cost the country can’t afford. The implication they want to foist upon the public is that there’s something about Social Security that’s inexorably deficit-creating. So they portray the cost of Social Security as a drain on the federal budget that can be addressed only by reducing benefits.
Here’s now Biggs makes that point:
“To be simple: let’s say that Social Security would collect as much in taxes this year as it pays out in benefits. Now let’s imagine something comes along – like a spike in unemployment, or a sudden increase in disability applications, or whatever – that either lowers Social Security’s revenues or raises its costs by, say, $50 billion. What then happens to the overall budget deficit? The answer is that it rises by $50 billion. Now, over the past several years that’s pretty much what’s happened.”
The biggest problem with this scenario is that, contrary to Biggs, it hasn’t happened.
As is certified by the Social Security trustees (a group that included Tim Geithner when he was Treasury secretary), Social Security is in surplus this year and has been since the 1980s. Here’s the latest accounting, from the 2013 trustees report, showing that the “asset reserves” — that’s the trust fund — have increased every year and are expected to continue doing so at least until 2021. Obviously, you can’t run a deficit and increase your assets at the same time.
Ah, but what happens after 2021, when Social Security’s total revenues become insufficient to cover benefits? That’s when the program starts selling its Treasury bonds, presenting them to the government for redemption. Conservatives like to suggest that that’s a deficit-creating transaction — the government has no choice but to borrow to pay off the bonds.
But that’s also wrong. The government has two ways to get money to redeem the bonds: It can raise income taxes to cover the bill. No increase in the deficit there. Or it can borrow — that is, issue a T-bond to redeem a T-bond. Net change in the national deficit: zero.
Biggs and his ilk also suggest that interest paid on the trust fund bonds ($109.1 billion in 2012) contributes to the deficit, because the government has to borrow to pay it. But that’s not Social Security contributing to the deficit; it’s Congress. If lawmakers did the responsible thing and raised income taxes to cover the bill, there’d be no deficit. And no one is holding a gun to their heads preventing them from doing so.
Nancy Altman, a pension expert who is co-director of the Strengthen Social Security campaign, made this point succinctly before the Senate Finance Committee in May 2011.
“The law prohibits Social Security from paying benefits unless it has sufficient income to cover the cost, and Social Security has no borrowing authority to acquire that income,” she testified. “It does not borrow, it does not deficit spend.... Social Security already has an automatic spending cap. If Social Security’s revenue ever were insufficient to cover its costs, benefits would be reduced automatically across the board.”
That’s exactly what I wrote in regards to Geithner. Social Security can’t by law contribute to the deficit; it’s not allowed to spend more than it takes in from payroll taxes, income taxes on Social Security benefits, and interest.
To challenge this fact, Biggs brings forth Social Security public trustee Chuck Blahous, who tells him: “Just for the record, and speaking as a currently-serving Social Security trustee, Hiltzik is flat wrong on this.”
A couple of things you should know about Chuck Blahous. As Dr. Charles Blahous, he appeared at that 2011 Senate hearing, along with Altman. There he was asked if he agreed with her position. His answer was, “I do agree with that.” He also acknowledged that “since the 1980s, Social Security has not added net, on average, to our national deficit and debt.” (The full hearing transcript is here.)
Now, since Altman and I made the exact same point, how can Blahous agree with Altman, yet state that I’m “flat wrong”?
In any event, Biggs is snookering you, the reader, by representing Blahous as some sort of neutral arbiter of Social Security finance. He’s not; he’s a well-known critic of the program who has held numerous conservative economic sinecures, including as director of the 2001 Commission to Strengthen Social Security, which was the centerpiece of President George W. Bush’s effort to privatize the program.
Even so, Blahous couldn’t contradict what Altman identified as the “unambiguous” law that Social Security stands apart from the rest of the federal budget and has no deficit-creating powers of its own.
The goal of Biggs and Blahous is to make Social Security look like a threat to national fiscal stability instead of what it is, an indispensable program that keeps millions of Americans out of poverty and does so at a bargain price — that is, a bulwark of the nation’s economic stability.
They don’t seem to be embarrassed by the need to twist their own arguments into knots to do so.
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