Social Security and the Deficit: More Basics

When the New York Times or the Wall Street Journal reports on THE federal budget deficit what number do they use? When OMB gives a top line number for THE deficit what is included or not? In particular is Social Security included? Now some will immediately jump in and say, and perfectly correctly, that Social Security is “off budget”. That is current law. But does it mean that Social Security is NOT included in the numbers used by government officials and political and economic reporting when talking about THE deficit? Well no.

When I typed the simple question into my browser of ‘what is the federal deficit’ an early result was this one:
And in the accompanying chart we see the number as usually cited, one that shows that THE deficit topped out at $1.413 trillion in FY 2009 and was at the point of chart compilation projected at $973 billion for 2013 (a number that has been revised downward since).

Now where does this number come from and what exactly is it referring to? To get an answer to that question I would refer you to the Historical Tables of the Budget for Fiscal Year 2014 as published by OMB. (2.2 MB)

If you scroll down the Table 1.1-Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789 to 2018 starting on page 23 you will see a column of fiscal years and then nine columns of dollar figures grouped into threes. The first group of three has the heading ‘Totals’ with sub-headings ‘Receipts’ ‘outlays’ and ‘Surplus or Deficit (-)’. I suggest the most natural reading here is that the column labeled simply ‘Surplus or Deficit (-)’ under the heading ‘Totals’ is representing THE budget deficit as normally cited. And indeed if you scroll down through the table to FYs 2009 and 2013 you do find that same $1.413 trillion for 2009 and $973 billion estimated for 2013. And I challenge anyone to find a mainstream or even lamestream media outlet that actually uses any other number.

Now is this the whole story? Why no, there are still two groups of three columns in Table 1.1 with the respective headings of ‘On-Budget’ and ‘Off-Budget’ with the same three sub-headings ‘Receipts’ ‘Outlays’ and ‘Surplus or Deficit (-)’. And if we scroll down and inspect the row for that peak year of 2009 we would see that the ‘On Budget’ ‘Surplus or Deficit’ was actually $-1.549 trillion which was offset by the ‘Off Budget’ ‘Surplus or Deficit’ of $137 billion to yield our familiar total DEFICIT of $1.412 trillion.

Let me spell this out slowly. The word ‘DEFICIT’ as normally used in government and media reporting is the SUM of ‘Off Budget’ and ‘On Budget’ ‘Surplus or Deficit’. It just is.

Now what all in included in ‘Off Budget’ numbers. Well we find the answer on page 13 in ‘Notes on Section 1’ where we are told “Off-budget transactions, which consist of the Social Security Trust Funds and the Postal Service fund”. Okay simple enough. But let me make three observations.

One: off-budget and on-budget do NOT correspond to ‘Trust Fund’ or ‘General Fund’. Because all parts of Medicare, including Part A which is funded out of payroll taxes allocated to the HI (Hospital Insurance) Trust Fund are actually included in ‘On Budget’.

Two: an inspection of the ‘Off Budget’ ‘Totals’ shows that this category has been in Surplus since 1985 and projects to remain in surplus until 2016.

Three: all of the surplus in the ‘Off Budget’ category is due to Social Security, because we don’t even have to dig into the subsidiary tables to know the Post Office isn’t and hasn’t been running surpluses.

Which leads to the grand finale. Does Social Security ‘contribute’ to THE federal deficit? Well not if you take ‘contribute’ to mean ‘add to’. Because for nearly 30 years Social Security has been in surplus and so actually has subtracted from the larger ‘on budget’ deficit to give THE deficit. By that same token if we take ‘contribute’ to mean ‘is calculated as part of’ then the answer is clearly yes. Social Security contributes to the deficit – by REDUCING IT. Will it alTays serve to reduce the deficit? Well no. Per Table 1.1 the total ‘Off Budget’ ‘Surplus or Deficit’ turns negative as soon as 2016. Unless we take the relatively minor steps needed to put it back into actuarial balance. Which would make the answer ‘yes Social Security will continue to be a net positive for deficit calculations’. And a nice start would be to implement Dale’s Northwest Plan of tiny increases in FICA rates. Or there are other possibilities. But in any case anyone who tells you that Social Security has been a major driver of TODAY’s deficit is flat out lying, either to you or to themselves. Because the numbers show that Social Security has actually been a BRAKE and not an ACCELERATOR in this process. But yes indeed it CONTRIBUTES to the process. Just not in the way the so-called ‘Reformers’ would have you believe.

(P.S. a lot of Social Security defenders resist this argument preferring to rely on the “Off Budget” status to argue that “Social Security CAN’t contribute to the deficit”. But to my mind this is a simple distortion of the facts and an attempt to translate “HASN’T” into “CAN’T”. And good intentions only carry us so far, at some point we have to use the numbers and definitions that are actually in play.)