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Home Publications Blogs Beat the Press The Wall Street Journal Calls the Congressional Budget Office and the Social Security Trustees "Defenders" of Social Security

The Wall Street Journal Calls the Congressional Budget Office and the Social Security Trustees "Defenders" of Social Security

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Monday, 21 March 2011 15:48

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.

Comments (13)Add Comment
Extremism in the Defense of Price is No Vice
written by izzatzo, March 21, 2011 6:46
Defenders of monopolists in the health care and insurance sector for which earnings are largely comprised of anti-competitive economic rent that drive unsustainable debt say there's no immediate need for change ...

... that the use of government bonds to pay private sector freeloading freeriding cheats 100% of the full outrageous price-gouging over-spent cooked up crooked charges of moral hazard will continue through 2037 regardless of whether they cause the federal government to default and go belly up bankrupt.

No defenders of health care consumers could be found for this report that would still be alive in 2037 to talk about it for lack of health care and deep cuts in SS benefits.
Monopolists
written by Tempus Fugit, March 21, 2011 7:30
I presume izzatso prefers oligopoly with no accountability to the voting public, since that is the only option he mentions (well, if I filtered out the rubbish sarcasm correctly). Sarcasm can never beat facts. Mark Twain could be sarcastic and win, because he also based his opinion on facts. When izzatso gets his Ph.D. in economics, I'll be more inclined to give some credence to his opinion. But these rants are not even useful as a pointed stick for developing a clearer argument as to why we should not allow corporate america to get a hold of the last pie denied to them.
Just not true.
written by AndrewDover, March 21, 2011 8:20

The SS trustees have urged action SOON.

For example, the SS Trustees wrote in http://www.ssa.gov/OACT/TRSUM/index.html

"The Disability Insurance (DI) Trust Fund, however, is now projected to become exhausted in 2018, two years earlier than in last year’s report. Thus, changes to improve the financial status of the DI program are needed soon."

"The long-run financial challenges facing Social Security and those that remain for Medicare should be addressed soon."

and the last sentence of the conclusion:

"The sooner action is taken to address the long-run financial imbalances, the more reform options will be available, and the more time there will be to phase in changes so that those affected will have adequate time to prepare. "

And the WSJ did not attribute these parts to "Defenders":
"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."

Nowhere in the article did the WSJ imply "that the ability of the Social Security to use the bonds in the trust fund to pay benefits was a debatable point."
monopolies
written by Dream Boat, March 22, 2011 1:23
What about those monopolies on patens and copyrights? why is that not so bad? if we want a free, rational market that is.
...
written by skeptonomist, March 22, 2011 9:22
The Disability Insurance (DI) Trust Fund is formally separate from the Old-Age Security (OAS) Trust Fund, and is much smaller, reaching a peak of about $215B a couple of years ago:

http://www.ssa.gov/oact/STATS/table4a2.html

The total of the two (OASDI) is now about $2.6T - this is the number which is normally referred to in the media.

For some reason the DI Trust Fund is projected to reach zero much sooner than the OAS Trust Fund, but this is hardly a major problem - it could be fixed by internal reallocation. It need not affect overall taxation levels.

Is AndrewDover not aware of this, or is he deliberately cherry-picking numbers which look scary?
...
written by Matt, March 22, 2011 12:07
Just another day of "opinions on shape of world differ" reporting for the WSJ, I suspect.
DI (Disability Insurance) Trust Fund
written by Bruce Webb, March 22, 2011 4:28
Failed the Trustees test for Short Term Actuarial Balance a few years ago and currently faces a 25 year actuarial deficit equivalent to 0.3% of payroll. In fact DI's 25 year deficit accounts for all and more of the combined 0.25% deficit for OASDI over that same period, and oddly is the same as DI's 75 year deficit.

