A fact check on the Washington Post’s ‘fact check’ on Social Security
Glenn Kessler, writer of the Washington Post’s Fact Checker column, took a stab today at correcting some common misconceptions about Social Security. For the most part he did a good job.
He appropriately debunked the common and ignorant slander of the program as a “Ponzi scheme.” He explained why President George W. Bush’s privatization scheme wouldn’t have worked. He pointed out that Social Security is not only a retirement plan, but also a disability and life insurance program. He reported, accurately, that the Treasury bonds owned by the program’s trust fund are backed by the full faith and credit of the U.S. government -- they’re not merely “IOUs,” as some would have it.
But Kessler committed a few bloomers too. These need to be corrected, so let’s have at it.
Most glaringly, Kessler asserted that Social Security is suffering a “cash flow” problem and has started to tap into its trust funds. This is essentially incorrect, or at least highly misleading. There are two Social Security trust funds -- one for its disability program, and a second, huge one, for its retirement program. They’re typically treated as one.
The combined trust fund has not been “tapped into.” It’s still in surplus. Since 2010, in fact, it’s grown by $192 billion, and it’s projected by the program’s trustees to remain in surplus -- not being tapped into -- through 2020.
If you break the two trust funds down, you find that the disability trust fund has declined by about $93 billion since 2009, but that’s an artifact of the chronic underfunding of disability benefits, not of the overall program’s fiscal condition. In any event, that trend in disability is more than covered by the continued growth of the old-age trust fund -- indeed, the disability shortfall has typically been covered by transfers from the old-age program. At this point, there’s no difficulty in continuing to do so. The disability trust fund has $123 billion in it. The old-age trust fund has $2.6 trillion. But Congress needs to do more to shore up the disability program in the next two years.
Kessler is wrong to state that Social Security “now has a negative cash flow.” That’s obviously untrue, since its total revenues are enough to cover annual benefits and add to the trust fund. Kessler’s error stems from treating interest on the program’s bonds as somehow different from its other revenue sources, which are current payroll taxes and income taxes on Social Security benefits.
There’s no reason to treat interest income that way -- a dollar is a dollar, as Kessler probably knows if he holds a bank account that generates interest. He’s also wrong to state that the “interest income is paid in more bonds,” as if the United States designates some of its borrowing exclusively to paying interest to Social Security. The interest is paid from general government revenues, which as he surely knows come from taxes, fees and borrowing -- but that’s true of any government expenditure.
Kessler suggests that the existence of Social Security’s surplus, which has been lent to the government in return for bonds, “spurred lawmakers to spend more, resulting in higher public debt.” He attributes his notion to “some analysts.” It’s hard to know what he’s talking about, since what happened was that lawmakers spent the surplus as a way of avoiding taking on more debt.
The fact is that lawmakers used the surplus to make expenditures without financing them as they should have -- through taxes. (They also increased borrowing, but not because Social Security made them do it.) And since the Social Security payroll tax comes predominantly from middle-class and working-class taxpayers, and the income tax comes predominantly from higher-income taxpayers, the effect was to transfer wealth from the middle class and working class to the upper class.
That points to the correct way to fund the ultimate redemption of the trust fund bonds -- by raising income taxes on the wealthy. After all, they reaped the benefits of the surplus, especially when the Bush administration conducted two wars on credit and lowered taxes on the wealthy to boot. When lawmakers and pundits say that the only way to pay for the trust fund obligations is by borrowing more, the sound you hear is the upper class reneging on its obligations to everyone else.
Finally, Kessler dismisses the idea that Social Security doesn’t add to the federal deficit, calling it a Democratic claim and warning readers to be “wary of such assertions.” Here’s the fact: Social Security isn’t allowed to add to the federal deficit. If it doesn’t have the money coming in to fund benefits, those benefits, by law, have to be cut.
You’ve heard it said that if something isn’t done by the 2030s, Social Security will only have enough money to pay for about 72% of currently scheduled benefits? (Kessler repeats this figure.) That’s precisely because Social Security can’t add to the federal deficit. You should be wary of assertions to the contrary.