As some politicians describe it, the Social Security program is an economic disaster forced upon younger generations by the demands of greedy baby boomers. News media obediently parrot the scare stories, seldom questioning the math in a story that is all about the numbers. A rare departure from that script occurred on July 29 when an alert Washington Journal moderator stalled a Businessweek editor’s argument for Social Security cuts by observing that the data he brought with him showed a projected Social Security surplus.[C-SPAN Video: Washington Journal, July 29, 2011. Interview begins at the 28-minute mark.]
Bloomberg’s Peter Coy was on the program that day to discuss his article, Why the Debt Crisis is Even Worse than You Think. Coy described a long-term “fiscal gap” of $211 trillion dollars, which he explained is “the difference between tax revenue…and everything we expect to spend.” His published article provides a bit of additional explanation.
A more revealing calculation is the [Congressional Budget Office’s] measurement of what’s called the fiscal gap. That figure is conceptually cleaner than the national debt—and consequently more alarming. Boston University’s Kotlikoff has extended the agency’s analysis from 2085 out to the infinite horizon, which he says is the only method that’s invulnerable to the frame-of-reference problem.
Social Security, Medicare and Medicaid entitlements bear most of the blame for the $211 trillion shortfall, Coy said. As he spoke, C-SPAN moderator Susan Swain pointed to the article’s accompanying chart of the data, entitled “The Debt Deluge.” Seconds later, the wheels came off Coy’s talking points.“You're saying Social Security is part of the solution,” commented Swain. “[But], in this illustration…it shows Social Security with a surplus…right?” She pointed to the chart where it clearly indicated a Social Security debt of $110 trillion and projected Social Security receipts of $132 trillion.“ Am I reading that correctly?” Swain asked politely.
Weakly, Coy answered, “Yeah.” After fumbling for a better response, he concluded by telling Swain that he would look again at the data and provide an explanation the following week. But, the following week, Ms. Swain was not there--a male moderator appeared, instead. Coy did not revisit the $22 trillion surplus and did not offer a correction. Instead, Coy repeated his call for Social Security benefit cuts and added that he viewed the program as a “Ponzi scheme,” an allegation the Social Security Administration extensively refutes.[Video: Washington Journal, August 4, 2011]
If a long-term surplus is a possibility, what could be motivating politicians to risk public ire by cutting Social Security benefits? An article in the Christian Science Monitor provides a clue, reminding us that government officials made a decision in 1983 to sell Social Security bonds back to the government, allowing the government to use the surplus for other purposes that are normally funded by income taxes.
Using Social Security payroll taxes to finance those expenses made it possible for government to keep income taxes low. That created an economic windfall for wealthy Americans because the payroll tax is a regressive tax that claims a higher percentage of income earned by people at the lower end of the economic scale, whereas the income tax is progressive; those with the highest incomes (in theory) pay higher tax rates.
That imbalance would be corrected, per the original plan, by raising taxes beginning in 2018 when baby boomers begin to retire, reported the Christian Science Monitor. But, that promise may not be kept.
Proposals have been made to cut Social Security benefits without raising income taxes. In that case, the U.S. treasury would not have to buy back the bonds, leaving low and middle income Americans with an unfair bill for America’s wars. Fairness and Accuracy in Reporting calls that “a massive fraud and transfer of wealth, as trillions of dollars specifically collected to pay for workers’ retirement benefits would never be used for that purpose, and instead would merely have transferred the cost of government from progressive income taxes to the regressive payroll tax (Center for Economic and Policy Research, 1/27/05).
In fairness, Peter Coy acknowledged that some kind of tax increase for the wealthy is appropriate, but he did not explain that the “big winners” got that money at the expense of everyone else.
The top one percent…has, like, a third of the wealth. I probably have those numbers wrong. The point is the concentration has grown, so it’s hard for the wealthy to argue that they’ve somehow been unduly harmed by the economy to date. They’re the big winners and maybe they should share some of their largesse with the rest of the public which would make it easier to help both the older and the younger generations. (Washington Journal, August 4, 2011)
Failing to raise the income tax rate would bring a second economic windfall to millionaires--a group that notably includes Congress as well as the corporate moguls who fund Congressional campaigns. In that context, it is not surprising that Congress and the mainstream news media are ignoring the projected Social Security surplus. Even the July 29 interview that mentioned the surplus is not easy to find. Contrary to its usual procedure, Washington Journal does not list Coy as a guest on that show, although he is prominently featured on the August 4 show.
Former U.S. senator Alan Simpson, co-chair of the President’s National Commission on Fiscal Responsibility and Reform, is one of many who don’t understand the Social Security arithmetic Mother Jones magazine reports. Apparently, Simpson doesn’t want anyone else to understand the math, either, as today he appeared on CNN and urged the Congressional “Super Committee” not to look at any new numbers.
Instinctively, perhaps, the grassroots suspect a scam. A whopping 72% of Americans want Congress to raise taxes on the wealthy and to preserve Social Security benefits. But, the cut-Social-Security train seems unstoppable and any numbers that might derail it are being swept from the tracks.
Linda Lewis is a policy analyst with degrees in emergency management and geosciences. Her experience includes 13 years as a policy analyst and planner for the U.S. government. During that time, she brought attention to serious deficiencies in government preparedness prior to the disasters that confirmed her analyses. Those included emergency communications (9/11 terrorist attacks), federal assistance (hurricane Katrina) and decision making (Columbia shuttle disaster).