Social Security Monitor reports on misleading statements and lies about Social Security in the media and by politicians and officials.

 

The Honorable Jason Chaffetz
1032 Longworth Office Building
Washington, DC 20510

Dear Representative Chaffetz,

On "Freedom Watch with Andrew Napolitano" last night, you agreed with Representative Jeff Flake's statement that in 1950 there were 16.5 workers for every retiree and that the country can't provide entitlement programs like that. As a service to you and your constituents, I wanted to let you know that the tax rate at that time was 1.5 percent on employers and employees on income up to $3000 (roughly $24,000 in today's dollars) and it was zero on the self-employed (Table VI.A1). Presently, the tax rate is 6.2 percent on both the employer and the employee and 12.4 percent on the self-employed on income up to $106,800. Because of this change in the tax rate, Social Security is fully solvent through 2037 and can pay close to 80 percent of benefits in subsequent years.

You also agreed that it would be better for those under 50 to keep the money that would have gone to Social Security and to put it into private savings. The reality is that the administrative costs of mandated private savings would be about 5 percent annually according to President Bush's Social Security commission. Under the current system, the administrative costs of Social Security are just 0.6 percent of annual expenditures (Table III.A6). In other words, switching to private savings would transfer tens of billions of dollars annually from taxpayers to the financial industry.

As a member of Congress, I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.

The Honorable Jeff Flake
240 Cannon Office Building
Washington, DC 20510

Dear Representative Flake,

On “Freedom Watch with Andrew Napolitano” last night, you said that in 1950 there were 16.5 workers for every retiree and that the country can’t provide entitlement programs like that. However, the tax rate at that time was 1.5 percent on employers and employees on income up to $3000 (roughly $24,000 in today’s dollars) and it was zero on the self-employed (Table VI.A1). Presently, the tax rate is 6.2 percent on both the employer and the employee and 12.4 percent on the self-employed on income up to $106,800. Because of this change in the tax rate, Social Security is fully solvent through 2037 and can pay close to 80 percent of benefits in subsequent years.

You also suggested that it would be better for those under 50 to keep the money that would have gone to Social Security and to put it into private savings. The reality is that the administrative costs of mandated private savings would be about 5percent annually according to President Bush’s Social Security commission. Under the current system, the administrative costs of Social Security are just 0.6 percent of annual expenditures (Table III.A6). In other words, switching to private savings would transfer tens of billions of dollars annually from taxpayers to the financial industry.

As a member of Congress, I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.

In the Washington Post's frontpage story on a budget proposal by Senate Democrats that doesn't include changes to Medicare and Social Security, the reporters mention how the plan fares compared with proposals by President Obama and "the bipartisan commission he appointed to recommend how to cut the national debt." As Dean points out on Beat the Press, there was no proposal by the commission.

Today in the Washington Post, Steven Pearlstein rather authoritatively sets out his preferred plan for a budget agreement, claiming:

If you locked 100 Americans in a room with a team of technical budget experts and told them they couldn’t leave until 60 of them could agree on a budget plan, this is what would emerge.

Hmm... that rings a bell.  Has anyone brought a cross-section of Americans to meet with experts and wrangled a plan out of them?

Why yes! AmericaSpeaks brought together 3,500 Americans at sites around the country to discuss the nation’s budget last June. Participants heard from sitting members of Congress and experts via webcast "to create a true National Town Meeting."  They looked at spending and tax options to reduce the deficit and worked in small facilitated groups "to learn about the issues, weigh trade offs, and express their preferences."

Despite plenty of misgivings from CEPR and others about these meetings being funded by the infamous deficit hawk Pete Peterson -- and therefore these budget exercises being played with a stacked deck -- the AmericaSpeaks participants chose items that come pretty close to what opinion polls have shown are popular with the public.

And their preferred options mostly differ from those highlighted in the Pearlstein plan. Here are some comparisons:

Pearlstein:

Social Security will be returned to long-term actuarial balance through a combination of progressive reductions to the cost-of-living formula, increases in the cap on income subject to the payroll tax and very gradual increases in the retirement age.

