by Dale Coberly
MAYA MACGUINEAS COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET (CRFB) TALKS BACKWARDS ABOUT SOCIAL SECURITY IN THE NEW YORK TIMES…NOBODY THE WISER
Here is what she said:
“and “protecting” Social Security and Medicare, a reassuring political promise that removes over one-third of the budget from consideration.”
“trying to square the circle of balancing the budget while taking the largest contributors to spending growth — Social Security and Medicare — off the table”
“many Republicans — including, notably, Paul Ryan, the speaker of the House — have made the case for why we have to reform our largest entitlement programs, including Social Security and Medicare”
“Democrats, many of whom too often act as demagogues on entitlement reform,…”
Read the Op-Ed on the New York Times Website.
Here is the truth:
Social Security does not add one dime to the debt or the deficit.
It is paid for entirely by the workers who will get the benefits.
When Social Security “taxes” bring in more money than currently needed to pay benefits, that money is kept in a Trust Fund, which like other trust funds uses the money to buy interest earning government bonds. Then when Social Security taxes bring in less money than needed to pay current benefits, it cashes the bonds.
Note that Social Security is NOT borrowing money; it is LENDING money TO the government, and when SS cashes its bonds it is NOT causing the government to spend money for Social Security. The government BORROWED that money FROM Social Security and spent it on other things, including tax cuts. Paying the money BACK to Social Security does not increase the Federal Debt. It reduces it. Or it would reduce if it the government didn’t get the money to pay BACK Social Security by borrowing it from someone else.
But by talking backwards the Committee for a Responsible Federal Budget (CRFB) hopes to fool you into thinking that Social Security CAUSES the debt.
Then, when it’s time for Congress to pay back the money it borrowed FROM Social Security, this payment shows up in their budget as an “expense,” and because all the expenses add up to more than all the income, the budget is in deficit, and the payment of Congress’ debt TO Social Security, like all the other expenses, is said to “contribute to the deficit.”
But it is talking backwards to describe paying BACK the money you borrowed as contributing to your deficit.
Normal people would not think much of you if you borrowed money from Paul and then told them that Paul was responsible for your debt. And if you paid Paul back by borrowing from Peter, normal people would not think you were being honest if you said that Paul increased your deficit.
Social Security does have an “actuarial deficit.” This has nothing to do with the “budget deficit” or the Federal debt. What it means is that some time in the future if nothing is changed, Social Security will not have enough money to pay for all the “scheduled” benefits. This is a problem that can be fixed by raising the payroll “tax.”
[I put “tax” in quotes to try to remind people this is not like an ordinary tax, because you get your money back, with interest, when you will need it more than you do today.]
The amount of the raise that will be needed is not large. Ultimately about 2% of your wages from you and another 2% from your employer. It would be better to phase this in at a rate of one tenth of one percent per year… about a dollar per week in today’s money. This is at the same time your wages will be going up over ten dollars per week per year.
Or you could wait to the last minute and raise your tax by 2%. This would not be a burden, because by then your income will be at least 20% higher than it is today. But you would feel it as a burden if it hit you all at once. It’s the difference between getting a raise of 200 dollars a week and getting a raise of 180 dollars a week. If you had never expected the 200 dollars, you would be happy to get the $180. Especially if you remembered that your were not “losing” that $20 but merely setting it aside to help pay for a longer retirement than you had expected.
Or you could raise your tax about one percent today (and another one percent from your boss). This would take care of the “actuarial deficit” for the next seventy five years. But the enemies of Social Security like to scream “this won’t do: we have to solve the problem once and for all!” Actually we don’t. The people in 2090 will be in a much better position than we are to decide if they want to raise their tax another one percent or decide to do something else.
Thing is, we do have to do something now. We have to at least think about it carefully so we won’t be fooled by the people talking backwards, or stampeded by the people screaming Social Security is broke, flat bust” and “a huge burden on the young.”
Remember: a dollar a week each year if you start this year or next. Ten dollars per week for the next 75 years if you start this year and want to let the people seventy five years from now worry about another ten dollars (in today’s money) when their income will be more than twice ours. Or you can do nothing and wait a little more than ten years and then raise your tax about twenty dollars per week all at once, which will fix the problem forever (including those people living out at the infinite horizon).
Or you can listen to Maya and panic and let Congress cut your benefits, or increase the age you will be allowed to retire, or turn Social Security into welfare as we knew it (which will lead very soon to cut benefits and increases in the retirement age for the poor, and nothing for you while you still pay the taxes) with all the fun of gong to the welfare office every quarter to prove you really need it. The Left wants to help turn Social Security into welfare, because they think they can “make the rich pay for it.” I don’t think the rich are going to go along with that.