Lying with ‘facts’ on Social Security

PolitiFact Media is a project of the St. Petersburg Times and Congressional Quarterly to deliver PolitiFact content to subscribers.  One of those subscribers is the Star Ledger and the Politifact content delivered today consisted of calling “conservative activist Steve Lonegan” a liar when he claims that the “Social Security system is broke.”  They arrive at this conclusion by consulting four ‘experts’ and believing the three who said it’s not broke:

Henry Aaron, a senior fellow of economic studies at the Brookings Institution, a policy think tank, pointed out how the U.S. Treasury bonds held by the trust funds are “the most secure asset in the world,” and can be presented for payment at face value at any time. “Is a person ‘broke’ if he has a big bank account that is paying interest, which together with current earnings, more than covers expenses, so that the account balance is increasing?” Aaron said in an email. “I don’t think so.”

Virginia Reno, vice president for income security policy for the National Academy of Social Insurance, said of Social Security: “It’s not broke in the sense that it’s gone.”

Stan Hinden, a Social Security expert with the American Association of Retired Persons, compared the program to his 15-year old car in need of repairs.

“So, could you say that my car is ‘broken’?” Hinden said in an email. “No, I would say that I’ve got a great car with lots of mileage left. It just needs some repairs to keep it running well.”

The facts are that Social Security was projected back in March of 2010 to run a deficit for 2010.  They came out with a handy chart where $708 billion was predicted as being paid out in benefits and $679 billion as being paid in from payroll taxes*.  That’s a $29 billion deficit which, with the 2% reduction of the employee portion of the FICA tax for 2011 (and forever?) combined with higher unemployment forcing more retirements should bring that deficit to around $150 billion for 2011.

So why are these ‘experts’ saying that Social Security is NOT broke?  Because, of the $15 trillion dollars* that the US government will be defaulting on, $3 trillion is owed to the Social Security system.  They’re studying charts and conjuring up metaphors to try to sway the general public to their preferred opinions rather than thinking, which could lead them to a set of facts contrary to their personal benefit.

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* Though that $679 number doesn’t appear in the chart.  You have to remove $120 billion in ‘interest’ on US Treasuries that the government is counting as income to make the numbers lo0ok better.

** That’s $15 trillion in bonded debt without considering entitlements for which there is n0 clock.

15 responses to this post.

  1. What about the fact that income from 30-year bonds just dropped from 15% to 3% ? I hope I understand this correctly, but it seems self-evident that earning 15% for the last 30 years and 3% (along with all the rates that follow that) for the next 30 years is going to be a problem. Rauh thinks so. He just recalculated impact on state pension funds and gets a UAAL of $4 Trillion.
    http://kelloggfinance.wordpress.com/

    Reply

    • Posted by muni-man on October 9, 2011 at 3:18 pm

      I think all the military pensions & Tricare are totally pay-go and have $0 funding, as well as Fed civilian retiree plans (at least the ones in the original pre-’86?? plans). This decade is gonna be a real pip with pensions and entitlements before it’s over. Hang onto your wallets folks!!

      Reply

  2. Posted by Tough Love on October 9, 2011 at 11:16 am

    Seems like Henry Arron forgot to mention a rather unsettling more-than-minor detail (often called the bucket-with-a-hole-in-it-problem) ……. that when SS outgo exceeds SS revenue, and it comes time to sell those “assets” (the special series treasury bonds in the SS trust fund) to generate actual CASH needed to be dolled out to SS recipients, we must either:

    (a) sell more bonds … increasing the country’s debt even further,
    (b) generate the cash by cutting back on other services, or
    (c) raise taxes

    It’s not like those bonds are things (real estate, stock of corporations, etc) which can be sold to raise cash WITHOUT the hugely negative consequences that will take place here.

    Reply

  3. Wonder what the thinking was (or wasn’t) during LBJ’s time in 1960s, when it was decided to use the regressively raised social security surplus, instead of increasing progressive income taxes?
    When someone then suggested this day, here now, would come – wonder what the replies were?

    Reply

  4. Posted by Javagold on October 9, 2011 at 12:10 pm

    the can is no longer able to be kicked down the road….2012 is the end of the road for all the lies

    Reply

  5. Posted by john moore on October 9, 2011 at 1:23 pm

    In about 1982,Reagon,Panneta and Greenspan pushed through a huge SS tax increase,which among other purposes,would have “funded” the increase in needs related to the “baby-boomers” As that surplus came in,Congress decided to “unfund” SS and replace the fund with an unfunded promise. That’s where we are today. Pres. Clinton and Bush spent about 200 billion per year of the surplus. Now,the fund is needed,but it isn’t there,so the unfunded promise is going to be paid by cutting SS benefits and raising taxes. For Obama,he is down about 300 billion per year compared to his two predecessors,more than 3 trillion over the next decade.

