Lesson for Reporters: Social Security Does NOT Add to the Budget Deficit

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Monday, 13 August 2012 04:41

Associated Press decided to use a "Fact Check" to wrongly tell readers that Social Security adds to the budget deficit. The piece acts as though Social Security's impact on the budget is somewhat mysterious, with supporters of the program, like Representative Xavier Becerra and Senator Bernie Sanders, being confused into thinking that the program doesn't add to the deficit, even though it really does.

There actually is not much mystery here to those familiar with government budget documents. There are two different measures of the deficit. There is the unified budget deficit, which adds in the payroll taxes collected for Social Security, just like any other source of revenue, and treats the benefits paid out by Social Security just like any other expenditure. In this measure, Social Security will add to the deficit in any year in which its benefit payments exceed its tax collections. (This is the case, even if the fund still has a surplus due to the interest it collects on the government bonds it holds, although it means that Social Security is contributing to the deficit because it is spending some of the interest it has earned.)

However there is also the on-budget deficit, which reflects the fact that Social Security is not supposed to be counted as part of the budget. This mysterious budget can be found in just about every single budget document the government publishes (e.g. here, Summary Table 1), saving arithmetically challenged reporters the need to subtract out Social Security taxes and spending from the unified budget. (The on-budget deficit also corresponds to the debt subject to the legal limit, which has played such a prominent role recently.)

Under the law, Social Security cannot possibly contribute to the on-budget deficit. It can only spend money that has been collected from the designated payroll tax or from the investment of past surpluses. (The money from general revenue to make up for the temporary payroll tax cut the last two years is an exception to this rule.) If benefit payments exceed current revenue and the money available in the trust fund, as the Congressional Budget Office projects will happen in 2038, then Social Security would not be able to pay full scheduled benefits. It could not force the government to increase its deficit.

It is incredible that a "fact check" failed to note the on-budget budget. This is obviously what Becerra and Sanders were referring to when they said that Social Security does not contribute to the deficit. Reporters who write on Social Security should be familiar with it.

This fact check also included some gratuitous editorializing on the deficit. It told readers:

"The issue [whether Social Security contributes to the deficit] is important because the federal government's annual deficit already exceeds $1 trillion, making any more borrowing tough to swallow."

It is not clear why the article considers more borrowing difficult to swallow. The financial markets have a very different view since investors are willing to lend the U.S. government money at extremely low interest rates. The reason why the government is running large deficits is because private sector spending plunged following the collapse of the housing bubble. Those who want to see the economy grow more rapidly are likely to prefer more government spending and larger deficits, since there is no other way to make up the shortfall in demand. Associated Press should leave editorializing like this in its opinion pieces.