This Nonsense about Social Security That Many Are Propagating

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.


UPDATE 10/18:

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.


Posted on October 17, 2012, in Economics and tagged , , , , , , , . Bookmark the permalink. 2 Comments.

  1. Nowhere did I write about a lockbox. You just made that up. Criticize what people actually write instead of making things up.

    When you buy a bond it is not dollars, but a promise to pay in dollars, yet people like you and me buy bonds and expect them to be redeemed.

    SS has a dedicated funding stream. If you want a government program not well funded try almost anything else, say, pensions for soldiers and sailors or the costs of running Congress or the DoD, etc. Consider their UNfunded liabilities, which dwarf the modest problems with SS funding.

    You paid in advance for your SS benefits if you have been working since 1983 because you paid much more in taxes than was required to pay current benefits. Rule One in tax planning — a dollar paid in the future costs less than one paid now. Rule Two — a dollar paid years in advance costs a lot more. Guess which rule you worked under.

    SS would be in tax-revenue surplus today were it not for people pushed out of the workforce who were disabled but worked anyway. Now, unable to find work, they are finally seek DI benefits, which they paid for with their taxes and were entitled to but deferred because they would rather work (and be better off financially because they worked). And why did the economy collapse in 2008? Why did Congress put $14.7 trillion (the entire output of the nation for that year) at risk to bail out bankers?

    Be more concerned about all the techniques through which the biggest companies quietly use that force you to pay it taxes that they get to pocket, like the 2,700 large corporations (every company you have heard of basically) that get to pocket the state income taxes withheld from their workers paychecks. Or the GWBush era rules that let one energy industry collect the corporate income tax in their monopoly rates even though the industry has been exempt from that tax since 1987. Or the retail stores (and even entire malls) built with the sales taxes you pay at the cash register that go not to public services, but private gains.

    These fast-growing diversions are part of the real problems we face with public finance. Worry about the accelerating growth of corporate socialism that thwarts competitive markets, profits from subsidies instead of the market and creates a huge deadweight drag on the economy, all of which is explained in plain English in my new book THE FINE PRINT.

    • Thanks for your response, Mr. Johnston.

      Apparently I should have been more clear when I said you and Greenwald are operating on the assumption that there is a lockbox. You are correct in stating you did not say it anywhere. However, it should have been obvious that it was not meant to be taken literally. I am saying both of you are acting as if there is a lockbox.

      By pointing out a 2.7 trillion surplus and not addressing how SS actually comes up this money, you are understating the very large threat Social Security does pose to the federal government’s budget. The other “unfunded liabilities” are certainly a problem as well; I have no dispute with you there. However, that doesn’t justify Social Security.

      The rest of your comment seems to be a plea for me to get my priorities straight, but I likely agree with you on a number of issues. I am no fan of the cronyism that goes on in the US and am quite aware of it.

      Good luck selling your book.

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