Social Security: The Phony Crisis


 

This essay was published in the Washington Post on January 23, 2005.

Dean Baker and Mark Weisbrot are the authors of Social Security: The Phony Crisis published by the University of Chicago Press. Read the introduction to that book.

Mark Weisbrot and Dean Baker are co-directors of the Center for Economic and Policy Research.

 		What Crisis?
It Ain't Broke, So No Need To Fix It
An op-ed by Mark Weisbrot and Dean Baker

The latest Social Security trustees' report, whose numbers even the White House uses, predicts that the Social Security program can pay all promised benefits for the next 38 years—with no changes at all. The June 2004 estimate from the nonpartisan Congressional Budget Office projects that Social Security can pay all promised benefits without changes for even longer, until 2052. That's nearly half a century.

And we are supposed to be worried about this? It brings to mind the image of Woody Allen as a nerdy young child in Annie Hall, becoming suddenly depressed because he has discovered that "the universe is expanding" and life on Earth is ultimately doomed. Granted, 38 years is not an eternity. But even after 2042, the Social Security trustees say they will be able to pay an average benefit that is actually higher than what workers receive today—indefinitely. That's in 2004 dollars—adjusted for inflation.

Social Security benefits are programmed to rise not only with price inflation, but also with wages. So Congress will at some point have to increase taxes or shave the benefits promised to future generations. But that's no different from what's been done before. In fact the projected shortfall for the next 75 years is smaller than shortfalls covered by adjustments in each of the following decades: the 1950s, '60s, '70s, and '80s. It is also about one-third the size of the tax cuts enacted during the Bush administration.

In other words, it's a non-issue. Or should be. Yet most Americans seem terribly confused about the basic facts. During the third presidential debate last fall, moderator Bob Schieffer of CBS told the candidates that Social Security was "running out of money." Neither candidate corrected him, and the press did not note the error.

Here are some of the obfuscations and accounting tricks—or misunderstandings—that have created false impressions about Social Security's finances:

The disappearing trust fund: Some people say that Social Security will run into trouble in 2018. But this is like saying that Bill Gates will be strapped if he works only part time. He will still have $40 billion in assets, enough to keep him living well for a long time.

Similarly, the Social Security trust fund will have more than $3.7 trillion in today's dollars in 2018. Combined with payroll tax revenues, that is enough to cover promised benefits until 2042, the trustees' report says.

"That money's all been spent." When anyone lends money to the federal government by buying a bond, the government spends it. But the government still pays interest and repays what it borrowed. That goes for the Social Security trust fund. Social Security has been running annual surpluses (now at more than $150 billion) since 1983. By law it must invest that surplus in U.S. Treasury obligations.

"But the trust fund is only holding I.O.U.'s—just pieces of paper!" Another canard: All bonds are I.O.U.'s. Those "pieces of paper" are backed by the full faith and credit of the U.S. government, which has never, ever defaulted on its bonds.

"The baby boomers' retirement will bankrupt Social Security." Far from it. The first boomers actually begin retiring in 2008. Most of them will be dead before Social Security faces any financial difficulties.

"There are currently 3.3 workers paying into Social Security for every beneficiary; by 2035, there will be only 2.1." True enough, but deceptive and not scary as it sounds. Productivity (output per hour) will grow substantially during the same period, so we won't need nearly as many working people to support a larger retired population.

"If nothing is done, Social Security and Medicare will eat up 90 percent of our federal budget by 2050." The trick here is throwing in Medicare, a separate program. The projected costs of Medicare are indeed out of control—a result of spiraling health care costs. This makes a strong case for health care reform, but that has nothing to do with Social Security.

The bottom line is that Social Security is more financially sound today than it has been throughout most of its 69-year history, according to Social Security trustees' numbers. If workers in 2050, who will be earning on average 68 percent more in real, inflation-adjusted dollars than they are today, have to pay 1 or 2 percent more of their income in taxes—as they have in the past—they won't be able to complain much. They will still enjoy higher living standards than we do today. And Social Security will provide much larger real annual benefits for longer retirements when their turn comes.

The impending crisis of Social Security is a myth. Without it, however, Bush's initiative to slash benefits and partially privatize the program wouldn't have a prayer.

 

Dean Baker and Mark Weisbrot
Social Security: The Phony Crisis
©1999, 200 pages
Cloth $27.00 ISBN: 978-0-226-03544-4
Paper $12.00 ISBN: 978-0-226-03546-8

For information on purchasing the book—from bookstores or here online—please go to the webpage for Social Security: The Phony Crisis.

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