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Me The Money? It's Easy: Social Security Isn't In Trouble
By Saul Friedman, Gray Matters
February
28, 2009
I don't get it. Banks and major retailers are going under. The nation's largest corporations are reporting billions in losses. Home values and the stock markets have tanked. And bankruptcy is a new growth industry.
Yet reporters and editors continue to worry about the health of one of the nation's safest financial institutions, Social Security, which, even under the most pessimistic projections, will send out full pension and insurance checks for another 40 years. Through wars and recessions, for more than 70 years, Social Security has not failed to send its monthly benefit.
But I read in The Wall Street Journal of Jan. 8 that the new administration will need "to attack surging spending on entitlements such as Social Security and Medicare." That same day, The New York Times reported that the Obama administration planned to "rein in Social Security and Medicare." Just last month, a conference was held in Washington to discuss how to cut spending for these "entitlements."
Let me say this: Beneficiaries have paid for these programs, so they are owed these "entitlements." While Medicare is, indeed, a growing and worrisome part of the federal budget, Social Security, which pays retirement, disability and survivor insurance benefits, does not cost the budget a penny aside from its administrative costs.
Last year, Social Security paid more than $615 billion in benefits to some 60 million Americans every month without a serious hitch. That money came from current payroll taxes, not the federal budget. Also, the Social Security Administration (SSA) must keep track of 40 million Medicare beneficiaries whose premiums are deducted from retirement benefits. And Social Security checks the earnings of millions of people to determine if they qualify for low-income Part D drug benefits.
For all this and more, the SSA's budget for the salaries and the work of more than 65,000 employees at its headquarters outside Baltimore and 1,400 offices throughout the country was $9.8 billion. Only that is counted as federal budget expenditures. And it's .015 percent of the total benefits Social Security pays and an even more minuscule portion of the $2.6 trillion federal budget.
So why the fuss? The New Republic's Jonathan Chait, a senior editor, says the problem is "entitlement hysteria" among Washington's pundits. "Ten or 20 years ago, you could plausibly deem Social Security's finances among the most pressing national problems," he wrote. "Social Security's place on our list of national problems has long since been overtaken, but among Washington establishment types who remember those days, the issue retains its totemic significance. Entitlement hysteria has become less a response to a crisis than an expression of statesmanship."
Former Federal Reserve Chairman Alan Greenspan has said that Social Security is "not a big problem." He should know. In 1983, when it was facing imminent financial difficulty, Greenspan helped run the commission created by President Ronald Reagan. The commission's fixes, approved by Congress, included increasing payroll taxes, slowly raising the retirement age past 65.
Those changes helped build the surplus in the trust fund that now exceeds $2 trillion, enough to pay benefits to 78 million boomers. Rather than burdening the budget, Social Security's surplus, when included in the budget, helps reduce the deficit. And Social Security's trust fund helps pay for many government activities by loaning funds to the Treasury through investing in special-issue Treasury interest-paying notes.
Critics charge the government is "raiding" the trust fund. But the money would otherwise sit there in Treasury accounts earning nothing. This way the trust fund, according to the Social Security Web site, earned about 5.3 percent interest in 2007 or more than $110 billion. See socialsecurity.gov /OACT/ProgData/intRates.html.
According to its trustees' projections, which are traditionally conservative, Social Security will begin to dip into the trust fund to pay current benefits in 2017 (or 2019, says the Congressional Budget Office), and the trust fund will run out in 2041 (or 2049). At that point, reduced benefits would be paid from current payroll tax income.
But, the trustees said, that would be true only if nothing is done and the economy doesn't grow as it has in the past 40 years. The projected shortfall over the next 75 years, the trustees said, is less than 2 percent of payrolls, a gap that could be closed with a 1 percent raise each in employer-
employee payroll taxes. There are other alternatives, although President Barack Obama has ruled out raising the retirement age.
Now, repeat after me: Social Security is not in crisis. Social Security is not in crisis. Social Security is not....
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