If we were having an honest debate the question would be whether we should install a stand-alone 0.30% fix for DI today that would put it into 'sustainable solvency' over the 75 year actuarial period used by the Trustees or perhaps use the same logic we apply to Medicare Part A and agree that the cap on income DI contributions makes no sense being that support of the Disabled is an overall societal responsibility in ways that retirement security more narrowly defined might arguably not be.

But that would require critics to shift their rhetoric from 'Greedy Geezers in Lexuses' to 'greedy quadriplegics in motorized wheelschairs' which might not push the same generational buttons. I mean even a Gen-Xer can run their motorcycle into a tree.

DI should and could have been fixed back in 2005, but short to medium term gaps in Social Security financing totally attributable to it were needed to sell Privatization schemes that had no relevance to DI as such, so it was simply allowed to drift into a point of real crisis.

How about we separate the two issues and start using honest numbers? Too much?
...
written by urban legend, March 22, 2011 5:43
I'm afraid it is too much, Mr. Webb. The opponents of Social Security are immune to facts, and basically put their hands over their ears, saying "La-la-la, I can't hear you." Somehow they cannot grasp the significance of the fact that the way the system works is written into law. By law, Social Security taxes are dedicated solely to paying benefits, and general funds may not be used (excluding the current partial payroll tax "holiday") to shore up Social Security.

They will absolutely refuse to even acknowledge the fact that the issue is almost entirely focused on the DI because they don't want to hear that there is a simple and rational fix that may well take care of everything or at least come close. Huge monetary and intellectual capital has been invested in successfully directing everyone's attention to retirement ("I will never see a dime."). You can see it in the right-wing attacks to what is said by anyone like Dean. Anything that renders that investment in misleading the public wasted will be resisted tooth and nail.
@skepto
written by AndrewDover, March 22, 2011 7:23
The selection of quotes was simply to refute Dean's thesis that the SS trustees were saying that "there isn't an immediate need for changes in Social Security." As you can see, they call for changes soon.
...
written by skeptonomist, March 22, 2011 8:30
What the Trustees are saying is that SS is not in danger or in a crisis. There is a projected shortfall in benefits in 30 years or so, and this will probably have to be corrected by increasing the payroll tax rate - polls indicate that people are OK with this.

SS does not run itself forever without adjustments - Congress has to make changes from time to time. Congress could easily fix the problem of the shortfall (if wages ever do go up, the tax rate could go down again) as well as the depletion of the DI Trust Fund if they wanted to, but many are refusing to act constructively because they are under pressure from plutocrats to cut SS benefits so that income tax rates don't have to be raised.
...
written by skeptonomist, March 22, 2011 8:43
By the way, if the DI Trust Fund or even the entire program went a few billion into the red, it would not be the end of the world, considering that in effect the income-tax system is in the red by $13T+. Congress is very lax in fulfilling its own legal requirements, such as having a budget passed on time.
...
written by skeptonomist, March 22, 2011 9:23
Come to think of it, talking about the "payroll-tax budget" (now with a $2.6T surplus) versus the "income-tax budget" (now with a $13T deficit) might clear up the confusion in many people's minds. It would certainly be better than the "on-budget budget", the "off-budget budget" and the "unified budget". The two budgets not only have different taxes, but they do different things, except for the overlap in Medicare.

Your can argue about the progressivity of the income-tax system (at least if you ignore the overwhelming popular preference for more progressivity), but that is the system which should be reducing its deficit. Terms like these would help to make it clear who owns the surplus in the payroll-tax system - it's not "the government", it's the people who paid payroll taxes.
--
written by AndrewDover, March 22, 2011 11:20
Dean claimed that the WSJ article implied "that the ability of the Social Security to use the bonds in the trust fund to pay benefits was a debatable point.", but there are no quotes produced to back that wild claim.

@skepto: Sure, current assets of the SS trust fund are around $2.6 trillion. But, long term liabilities (expected benefits) still exceed current assets plus long term revenues by the actuarial deficit of OASDI of 1.92% of taxable payroll for each of the next 75 years.

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About Beat the Press

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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