AmericaSpeaks participants:

No option to reduce Social Security benefits received support from a majority of participants. Raising the full retirement age received support from 39%, and lowering the cost-of-living formula (a.k.a. the measurement of inflation) was supported by only 24%.

The Honorable Bill Huizenga
1217 Longworth Office Building
Washington, DC 20515

Dear Representative Huizenga,

Thanks for taking the time to read and respond to my letter. While I appreciate your concerns about the country’s debt, I still think that you are mischaracterizing the Social Security program.

Your letter asserts:

“While it is true that the program’s [Social Security] total expenses are not projected to exceed its total revenue until 2037 (when it will fall to 78%), this fact can be highly misleading. Politicians have for decades treated money raised through Social Security payroll taxes just like they treat any other revenue: it went to the general fund, and it was spent, quickly.”

Under the law, the fact that Congress opted to spend the money it borrowed from the Social Security Trust Fund is irrelevant to the finances of the program. In exchange for the money it lent to the government, the Trust Fund now holds more than $2.6 trillion in government bonds that are honored by the “full faith and credit” of the U.S. government.

The fact that the government spent the money borrowed from Social Security makes no more difference to the status of these bonds than it would with any other bond issued by the U.S. government. Just as it would be inaccurate to say that a private pension fund is in trouble because the government spent the money it borrowed from the fund, so it would be wrong to say that Social Security is in trouble.

As you know, the $2.6 trillion in bonds held by the Trust Fund are a part of the $14.294 gross federal debt covered by the debt ceiling. About two-thirds, or $9.6 trillion, of this debt is held by the public, made up of both American and foreign investors.  The remaining one-third is held by government entities, including Social Security, the U.S. Military Retirement Fund, and the U.S. Civil Service Retirement Fund. The revenue raised by all of these bonds, not just those held by Social Security, went to the general fund, and were spent, as you contend.

Under the law, the bonds held by Social Security are to be treated like any other debt. While Congress could in principle default on the debt held by Social Security while honoring other debt, to my knowledge no member of Congress currently advocates taking this route. I suspect that this sort of partial default on the country’s debts to retired workers would be highly unpopular, and therefore unlikely to be approved by Congress.

However, political speculation aside, under current law the bonds held by the Trust Fund are as good as the credit of the U.S. government, the same credit that gives the dollar bills in our wallets their value.  In assessing the prospects for Social Security it seems that we have to work from current law, since none of us can really know how the program will be changed in the future. And, under current law, the program is projected to be fully solvent for more than a quarter century with no changes whatsoever.

Thanks again for taking the time to respond to my earlier letter.

Robert Samuelson believes that Obama hasn't been acting like an adult when it comes to the debate over the budget. For Samuelson, that means raising the retirement age and cutting Social Security and Medicare benefits. But as Dean points out on Beat the Press, Samuelson is ignoring the really obvious ways to reduce the deficit without hurting the middle class.

The Honorable Tom Coburn
172 Russell Senate Office Building
Washington, DC 20510

Dear Senator Coburn,

In your April 24, 2011 interview on "Meet the Press," you are quoted as saying "… the 2.6 trillion we’ve stolen from Social Security..." in reference to the funds that the Social Security Trust Fund used to buy government bonds. As I have written to you in the past, this is inaccurate. This money has not been stolen. The law has been followed to the letter.

The government sold U.S. government bonds to the Trust Fund, just as it sells bonds to individuals and private corporations every day of the week. As with any funds used to purchase bonds, the money is borrowed by the government, but repaid at the end of the term of the bond. Saying that the government has stolen money from Social Security is a distortion of the facts. No serious discussion of Social Security would use such terminology. As long as the law is followed and the bonds are repaid on schedule, nothing will have been stolen from the Social Security Trust Fund.

As one of the Senators in the Gang of Six working on a bipartisan budget agreement, I hope that you will be careful to present the situation more accurately, both in your budget proposal and in future public statements. If you would like any additional background on Social Security, I would be happy to assist you.

It really speaks volumes about the nature of politics in Washington that in order to be accepted as a serious participant in the budget debates, it is now necessary to affirm a willingness to cut Social Security. This is bizarre from many different angles.

