In two recent online columns, The Times’ Michael Hiltzik claimed that I, in testimony before the U.S. Senate Finance Committee on May 10, 2011, supported his argument that Social Security “can’t contribute to the federal deficit."
That assertion is untrue.
My testimony was unambiguous that Social Security adds to the deficit. In my written testimony, I stated, “Social Security operations are currently adding to the unified federal deficit and will add substantially more in the years to come.”
In response to oral questions, I reiterated, “In terms of its actual annual impact this year ... [Social Security] is adding to the annual deficit.”
Hiltzik misrepresented my later statement during this hearing (“I do agree with that”) as supporting his position that Social Security cannot add to the deficit. The statement with which I agreed was actually a different one. Here it is:
"[Witness] Nancy ALTMAN. So that $14.3 trillion debt that we are at, the limit that you are going to have to raise — or at least have to vote on whether to raise in a few months — if you cut Social Security, that $14.3 trillion does not change. It does not put any room into the debt limit."The CHAIRMAN. Do you agree with that, Dr. Blahous?"Dr. BLAHOUS. I do agree with that.”
Altman’s statement was correct because of a key difference between the deficit and how lawmakers have defined the statutory debt limit. Lawmakers have defined that limit to include debt exchanged between federal government accounts. Cutting Social Security benefit payments would indeed reduce the deficit as well as federal indebtedness to the public. However, it would not change the total debt subject to this statutory limit because that public debt reduction would be offset by an increase in the debt holdings of the Social Security trust funds.
Thus, the federal deficit and the statutory debt limit represent two very different things. This difference aside, there is no justification for Hiltzik misportraying my testimony, given that in that very same series of questions, I stated explicitly that Social Security adds to the deficit.
Hiltzik has apparently confused two issues: whether Social Security is allowed to run a deficit in its own trust funds (it is not) with whether it can add to the total federal deficit (it can and does).
The federal government operates several trust funds that circumscribe the spending authority of different programs. The act of routing spending through a trust fund doesn’t prevent it from adding to the deficit.
For example, it is widely understood that although spending for Medicare Part B (physician and other services) and Part D (prescription drugs) is done from a designated trust fund, those programs still add to the federal deficit. This is because individual premium payments into them cover only a small fraction of their total expenses. The remaining costs are financed by transfers from the government’s general fund into the relevant trust fund. These outlays add to the deficit.
Social Security operates similarly in the sense that the payroll taxes it collects are currently insufficient to finance benefit payments. This difference is made up with payments from the government’s general fund. For 2011-12, lawmakers even enacted a further subsidy of roughly $220 billion from the general fund, deliberately adding this portion of Social Security spending to the deficit as a stimulus measure.
Hiltzik misleadingly suggests these facts are the inventions of “anti-Social Security conservatives.” That Social Security adds to the deficit is widely substantiated by experts irrespective of their policy views. For example, last year the Social Security and Medicare trustees wrote in our annual report:
“The trust fund perspective does not encompass the interrelationship between the Medicare and Social Security trust funds and the overall federal budget.... From a budget perspective, however, general fund transfers, interest payments to the trust funds, and asset redemptions represent a draw on other federal resources for which there is no earmarked source of revenue from the public... For [Social Security], the difference between revenues from the public ($613.3 billion) and total expenditures ($773.2 billion) was $160.0 billion, indicating that [Social Security] also had a negative effect on the overall budget [in 2012].”
This statement was co-signed by the program’s six trustees, including President Obama’s Treasury secretary, Jacob Lew, as well as then-Health and Human Services Secretary Kathleen Sebelius. Similar explanations have appeared in the annual trustees’ reports (and those of other nonpartisan analysts) for years.
If Hiltzik is unfamiliar with these facts, that can be excused; what cannot be is his attribution of a statement to me that I did not make.
Charles Blahous, a senior research fellow with the Mercatus Center and a research fellow with the Hoover Institution, is a public trustee for Social Security and Medicare.