March 21, 2011
The WSJ ran an article in which implied that the ability of the Social Security to use the bonds in the trust fund to pay benefits was a debatable point. It noted that the benefits will soon exceed annual taxes, but then commented:
“Defenders of the program say there isn’t an immediate need for changes in Social Security. Past surpluses and projected tax receipts are sufficient to pay full benefits until 2037. After that, seniors would get only 75% to 80% of promised benefits if changes aren’t made.”
Actually, all official budget agencies hold the view attributed by the Journal to “defenders” of the program. This is the law.
It is sort of like saying that “defenders” of Bill Gates say that he has $50 billion to spend as he likes. Defenders of Bill Gates may say this, but it also happens to be true.
In the same vein, the article seems badly confused about how bonds work. It told readers:
“many Americans believe their retirement benefits are financed by payroll taxes they pay during their working lives. But as a pay-as-you-go system, Social Security uses the money collected from current workers to pay beneficiaries. Congress has changed the rules of the program—such as eligibility and benefit formulas—many times over the years.
For decades, Social Security collected more in taxes than it paid in benefits. The program lent that surplus to the U.S. Treasury by buying government bonds, and the government spent that money.”
Many Americans do believe that their retirement benefits are paid by their payroll taxes, just as many believe that the earth is round and the humans evolved from less-developed primates. This happens to be true, so it is strange that the WSJ would explain to readers that people happen to believe what is true.
The fact that the government spent the money it borrowed when it sold bonds to Social Security has nothing to do with the time of day. It has also spent the money it borrowed from Peter Peterson or the government of China when they bought government bonds. Similarly, when General Electric, Boeing or any other company sell bonds they typically spend the money that they borrow. It is not clear what point is intended by this comment, but it has no obvious bearing on the ability of Social Security to pay benefits to retirees.
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