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Home Publications Blogs Beat the Press Social Security Does Not Contribute to the Deficit: Lessons for the Washington Post

Social Security Does Not Contribute to the Deficit: Lessons for the Washington Post

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Friday, 14 December 2012 05:31

The Washington Post is getting very upset that people refuse to accept its assertion that Social Security contributes to the deficit. An editorial today angrily referred to the "mythology that, though the pension and disability program is facing ever-widening shortfalls, it isn’t contributing to the overall deficit."

It's not clear why the Post thinks of the law (even as acknowledged by Republican Social Security trustee Charles Blahous) that Social Security can only spend its designated revenue and no more, as "mythology." Social Security was set up by Congress as a stand alone program. Every official budget document includes the "on-budget" deficit, which excludes the revenue and spending of Social Security.

This would be comparable to setting up a public auto insurance system that collected insurance premiums and paid out claims, but was not allowed to tap federal revenue if it faced a shortfall. Presumably the Post would be able to understand that this auto insurance system was not contributing to the budget deficit, since the law makes it impossible to contrbute to the deficit. But somehow the Post wants to deride the law governing Social Security's finances as "mythology."

The editorial also includes the usual misleading comment that:

"The nonpartisan Congressional Budget Office estimates that, without reform, spending on Social Security and federal health-care programs will rise from 10 percent of gross domestic product today to 16 percent 25 years from now."

The vast majority of this increase is due to health care costs. Social Security is projected to increase by 1.0 percentage point of GDP over the next 25 years. Almost all of this is projected to be covered by Social Security's designated revenue stream as Social Security is projected to be able to make all payments through the year 2034 with no changes whatsoever and after that date is projected by CBO to be able to pay almost 80 percent of scheduled benefits.

The vast majority of the rise in projected spending is due to the fact that U.S. per person health care costs are projected to rise from more than twice the average in other wealthy countries to three or four times the spending of other wealthy countries. This is why serious people focus on restraining costs in the private health care system. If U.S. costs were anywhere near comparable to costs in other countries we would be looking at large budget surpluses in the distant future, not deficits.

Comments (14)Add Comment
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written by Chris, December 14, 2012 7:06
Maybe it's not enough to hear the basic truth of Social Security funding from the Republican trustee, they need to get the facts straight from St. Reagan himself:

http://www.youtube.com/watch?v=ihUoRD4pYzI

Ronald Reagan: "Social Security has nothing to do with the deficit."
USA tax revenue as share of GDP also very low by rich country standards
written by Emersberger, December 14, 2012 7:09
US should defintely reform its health care system as Dean says, but I think it is also usedful to note that US tax revenue as share of GDP is about 7 GDP points lower than the OECD average (27% for USA, 34% OECD) .

http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

The projected shortfalls (6 GDP points) could obviously be closed without a crushing tax burden.

The USA could also offset 2 of the projected shortfall of 6 GDP points (1/3 of the projected shortfall) merely by bringing its military spending in line with what other rich countries spend - which is not even that far off what the USA spent in 1999.
Please forgive a little blog whoring...
written by Richard, December 14, 2012 8:17
This is a post I wrote yesterday pointing out that the average SS monthly benefit is just about the same amount as a minimum wage monthly "salary"

http://dakine01.blogspot.com/2012/12/lets-play-with-some-numbers-social.html
I suspect the Washington Post editorial writers read Beat the Press
written by John Wright, December 14, 2012 9:45
It seems likely that "Beat the Press" is read by people at the Washington Post, so one obvious question is: Why do they keep printing this stuff?

And my cynical answer is the editorial writers have to make a living.

And Wapo employees know the Post is losing money. Their November 2, 2012 earnings report stated "the company's flagship newspaper continued to lose circulation and print ad revenue at a steady pace". The newspaper and online news revenue reported an operating loss of 21.8 million (16.2 million of that a non-cash pension expense).

The USA myth of a "challenge authority" press is just a myth, as one can see independent thinkers such as Noam Chomsky are seldom published in the mainstream media.

And Edward R. Murrow was marginalized at CBS in the early 60's as his reporting started to hit the bottom line.

The positive aspect is that "Beat the Press" will never lack target material.

...
written by skeptonomist, December 14, 2012 10:31
The dispute about whether SS "contributes to the deficit" is partly semantic and partly class-based, and depends on how you define "deficit". If deficits are based on the "unified" budget, which is the normal way they are reported, even in this blog, then SS taxes and finances do contribute; since the early 80's, SS taxes have been reducing those reported deficits, while in the future, up to around 2040, SS disbursements will be increasing the ("unified") deficits (if not compensated by increasing income-tax rates). The Post and others implicitly take the point of view that cash flow is what is important, and claim that the separation of the two budgets is "mythological", while Dean asserts correctly that this separation is the law (although he abandons the separation when quoting the surpluses of 1999 and 2000). The two points of view are class-related; those who now claim that SS contributes to the "deficit" are aiming to reduce future income-tax burdens which fall disproportionately on higher-income people.

