This Nonsense about Social Security That Many Are Propagating
Posted by Bharat
It’s old news that Social Security is unsustainable. In fact, I myself made a post about it last December.
According to Glenn Greenwald though, this is all a big lie concocted by right-wingers and neo-liberals to “slash entitlement benefits for ordinary Americans.” Earlier criticizing Martha Raddatz in the 2nd presidential debate for her wording of a question about SS, he stated “That social security is “going broke” – a core premise of her question – is, to put it as generously as possible, a claim that is dubious in the extreme.”
He then cites a passage from David Cay Johnston stating:
Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty ()?
Why, Social Security, of course, which ended 2011 with a $2.7 trillion surplus.
That surplus is almost twice the $1.4 trillion collected in personal and corporate income taxes last year. And it is projected to go on growing until 2021, the year the youngest Baby Boomers turn 67 and qualify for full old-age benefits.
Well, I have a great idea. Why don’t we take Greenwald’s own method, that of examining premises and assumptions, and apply it to what he and Johnston have said about Social Security?
There is no lockbox. There is no treasure chest lying somewhere in Washington with a bunch of surplus money from SS laying around, ready to be used. Yet Greenwald and Johnston are operating on the assumption that there in fact is.
When Social Security earns a surplus, the money is used to buy government bonds, i.e., loaned to the government. The government owes this money to SS and pays interest year after year. Interest paid from the government to SS above what SS needs for its expenditures are reinvested in government bonds. This is not a lockbox; this is an IOU.
Social Security’s income is derived in two ways, from payroll taxes and from the above mentioned interest payments from the federal government. If for some reason, interest payments and taxes are not enough to cover the program’s required expenditures, SS will be forced to call upon the federal government for some of its $2.7 trillion back.
But the government doesn’t have this money. It, too, derives its income in several ways. It can tax, borrow or print. Taxes are already not enough to cover government expenditures. The federal government currently borrows nearly 40 cents for every dollar it spends.
The current state of SS is that in 2010, its expenditures started exceeding non-interest income. In other words, interest income is starting to play a larger and larger role. The federal government is being relied on more and more to pay this expanding interest income.
In 2010, this deficit of non-interest income v. expenditures was $49 billion. It is projected to be about $66 billion from 2012 to 2018, and then shoot up tremendously.
How is the government going to pay all this money? Well, it’s going to have to borrow even more than it does now. And paying off a credit card with another credit card simply isn’t sustainable.
I may have set up a straw man in claiming Johnston and Greenwald are “operating on the assumption” that there is a lockbox. Nothing is mentioned by Greenwald to change my opinion regarding him, but after re-reading Johnston’s post, there are a few statements he makes that point out he does understand how the surplus is funded. However, I do stand by my reply below in the comments that is he understating the problem.