Saturday, September 25, 2010

Social Security Con Artists Are Lying About the Trust Fund

Social Security Con Artists Are Lying About One of the

Strongest Arms of the Program


By Joshua Holland, AlterNet

Posted on September 23, 2010


You've no doubt heard about how the Social Security

Trust Fund is projected to run out of cash a few

decades down the line. What you may not have heard is

that it might not run out at all; in fact, it may well

continue to back-stop the popular program indefinitely.


If you want to know just how contrived the Social

Security "crisis" really is, consider that the trust

fund, created by a bipartisan act of good governance

that's almost inconceivable today, is doing exactly

what it was designed to do, and more so. It is

nonetheless cited by "entitlement" fearmongers as

evidence that the program is unsustainable, a fiscal

trainwreck just waiting to happen.


In fact, the opposite is true. In 1983, when we still

had a somewhat functional Congress that was capable of

tackling real problems facing the nation, Democrats and

Republicans got together to address a very modest

shortfall in funding for the Social Security system.

But they went a step further. They thought long-term,

raised payroll taxes and in doing so created the Social

Security Trust Fund, a surplus that could be drawn down

as the baby-boomers reached retirement age. Today, with

$2.5 trillion worth of assets, the fund is so fat it's

projected to continue growing on just its own interest

decades into the future.


The "reforms" were a victory for neither side --

Republicans agreed to a tax hike on businesses, and

Democrats accepted a regressive tax on working people,

while giving up an issue they had used to win 26 House

seats in the 1982 midterms.


But it was a far-sighted act of governance. At the

time, the oldest boomers were 37 years old, and the

youngest were just 19. In 2037, when the fund is

projected to be tapped out, the oldest baby boomers

still kicking will be 94 and the youngest will be 83

years old. Not to be morbid, but given that the life

expectancy of Americans is 78.1 years today, that means

that the "glut" of baby-boomers receiving benefits will

be receding in the nation's rearview mirror. In other

words, the trust fund will have done exactly what it

was intended to do.


What the media never mention is that, according to the

latest Social Security Trustees' report (PDF), under an

alternative "low-cost" projection, the fund might just

continue to grow larger throughout the period of the

trustees' 75-year projection, increasing from 3.5 times

the cost of a year's benefits today to more than 6

times the annual benefits projected for the year 2084.


The trustees caution that it's an absolute best-case

scenario, and they also offer a "high-cost" alternative

that paints a far bleaker picture than the

"intermediate" assumptions used in the headlines. But

the context that is largely missing from the debate is

that those official, intermediate assumptions that lead

to so many reporters making definitive statements about

the fund running out in 2037 are very, very conservative.


In his analysis of the 1998 report (the assumptions are

virtually unchanged, but look a bit better today),

economist Doug Henwood noted, "At every turn there's a

bearish assumption in the Trustees' numbers." He looked

at the projections for population growth, the growth of

the workforce, the age of the workforce, and concluded

that some of the trustees' projections would represent

a "violation of all historical precedent." As I write

in The Fifteen Biggest Lies About the Economy, the

Social Security trustees' intermediate projection

"assumes that during the next 75 years the U.S. economy

will grow by half the rate of the last 75 years. That

may well prove to be the case (and there are certainly

good reasons for using conservative estimates), but

it's an ahistoric assumption."


If we were to use a different set of assumptions in our

projections, we would see a "problem" that can be

addressed with any number of relatively painless fixes,

none of which need to be implemented now. Americans

currently pay Social Security taxes on the first

$106,800 they earn. But because the distribution of

income has skewed toward the wealthy for the previous

three decades, the amount of income falling under the

cap has shrunk-in 1983, when the payroll tax was

tweaked, 90 percent of all income fell below the

cutoff; by 2006, that number had fallen to 84 percent (PDF).


Eliminating the cap entirely would instantly close the

Social Security "gap" over the long run, and then some.

Yet according to economist John Irons, even just

rejiggering the number so it once again captured 90

percent of Americans' wages would narrow three-quarters

of the long-term "shortfall." And in the process, only

6 percent of the population-the highest-earners-would

feel any tax bite at all.


The larger point, of course, is that we have $2.5

trillion set aside to keep our older citizens from

living in squalor during their Golden Years. Americans

should be happy about that, and feel secure in the

knowledge that Social Security will be there for them

when they need it. After all, even if the trustees'

pessimistic intermediate assumptions should come to

pass and the government took absolutely no action to

shore up the program's finances over that very long-

term, Social Security would still be able to pay 75

percent of "scheduled benefits" for the entire 75-year

projection, right through 2084. (And after 2037, those

bennies would still be higher, adjusted for inflation,

than what retirees get today.)