A more serious problem is how SS bashers have managed to convey the impression that SS will be "bankrupt" when the current large surplus in the Trust Fund has been paid out around 2040. Probably most people in the country have the false impression that SS is funded like other kinds of retirement programs and that the Trust Fund is the whole of the program, whereas at that time it will have returned to more strict pay-as-you-go. This is probably more important because if people did not fear that SS would vanish when the Trust fund is near zero, claims that there is a "crisis" which must be addressed by SS cuts would have little traction. People are concerned much more about their own benefits from government than government deficits.
old age insurance v. ss
written by pete, December 14, 2012 10:39
SS was needed in the depression, since there was genuine poverty then and the states did not provide nearly what they provide now. It should be replaced by old age insurance, i.e., a means tested system...graduated payments. Then the bottom amount could be increased at the expense $0 for Warren Buffet and Bill Gates and Joe Scarborough etc.

Regarding financing, of course all government financing should be from optimal taxation, not necessarily on incomes. How about a carbon tax? That would seem to be on the road to optimal. And how about stop building stupid "infrastructure"...more freeways, more energy usage. How come when economists get to Washington they forget their public policy economics and transmogrify into politicians?

Social Security for dummies
written by Lex, December 14, 2012 1:17
Perhaps the Post needs things explained more simply:
...
written by JSeydl, December 14, 2012 2:04
Awesome pic, Lex.
...
written by MikeM, December 14, 2012 2:10
Drew, strangely enough this same statement is made by factcheck.org.
To focus on restraining costs in health care, what about untaxed employer health benefits?
written by Rachel, December 16, 2012 3:16

A loss of $250 billion in taxes to the government each year? But rarely discussed? How could that be?

Julie Rovner explained, about untaxed employer health benefits: 'It helps the most the richest people with the most generous health plans.' And she cites Ron Pollack : "If you're a low-wage worker, you get a very little tax break. If you get a lousy health care plan you get a very little break out of this."

In particular, this means high-income workers have less incentive to look for reasonably priced health plans. So health prices goes up.

(This is from NPR news, December 4,2012. A trifle late in the game to communicate just how big the tax loss is.)
...
written by urban legend, December 17, 2012 12:04
The law is the only thing that matters. As a matter of law, Social Security does not contribute to the Federal budget deficit. To say that's a myth is to show complete disrespect for law, which WaPo is apparently quite willing to do rather than give up its own cherished myths.
skeptonomist muddies the water
written by coberly, December 17, 2012 5:32
skep

you are doing what blahous did, and which dean fails to note.

SS does not contribute to the deficit. period.

unless you start getting cute with calling black white and debts income and up down.
which is what the two sets of books (budget, and "unified budget") do. so blahous gets away with saying Nancy Altman was "technically" correct that SS does not contribute to the deficit, and then starts a hand waving exercise in double talk and throwing sand in peoples eyes with all the "technical" words (not facts in the real world) about on budget off budget deficits vs debts and other garbage designed to obfuscate the plain fact that SS is self supporting and cannot affect the debt/deficits at all.

calling "paying back the money you borrowed" "increasing the deficit" is a lie. Altman was too polite to call Blahous that... or too diplomatic... as I suppose Dean is being.
But I can call it what it is... a damned lie.
projected shortfall
written by coberly, December 17, 2012 5:39
Emersberger

the projected shortfall for SS is about 2% of GDP, or about 4% of wages below the cap... at the end of approximately 80 years. This shortfall can be paid for entirely by raising the payroll tax one half of one tenth of one percent each year over those 80 years. There are better ways to do it, but that's the size of the "problem": essentially nothing.

simplest answer to the Social Security "problem."
written by coberly, December 17, 2012 5:44
the easiest, cheapest, fairest, simplest way to pay for your own Social Security would be to raise your own tax one full percent per year each year for the next twenty years.... that's 80 cents per week while your wages will go up eight dollars per week. and you get the money back with interest when you need it most.

i think Dean is expecting that this won't be needed. what he doesn't realize is that if it is not needed it can be stopped or reversed. but meanwhile paying for it ourselves should take the wind out of the Peterson's and Washington Post's lie machine.

and we'd never feel it.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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