February 07, 2005
Mark Weisbrot
Denver Post, February 7, 2005
Knight-Ridder/Tribune Information Services,February 3, 2005
Augusta Chronicle (GA), February 5, 2005
The Record (Bergen County, NJ), March 5, 2005
Coastal Post (CA), March 5, 2005
Sometimes a number can take on great significance as a symbol. The number on a famous athlete’s uniform, or the date of an historic event. Anniversaries, the turn of a century, or fears associated with such events — remember the Y2K scare?
“Thirteen years from now, in 2018, Social Security will be paying out more than it takes in,” declared President Bush in his State of the Union speech.
President Bush, along with others who want to cut Social Security benefits and partially privatize the program, wants Americans to believe that 2018 has some significance for the Social Security system. But according to the numbers that the President is using — from the Social Security Trustees — it doesn’t.
What President Bush is saying is that in 2018, Social Security will have to pay out more in benefits than it receives in payroll taxes. About $16 billion more, according to his (Social Security Trustees) estimates. What he did not say is that the Social Security Trust Fund in 2018 will have more than $3.6 trillion in assets, as well as $206 billion in interest income that year. (All numbers are expressed in today’s dollars).
So even if Social Security cruises along on auto-pilot for the next 13 years, 2018 will arrive and depart quietly and without notice. In 2018 a small fraction of Social Security’s interest income will be used to pay benefits.
According to President Bush’s numbers, the program can pay all promised benefits until 2042, using its interest income and assets, as well as payroll taxes. According to the non-partisan Congressional Budget Office, it’s 2052. This is exactly what was intended when our Congress raised the payroll tax in 1983. The idea was to accumulate a surplus (currently more than $1.6 trillion and rising) in order to help finance the retirement of the baby boom generation. By law, the Social Security Trust Fund can only invest in U.S. Treasury obligations.
But 2042 and 2052 are much too far away for those who want to create the impression of a Social Security “crisis.” Hence the tricks that have been used to move the program’s potential shortfall forward to 2018.
Over the years, I have confronted these tricks hundreds of times on talk shows. They haven’t changed at all. The bonds held by the Social Security Trust Fund are dismissed as “I.O.U.’s” or “pieces of paper,” as if the credit of the U.S. Treasury, which has never defaulted in the history of this country, is something rather shaky.
“The Trust Fund money’s been spent!” they exclaim, as if exposing some kind of scam. Guess what: So has the $720 billion that Japan loaned to the U.S. Treasury. The Japanese government will be repaid, interest and principal. And so will Social Security.
“But where will the money come from to repay the Trust Fund?” they demand. But this is another subject altogether. Where will we get the money to pay the Chinese and Japanese governments or other creditors as they collect interest payments and redeem their Treasury bonds and notes? Mostly we will borrow, but that’s not their problem. To blame Social Security for any future debt problems we may face as a country is like blaming your credit card company for your oversized spending habits. If you want to blame the 2001 and 2003 tax cuts or the war spending, that makes some sense; but Social Security is the lender here, not the spender.
Of course 2018 is only one of several tricks that Social Security’s detractors have successfully deployed. These devices get plenty of unchallenged play in the media — especially the broadcast media. No wonder most Americans are so confused. The latest Zogby poll shows 61 percent believe the system faces “serious problems” and 14 percent think it’s “in crisis.” In fact it is financially stronger than it has been throughout most of its history, according to the Trustees’ (President Bush’s) numbers.
Conspicuously absent from the Social Security portion of the President’s speech was the word “crisis,” which has provoked a backlash as a symbol of the Administration’s exaggeration. The year 2018 is every bit as misleading as the word “crisis” in the debate over Social Security. It’s time to retire that number.
Mark Weisbrot is co-director of the Center for Economic and Policy Research and co-author, with Dean Baker, of Social Security: the Phony Crisis (University of Chicago Press, 2000).