Of course number one on this list is our little secret -- WE STILL HAVE A HUGE UNEMPLOYMENT PROBLEM. Apparently the folks here in DC aren't on to this one, but close to 25 million people are unemployed, underemployed or out of the workforce altogether because of the downturn caused by the collapse of the housing bubble.

There is now a gentleman's agreement between President Obama and the Republican congressional leadership that we won't talk about the unemployed anymore. We will just have discussions about the best way to reduce the budget deficit. It's sort of like discussing the paint job on the Titanic as the ship sinks.

The second reason why the pledge to cut Social Security is bizarre is that it is not part of the deficit story. Under the law, Social Security can only spend the money in its trust fund and not a penny more. This means that every dollar spent by Social Security was came from dedicated taxes or the interest on bonds purchased with those designated taxes.

In years after 2037 the program is projected to face a shortfall, but even then this would not contribute to the deficit. If nothing is ever done then the program would pay out about 80 percent of scheduled benefits, an amount equal to its projected tax revenue at that point in time. It will not add to the deficit.

The third reason that it is bizarre that Social Security is on the table is that current benefits are not especially generous. The average monthly benefit is just over $1,100 and the maximum is just over $2,300. The benefits are progressive, so higher wage earners already get a low return on their contributions.

Finally, we know that most retirees and near retirees have very little money other than Social Security. One of the main reasons that near retirees have little money is that the Social Security bashers did such a horrible job managing the economy.

Because this crew let the housing bubble grow unchecked, tens of millions of older workers failed to save as much as necessary, thinking that they were accumulating wealth in their home. Now that the bubble has collapsed, the huge baby boom cohort is hitting retirement without defined benefit pensions, with little money in 401(k)s and little equity in their homes. How does it make sense to cut benefits for these people?

But the SS cutters are on the warpath, insisting that you have to support beating up the elderly if you want to take part in the budget debates. But the folks at Social Security Works, a coalition of groups set up to protect Social Security is fighting back. They produced a new video that deserves a wide audience.

The Honorable Mike Enzi
379a Russell Senate Office Building
Washington, DC 20510

Dear Senator Enzi,

You were quoted on the NPR news show Power Breakfast saying “Anybody who is saying that Social Security is in good shape is making a political statement that they don’t want to handle it during their term in office... It’s one of those amazing trust funds that the United States has that has no money in it, it has IOU’s in it and that should worry everybody” in reference to the bonds that make up the Social Security Trust Fund.

Thankfully, there is little cause for worry. The government sold U.S. government bonds to the Trust Fund, just as it sells bonds to individuals and private corporations every day of the week. Just as with any funds used to purchase bonds, the money is borrowed by the government, but repaid at the end of the term of the bond. As long as the law is followed and the bonds are repaid on schedule, there is no reason to worry about the Social Security Trust Fund. In fact the Social Security trustees report clearly shows that Social Security will remain fully solvent through 2037 and will be able to pay roughly 80 percent of scheduled benefits from then on even if no changes are ever made.

While it would be unacceptable to have benefits drop by more than 20 percent, Congress has more than a quarter century to prepare for this situation. The projected shortfall is substantial, but nonetheless considerably smaller than other budgetary changes we have seen in recent years. For example, it is more than 20 percent less, measured as a share of GDP, than the increase in annual defense spending than we have seen from 2000 to 2010.

I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.

The Honorable Dick Durbin
459a Russell Senate Office Building
Washington, DC 20510

Dear Senator Durbin,

In a recent ABC News interview, you criticized a measure proposed by Senator Bernie Sanders that calls for excluding Social Security from any deficit deal. You were quoted as saying:

"In 2037, as we know it, Social Security falls off a cliff… There’s a 22 percent reduction in payments which is really not something we can tolerate."

As you know, the country has 26 years between now and 2037, so not acting in 2011 does not imply that the Congress will not do anything over the next quarter century to address the projected shortfall.

Furthermore, you should realize that the shortfall in 2037 does not necessitate any reduction in benefits. Even if Congress sat by and never did anything to fix the projected shortfall in the next 26 years, it would still have the option of raising additional revenue in 2037 if this shortfall materialized, rather than cutting benefits.

