Alarmist news reports of the Congressional Budget Office’s pronouncement Wednesday that the Social Security Administration will pay out more in benefits than it receives in payroll taxes have hit the front pages.
Yesterday, the New York Times headline read, “Social Security To See Payout Exceed Pay-In, At Tipping Point Years Ahead of Projection.” The reporter, Mary Williams Walsh, goes on to say: “The long-term costs of Social Security present further problems for politicians, who are already struggling over how to reduce the nation’s debt.”
But it seems politicians aren’t the only ones struggling; reporters seem to have a hard time understanding the way the Social Security system works.
Here are a few things important to keep in mind:
- Social Security is an INSURANCE program, not a welfare program. That was an important feature of the program as initially conceived of by Frances Perkins and FDR, and remains so today.
- Social Security trust fund currently holds $2.5 trillion in U.S. Government bonds. These investments are yours and mine, bought with our payments into the system. The trust fund earns interest on those bonds, and has additional income from earmarked income taxes.
- Every year the Social Security trustees, and now the CBO as well, make projections about the future finances of Social Security. These forecasts change annually as the economy changes. Last year’s annual report of the trustees predicted that the unemployment rate would be 8.2 percent in 2009 and 8.8 percent in 2010. Unfortunately, that turns out to have been optimistic.
- Ironically, while Social Security’s revenue has dropped due to unemployment, the benefits it provides have undoubtedly buoyed our sinking economy by providing a secure flow of income that finds its way into our Main Streets’ businesses.
- Without any changes, the system is predicted to remain solvent until 2037.
The Times article ends with a quote by Alan Greenspan, who says, “Even if the trust fund level goes down, there’s no action required, until the level of the trust fund gets to zero. At that point you have to cut benefits, because benefits have to equal receipts.”
Not so. You can cut benefits, raise revenue, or do both. But why let the trust fund–remember, now at $2.5 trillion–get down to zero? There is plenty of time between today and 2037 to make small adjustments that will have a big payoff in the long run.
In an article on DailyFinance.com, reporter Douglas McIntyre hyperventilates:
The end game for Social Security may be that future American retirees won’t get that social safety net they had counted on, at least compared to what was available in the past.
Beware of those who show too much concern–crocodile tears–over the “fate” of Social Security. They’re likely to be the ones who say, “We had to destroy the [program] in order to save it.”
To put it all in perspective, in the Hill today,
Dean Baker, co-director of the liberal Center for Economic and Policy Research, dismissed the idea that Social Security faces a crisis.
“9.7 percent unemployment is a crisis. Millions of people losing their home is a crisis,” he said. “The possibility that we might have to raise taxes somewhere in the next three decades is a trivial concern by comparison. Only someone too lost to recognize an $8 trillion housing bubble would worry about Social Security right now.”