But that's not the case; polls show that many younger

workers aren't confident that the benefits they've been

promised will be there when they hit retirement age

(one ABC News/Washington Post poll conducted in 2004

found that only 7 percent of people in their 20s and

just 15 percent of those between 30 and 40 expected to

get full benefits when they retire). Call it a

testament to conservative propaganda (über-wealthy

activist Pete Peterson has sunk a billion dollars of

his own money into the effort), specifically the false

narrative that the trust fund has been looted, and is

left with nothing but "worthless IOUs." Ron Johnson, a

wealthy self-financed candidate facing Wisconsin

Senator Russ Feingold, recently aired an ad pushing the

lie. "Politicians of both parties raided the Social

Security trust fund of trillions," Johnson solemnly

tells viewers, "and left seniors an IOU. They spent the

money. It's gone."


In the real world, the Social Security Trust Fund has

trillions in interest-bearing Treasury Bills, which are

essentially the same as those sold off to private

investors and considered among the safest places to put

one's money. The $2.5 trillion in special issue T-bills

in the fund are backed by the full faith and credit of

the United States government, just the same as the

other $11 trillion in public debt outstanding, almost

$9 trillion of which are sitting in investors'

retirement accounts. They earned 5.1 percent interest

in 2008, and 4.8 percent last year.


The kernel of truth here is that conservatives have

long labored to de-link taxes and spending in the minds

of the American public, promising they could deliver an

endless series of tax cuts without gutting the public

services that people have come to expect from the

government. Economist Paul Krugman described the result

of the Right's "tax cut crusade," as a "fundamental

mismatch between the benefits Americans expect to

receive from the government and the revenues government collects."


So, the truth is that the government does routinely

spend more than it takes in -- it's only broken even or

run a surplus in 12 of the 70 years since entering

World War II (and since the establishment of the trust

fund, we only took in as much as we spent for a few

years during Bill Clinton's second term). The

government makes up that shortfall by issuing debt.

Whether it sells that debt to your pension fund, the

Chinese Central bank or the Social Security Trust Fund

doesn't make a lick of difference.


But if the system isn't tweaked at some point over the

next few decades, those debts will eventually have to

be paid off in order to give retirees their promised

benefits. And this gets to the nub of the matter: if

benefits aren't trimmed and payroll taxes aren't

increased, the Social Security "shortfall" will have to

be paid out of general revenues, which are financed by

taxes that are, on average, far more progressive than

payroll taxes. So the rush to "fix" a system that is

anything but broken is at least in part motivated by

fears among the wealthiest Americans that their taxes

may rise, disproportionately in their view, some 30

years down the road.


Just how effective is the corporate Right's campaign to

terrify the public into believing in their all-

encompassing "entitlement crisis"? So much so that the

standard rallying cry among even savvy progressives has

been that we need to "strengthen Social Security now

for the future." The truth is we don't need to do

anything anytime soon; while the $5.4 trillion

"shortfall" projected over the next 75 years is a scary

number, it represents just 0.7 percent of the country's

total economic output over that period, according to

the trustees' assumptions. And the annual gap can be

fixed anytime. Even if nothing at all were done before

then, the program's 2084 shortfall would represent only

1.4 percent of our economic output (in a country that

currently has the 27th lowest tax burden out of the 30

wealthy countries of the Organization of Economic

Cooperation and Development).


These are all things to keep in mind when digesting the

granny-bashing blather emanating from Washington. And

consider, too, that the entirety of the 75-year "Social

Security gap" is equal to the value of extending George

Bush's tax cuts for the wealthiest 2 percent of

Americans. As the Center for Budgets and Policy

Priorities pointed out, "Members of Congress cannot

simultaneously claim that the tax cuts for people at

the top are affordable while the Social Security

shortfall constitutes a dire fiscal threat." But that's

just what they're doing.


Joshua Holland is an editor and senior writer at

AlterNet. He is the author of The 15 Biggest Lies About

the Economy (and Everything else the Right Doesn't Want

You to Know About Taxes, Jobs and Corporate America).

Drop him an email or follow him on Twitter.


c 2010 Independent Media Institute. All rights reserved.


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