Social Security Myths and Truth

MoveOn.org is pushing a set of "myths" about Social Security. Here they are:

Myth: Social Security is going broke.

Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.3 trillion surplus (yes, trillion with a 'T'). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever.¹ After 2037, it'll still be able to pay out 75% of scheduled benefits--and again, that's without any changes. The program started preparing for the Baby Boomers retirement decades ago.² Anyone who insists Social Security is broke probably wants to break it themselves.

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Myth: We have to raise the retirement age because people are living longer.

Reality: This is a red-herring to trick you into agreeing to benefit cuts. Retirees are living about the same amount of time as they were in the 1930s. The reason average life expectancy is higher is mostly because many fewer people die as children than did 70 years ago.³ What's more, what gains there have been are distributed very unevenly--since 1972, life expectancy increased by 6.5 years for workers in the top half of the income brackets, but by less than 2 years for those in the bottom half.⁴ But those intent on cutting Social Security love this argument because raising the retirement age is the same as an across-the-board benefit cut.

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Myth: Benefit cuts are the only way to fix Social Security.

Reality: Social Security doesn't need to be fixed. But if we want to strengthen it, here's a better way: Make the rich pay their fair share. If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come.⁵ Right now, high earners only pay Social Security taxes on the first $106,000 of their income.⁶ But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.

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Myth: The Social Security Trust Fund has been raided and is full of IOUs

Reality: Not even close to true. The Social Security Trust Fund isn't full of IOUs, it's full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States.⁷ The reason Social Security holds only treasury bonds is the same reason many Americans do: The federal government has never missed a single interest payment on its debts. President Bush wanted to put Social Security funds in the stock market--which would have been disastrous--but luckily, he failed. So the trillions of dollars in the Social Security Trust Fund, which are separate from the regular budget, are as safe as can be.

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Myth: Social Security adds to the deficit

Reality: It's not just wrong -- it's impossible! By law, Social Security funds are separate from the budget, and it must pay its own way. That means that Social Security can't add one penny to the deficit.¹

 To be fair to MoveOn, the did paraphrase some of these points directly from Social Security's own web site. This does not make the points any more true.

Anyway, this list contains one outright lie, a big lie by omission, and some haggling over semantics.

The lie by omission is important because, without this additional information, the rest of the statements are true. If we only looks at Social Security then it is in fine shape.

The omission is that Social Security does not stand alone. It is part of the federal government and must be considered along with the whole. To do this, we must follow the flow of money into and out of the system.

When the Social Security Administration receives a payment they can use it to pay outstanding liabilities. If there is a surplus then the money is transferred to the general fund and a special bond is issued. This bond is payable on demand but only to Social Security. It cannot be sold or traded and no other entity can cash it in. This means that it is not really a bond no matter what they call it. It is a future order for transfer of funds from the general fund. MoveOn and Social Security may argue that this is not an IOU but the differences are too small to matter.

So, surplus funds are transferred and spent. On the other hand, if the Social Security Administration cannot pay its liabilities then it cashes in a bond. This is paid from the general fund. Since the government is paying itself, this is just another transfer of funds.

Here is the lie by omission. Social Security may be financially sound but cashing in the bonds it holds strains the general fund. This leads to the outright lie. The money to pay off Social Security's deficit comes from the general fund. There is no surplus to draw from so that money has to increase the deficit.

Let me repeat this - Social Security has no money of its own. All it has are bonds that have to be paid out of the general fund. Demographics say that the general fund will be unable to pay for this in the foreseeable future.

If Social Security is unsustainable as it is then we have to raise the retirement age, decrease benefits or both. MoveOn must know this but they are hoping that people will trust them and disbelieve the truth. 

So, why is MoveOn pushing this fable? It might be that they are denying reality. Social Security is one of the biggest successes of the Progressive Era. Admitting that it cannot continue in its present form would be an admission of failure.

Or they might be more cold-blooded about it. They are still hoping to pass the rest of their agenda. They still want single-payer health care and a host of other programs. Admitting problems in Social Security will stop the Progressive movement dead in its tracks. How can you expand government when it is already overextended. If this is true then they are willing to saddle the government with unsustainable debt in order to further their agenda.

It's hard to know which to hope for - are they stupid or dishonest?