December 02, 2012
For some reason media fact checkers get especially irate by political figures when they make the entirely true claim that Social Security does not contribute to the budget deficit (e.g. here and here). The Post’s Glenn Kessler gives a comparatively thoughtful comment in his Post column, but still comes down on the side of the adds to the deficit folks. The bottom line for Kessler is that Social Security is using interest on the government bonds it holds to pay for benefits.
This is true, but lots of people use interest on government bonds to pay for things. For example, if Peter Peterson used $5 million in interest on government bonds he held to finance the start up of his Campaign to Fix the Debt would it be accurate to say that he had contributed to the deficit? I suspect that most of the facto checkers would say that it is not.
Under the law, the trust fund is supposed to be treated as a bondholder like any other bondholder. This meant, for example, that the $2.7 trillion in debt held by the Social Security trust fund was included as part of the debt covered by the ceiling when the deadlock over its increase brought the country to the brink of default in the summer of 2011.
If we view the bonds held by the trust fund as they are defined in law, then it makes no more sense to say that spending the interest or principal from these bonds contributes to the deficit than the spending of interest or principal by any other bondholder. Since this money is already owed by the government to the trust fund, spending from the trust fund simply changes the identity of the owner of the debt, just as if Peterson were to sell his bonds to someone else. People may not like the law governing the trust funds, but that does not make someone wrong for talking about Social Security and its trust fund as they are defined under the law.
There is another point that deserves attention in Kessler’s piece. At one point he praises Senator Dick Durbin (the perp whose comment provided the basis for the piece) for having:
“acknowledged that Social Security’s long-term financing is an important issue that cannot be deferred.”
This implies that it is necessary to deal with Social Security’s financing now. That claim is clearly false. If we waited a decade before taking any action, the projections from the Social Security trustees indicate that the program could be kept fully solvent through the rest of the century by phasing in tax increases and benefit cuts comparable to those put in place by the Greenspan commission in 1983. While many people may want the country to deal with Social Security’s long-term financing problems now, there certainly is no reason that the issue cannot be deferred.
And there are good arguments as to why deferring major decisions might be desirable. For example, thanks to the efforts of the Peterson types and the overall poor state of media reporting on the issue, polls consistently show that the vast majority of young people believe that they will not see their Social Security checks when they retire. This is a completely false belief according to all current projections, howver it is likely to color their attitudes towards changes in the program. It would be desirable to have any major reworking of the program carried through in an environment in which the public was better informed about the true state of the program’s finances.
Another important fact arguing for delay is that the Social Security trustees project that real wages will grow by more than 20 percent over the next decade. This contrasts to three decades in which most workers have seen almost no wage growth. If the trustees projections prove accurate then the public might be much more inclined to tax away some of their future wage growth to support higher benefits than would be the case at present.
Whether or not one agrees with these reasons for delaying action on the program, it is simply wrong to assert that action cannot be deferred. This is simply a judgement that it is better to not defer action, not a statement of fact.
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