BFP Independent Perspective: Social Security Math Doesn’t Add Up

The Unanswered Question of “Social Security Surplus”

By Linda Lewis

sscardAs 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.

sschartSocial 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.

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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).

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Comments

  1. Coy was really squirming on that 1st video (that was great to watch – hat’s off to Swain). And C-Span seemed to be squirming afterwards.

    Thanks for this clarifying article, Ms. Lewis.

    BTW, I’ve heard the top 1% owns as much as the bottom 90%.

  2. This was an excellent post. I had the unique opportunity to discuss solutions at length with a Ph.D. graduate working directly with Bing Energy in design of an innovative hydrogen fuel cell technology (http://www.bingenergyinc.com/) We both agreed that education infrastructure, energy infrastructure, and other critical problems can still be addressed successfully, once the parasitic bankers – particularly those that are sociopaths – are put to rest. In Nature if the parasite preys upon the host, then the host must adapt to live. Speaking truth to power as presented in the article by Linda Lewis keeps the rodents at bay.

  3. Very interesting debate (part of the DebatingTaboos.org series) and focuses on the topic of a securities transaction tax.

    http://www.c-spanvideo.org/program/Transact

  4. avatar Michael Rivero says:

    The problem is that Social Security loaned that cash to the Federal Government. Social Security holds about 20% of the total US Government debt. And now the Federal government cannot pay it back. So the plan is to stiff the American workers, embezzle their retirement funds, in order to go on making payments to the bankers, weapons makers, Wall Street bailouts, and to Israel.

  5. @Michael I believe you are correct. There was a time when people discussing SS talked about the “trust fund”, and would make the point that if SS drew upon the fund it would be in the black through 2036 (or some such remote date). By then perhaps the demographics or the revenue picture will be totally different, and the problem they are screaming about now never will happen. But sadly, as the article above points out, the “trust”ee has been untrustworthy. A law was passed about 30 years ago which mandates that the SS tax collections get credited to general revenue. The government still maintains the sham accounting of issuing IOUs (non-negotiable) to the trust fund, but it treats the money like general revenue. Supposedly there was a constitutional issue that motivated this law, but I think that was an opinion never tested in the courts.

  6. @Michael: Good to have you here, and thanks for the comment. I asked Linda to come over and join this discussion. Oh, I check WRH daily; in fact, several times a day- always find jewels rarely covered by the MSM and the quasi alternatives:-)

  7. Ms Lewis,

    Very well presented. Thank you and Sibel. What will wake up Americans is beyond me at this point. Around the world workers and citizens are expressing their outrage and more and more protests. Americans are Dancing With the Stars and watching their Plasma TVs in their throw away Walmart world.

    America is the new feudalism… and the serfs are so obedient.

  8. avatar linda lewis says:

    Thank you, SanderO.

  9. avatar linda lewis says:

    @Michael, Thank you for your comment. Yes, it does look like workers will be left holding the bag.

    Moreover, the tactics being used are as troubling as the math. Some media and political elites demean and shame older Americans for asking for benefits they purchased through payroll deductions. Alan Simpson, for example, famously commented, “We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!” See: http://www.mediaite.com/online/former-senator-alan-simpson-sees-america-as-land-of-310-million-tits/.

    Shaming is a favorite tactic of scam artists who prey on the elderly, and it’s disgraceful for people in positions of influence to employ it.

  10. avatar linda lewis says:

    @Sibel, Thank you for inviting me to write an article for Boiling Frogs, one of my favorite places to find authentic news and commentary.

  11. avatar linda lewis says:

    @Zica, Thank you.

    Yes, hat’s off to Susan Swain. It’s a shame that C-SPAN chose to bury the video rather than highlight it. I’m a little surprised that the Daily Show hasn’t picked it up and had some fun with it.

    Regarding the unequal distribution of wealth, Mother Jones has some nice charts looking at it from different perspectives. Link: http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

  12. avatar linda lewis says:

    @Simon Says, Thank you for your supportive comments. This is my first article for Boiling Frogs.

    Websites like Sibel’s are valuable in providing a place where people can come to share authentic observations in lieu of the regurgitated propaganda that often passes for “news” in print media.

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