    Reply

    • Got to admit, politicians are good at raising regressive taxes, and cutting the progressive taxes for their wealthy ‘friends’.

      Reply

      • Posted by Tough Love on October 9, 2011 at 3:01 pm

        Over the past decade, ALL Productivity gains have benefited ONLY the most senior executives, and shareholders to some extent.

        The only way to do a “re-set” …. by which I mean having the masses benefit from the productivity gains of their daily labors (instead of all the benefits of productivity gains going only to senior executives and shareholders is to “re-set” CEO salaries BACK to about 20-25 times the earnings of their average worker (as was common 30 years ago), instead of the 300-400 times which is more common today.

        And the only way to do THIS is to have a VERY significant rise in the Federal marginal tax rates … something like 40% from $250-$500K, 45% from $55K-$750K, 50% from $750K-$1MM, …. all the way up to 75% for incomes over $5 MM. The huge loss in taxes would make such high incomes pointless to the Corporations paying them.

        The loopholes in the Corporate tax structure need some SERIOUS closing as well.

        Reply

        • Posted by muni-man on October 9, 2011 at 4:02 pm

          Gotta agree with you there. They ought to hammer execs, most of whom are marginally effective at best and who get these ridiculous packages thru that great unholy alliance called Boards of Directors, the ultimate in Insiders’ Clubs. Ditto for pro sports’ types where compensation has become even more totally insane. But at least with them you can avoid paying the freight if you choose since they’re totally superfluous. Tough though to avoid buying a lot of the stuff that S&P500-type companies make and that these guys supposedly run.

          Reply

  6. Posted by Eric on October 9, 2011 at 9:15 pm

    Muni-man remember that the federal pensions were already stolen by our esteemed Treasury Secretary who repeatedly failed to pay his income taxes? It is wonderful that he now heads up the IRS. The pay as you go is already gone. He spent it all.
    The federal pensions were raided in order to keep the government in operation while the budget joke was being debated by the brain trust in Washington who fail to read any of the bills they sign. Perhaps I should buy them “Hooked on Phonics.”
    As for the corporate executives, many receive golden parachutes for crashing and burning companies into the ground. Remember how Merrill Lynch was destroyed and Bernanke put a gun to the head of Bank of America to consummate the merger? The CEO of Merrill was offered a multimillion $ package to just walk away from the ashes of Merrill. Nice work if you can get it.
    Yes it is sadly guns, gold and farmland and throw in a few dobermans. Hungry ones.
    Eric

    Reply

    • Posted by muni-man on October 9, 2011 at 11:38 pm

      Federal pensions stolen???, that’s a total non-sequitur. They were never funded in the first place – QED. If you’re advocating about TP’s coughing up ever more $’s to fund these public pension sinkholes, then you’re orbiting UrAnus right along with the unions. They’re absolutely pissin’ up a rope at this point. Financial realities will nuke them.

      Reply

    • Posted by Tough Love on October 9, 2011 at 11:42 pm

      Federal employees have little to worry about with respect to accrued pensions. Unlike the States & cities, the Fed can print money (literally). But print too much … and it becomes worthless.

      I’d much rather have any Fed pension than one form many of the PA, RI, NJ. Il. MI. or CA cities or their State Plans as ultimately many will just run out of money … ala Central Fall, RI.

      Reply

      • Posted by brian on October 10, 2011 at 6:25 pm

        Another good thing FED employees have is the Thrift Savings Plan – well, my info may be a bit dated as I am recalling my days as an Examiner at the US Patent Office (early 90s) but it was a good deal back then. I would hate to have all of my eggs in a pension basket, and am especially glad to have had a self directed 401K at my last employer.

        Although the average state and local employee would not know what to do with such options, it should be available to them.

        Reply

  7. Posted by Anonymous on October 10, 2011 at 12:09 pm

    I am really interested in learning more about the funding of the federal employees’ pension plans.
    I am under the impression the defined contribution plan is funded with a variety of investments, but the defined benefits plan is funded 100% with Treasuries, that have been borrowed by the Treasury to pay current expenses (similar to Social Security’s trust fund).
    If anyone has any links to provide more credibility, I would appreciate that.
    Don Levit

    Reply

  8. […] Investment ReturnsShould you withdraw and reapply for Social Security benefits? – kitces.comLying with ‘facts’ on Social SecurityHow Modest Social Security Reform Could Improve Americans’ Annuity Protections – The GailFosler […]

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