According to the Social Security trustees, the projected shortfall in revenue in 2037 would be less than 1.3 percent of GDP (SS trustees report TABLE V1.F4). By comparison, the increase in annual defense spending over the course of the last decade was more than 1.6 percentage points of GDP and in fact, there were several single years in the 40s and 50s when we increased defense spending by larger amounts.

While 1.3 percent of GDP is hardly a trivial amount, it is certainly a burden that the economy could bear if there were political will. In a context where the share of Social Security beneficiaries in the voting age population will be more than 50 percent larger than it is today (SS trustees report TABLE V.A2) it is certainly reasonable to believe that Congress would take steps to ensure that benefits are not cut by 22 percent.

In short, the prospect of a 22 percent benefit cut occurring in 2037 is highly unrealistic and is certainly not ensured by the decision to not include Social Security in any deficit package worked out by the current Congress. I hope that you will be more careful in describing this issue in the future. If I can be of any help in this matter, I would be happy to meet with you.

The Honorable Mark Warner
459a Russell Senate Office Building
Washington, DC 20510

Dear Senator Warner,

On "Face the Nation" this weekend, you said "…You know, part of this is just math – 16 workers for every retiree 50 years ago, three workers for every retiree now." However, that arithmetic is incorrect.

Fifty years ago, there were actually just five workers for every retiree, TABLE IV.B2. In this same 50-year span, the tax rate for Social Security has more than doubled, from 3.0 percent for the employer and employee in 1960 to 6.2 for each at present. As well, the tax base has risen considerably from $4, 800 in 1961 (roughly $30,000 in today’s dollars) to $106,800 in 2010, TABLE VI.A1.

You're absolutely right that this is just math, but it is important to get the math right. As one of the key Senators involved with budget negotiations and the future of Social Security, I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.

The Honorable Bill Huizenga
1217 Longworth Office Building
Washington, DC 20515

Dear Representative Huizenga,

During a recent episode of NPR’s Morning Edition, you said that "…we have to change the system…" because Social Security won't be able to survive.

However, this is not the case. The Social Security trustees’ projections show that Social Security will maintain full solvency through the year 2037. Even if Congress never makes any changes to the program, Social Security will always be able to pay close to 80 percent of scheduled benefits from then on. This means that when you retire in 2036, you will receive $39,674 a year (in 2010 dollars). After 2037, you would still receive $29,755 a year in Social Security benefits for the rest of your life.

As the discussion over Social Security continues, I hope you and your staff will have the opportunity to further review the design and finances of Social Security. If you would like any additional background on the program, I would be happy to assist you.

The Honorable Tom Carper
513 Hart Office Building
Washington, DC 20510

Dear Senator Carper,

In recent comments on reforming Social Security, you said, "My sons are 21 and 22; neither of them thinks Social Security will be around for them. I want to make sure that it is."

In fact, Social Security will be around for them. The Social Security trustees’ projections show that Social Security will maintain full solvency through the year 2037. Even if you and your colleagues in Congress never make any changes to the program, Social Security will always be able to pay close to 80 percent of scheduled benefits from then on. Assuming that they have several successful years in the workforce just as you have, when your sons retire in 2056 and 2057, they will each receive $37,044 a year (in 2010 dollars) for the rest of their lives.

As the discussion over Social Security continues, I hope you and your staff will have the opportunity to further review the design and finances of Social Security. If you would like any additional background on the program, I would be happy to assist you.

Robert Samuelson believes people are too dependent on the government for benefits like Social Security and Medicare, which makes it hard to implement change. But as Dean notes on Beat the Press, beneficiaries paid taxes during their working lifetime to cover the cost of these benefits. Of course beneficiaries will oppose changes to a program they're already invested in. Maybe fixing our broken health care system would take care of those deficits Samuelson is so worried about.

The Honorable Tom Coburn
172 Russell Senate Office Building
Washington, DC 20510

Dear Senator Coburn,

In your April 4, 2011, Op-Ed in the Washington Post, you referred to "… money we've raided from Social Security..." in reference to the money that the Social Security Trust Fund used to buy government bonds. This is inaccurate. This money has not been raided. No money was stolen, and the law has been followed to the letter.

The government sold U.S. government bonds to the Trust Fund, just as it sells bonds to individuals and private corporations every day of the week. Just as with any funds used to purchase bonds, the money is borrowed by the government, but repaid at the end of the term of the bond. Saying that the government has raided money from Social Security is like saying the government raided the bank account of a grandparent who bought a $100 savings bond for their newborn grand-daughter. Few people would use such terminology. As long as the law is followed and the bonds are repaid on schedule, there will have been no raiding of the Social Security Trust Fund.

I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.

The New York Times is claiming in its story about Representative Paul Ryan's budget proposals that "many House Republicans see a need to revamp Social Security." As Dean notes on Beat the Press, we have no idea what politicians actually believe, especially when it comes to issues identified as the "third rail" in politics.

The Honorable Marco Rubio
B40a Dirksen Senate Office Building
Washington DC, 20510

Dear Senator Rubio and Staff;

In an Op-Ed in the March 30 Wall Street Journal, you wrote, “No changes should be made to Medicare and Social Security for people who are currently in the system, like my mother. But people decades away from retirement, like me, must accept that reforms are necessary if we want Social Security and Medicare to exist at all by the time we are eligible for them.”

Protecting the benefits of people currently in these programs is commendable. However, the assertion that Social Security will not “…exist at all…” by the time you are eligible for it is simply wrong.

The Social Security trustees’ projections show that the program would face a shortfall beginning in 2037. If the projections prove accurate, and Congress never makes any changes to the program, then Social Security is projected to be able to pay almost 80 percent of scheduled benefits in subsequent years. This means that you would be able to anticipate a benefit of $30,484 in 2038 and subsequent years. In other words, the projections show that you can expect to get a substantial benefit from Social Security as long as you live.

As the discussion over Social Security continues, I hope you and your staff will have the opportunity to further review the design and finances of Social Security. If you would like any additional background on the program, I would be happy to assist you.

Ezra Klein responded to criticisms over a piece he wrote on Social Security reform, saying don't be scared by misleading "editorials." As Dean wrote on Beat the Press, the problem isn't so much what's on the editorial page as what's in the rest of the news. If you need some examples, we'd be more than happy to link to some.

Republican political strategist Mark McKinnon has apparently invented a new game: Every time a columnist makes up something about Social Security, he or she gets a point. Over at Beat the Press, Dean tallies McKinnon's score.

Which is the problem: Social Security reform or the reformers? Ezra Klein criticized Social Security supporters for holding up what could be potentially beneficial reform, but as Dean points out on Beat the Press the constant barrage of untrue or misleading claims from reporters and politicians is shaping the debate, not reason.

The Honorable W. Todd Akin
117 Cannon Office Building
Washington, DC 20515

Dear Rep. Akin,

During a recent episode of C-SPAN’s Washington Journal, you stated that one of the reasons you do not like the Social Security program is that the government spends the money that is paid into the system and that this is wrong. However, this program is structured this way by design.

The recommendations of the National Commission on Social Security Reform in 1983, led to the growth of a large surplus. The surplus has always been used to buy bonds. Currently, the bonds held by the trust fund, together with annual tax collections and interest, are projected to be sufficient to finance full benefits through the year 2037, and more than 75 percent in later years.

Just as with any funds used to purchase bonds, the money is borrowed by the government but repaid at the end of the term of the bond. By design, the sale of government bonds is used for federal spending. These bonds are backed by the full faith and credit of the United States government and will be repaid unless Congress were to vote to default on these bonds.

In this same segment, you offer another reason that you dislike Social Security -- that if a person in their 30s or 40s had instead invested the same amount in the stock market or T-Bills, they would be a millionaire by the time they retire. It is interesting that you suggested investing in T-bills. As is the case with the bonds held by Social Security, money invested in T-bills is also used to pay for government spending.

Returns on stock market investments can be a mixed bag. A person in their late 40s who invested in the stock market in the late 90s would have seen a negative real return on investment. This is not the route to becoming a millionaire.

As the public discussion of Social Security continues, I hope you and your staff will have the opportunity to further review the design and finances of the program. If you would like any additional background on Social Security, I would be happy to assist you.


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