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Letter to Rep. Heck on Social Security Comments Print
Written by Mark Weisbrot   
Wednesday, 08 June 2011 15:47

The Honorable Joe Heck
132 Cannon House Office Building
U.S. House of Representatives
Washington, DC 20515

Dear Dr. Heck:

Earlier this week on Alan Stock’s radio show on KXNT, you stated, “You know and it’s already said that Social Security is probably going to be insolvent in about 20 years.”

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 2028, you will receive $36,210 a year (in 2010 dollars). After 2037, you would still receive $27,158 a year in Social Security benefits for the rest of your life.

You also stated that “previous Congresses have raided the trust fund for other pet projects and to try to balance the budget and use it for other projects.”

However, 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.

The 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. 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.

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.

Sincerely,

Mark Weisbrot
Co-Director, Center for Economic and Policy Research

 
Why Does the Media Continue to Listen to Alan Simpson? Print
Written by CEPR   
Tuesday, 31 May 2011 13:05
You'd think after insulting the head of a major national women's organization, making obscene gestures at the AARP, lobbing expletives at reporters and mistaking a rapper for a loveable cartoon beagle, the media would be wary of reporting on anything that comes out of former Wyoming Senator Alan Simpson's mouth. Yet here we are. In his latest Truthout column, Dean breaks down Alan Simpson's consistently incorrect views on Social Security.
 
Getting the Facts Wrong on Social Security Print
Wednesday, 18 May 2011 13:27

Those pushing for cuts in Social Security and the other big items on the right’s agenda can get the basic facts about Social Security, the budget, and the economy wrong over and over again and it doesn’t in any way affect their standing in the public debate on these issues. Now, in addition to getting the facts wrong about cutting Social Security benefits, Sylvester Scheiber in a Progressive Policy Institute brief has referred to CEPR as "a research arm of the AFL-CIO," presumably because we promote policies that advance the interests of ordinary workers but despite the fact that the CEPR site states that we accept no funding from "corporations, unions, or foreign governments." Dean Baker has the full takedown of the PPI brief here.

 
The 2011 Social Security Trustees' Report Print
Tuesday, 17 May 2011 12:59

There was both good news and bad news in the Social Security trustees' report released last week. The bad news is that the program is projected to cost somewhat more in the latest report than in the 2010 report. However, the bad news is also the good news. The main reason that the program’s finances deteriorated between the 2010 report and the 2011 report is that in the 2011 report the trustees assumed that we would enjoy substantially longer life expectancies than they did in the 2010 report. Nonetheless, the picture is hardly as dire as many politicians in Washington are claiming. Read CEPR's Social Security Byte here and Dean Baker's further analysis here for the whole story.

 
Letter to Rep. Chaffetz on Social Security Comments Print
Written by Dean Baker   
Wednesday, 11 May 2011 16:00
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.

 
Letter to Rep. Flake on Social Security Comments Print
Written by Dean Baker   
Wednesday, 11 May 2011 15:30

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.

 
Does the Post Mean that Proposal the Commission Didn't Vote On? Print
Written by CEPR   
Wednesday, 11 May 2011 13:45
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.
 
Steven Pearlstein Claims to Speak for Americans on the Budget: Not! Print
Written by Nicole Woo   
Wednesday, 04 May 2011 11:45

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%.

Read more...

 

 
Responding to Rep. Huizenga on Social Security Comments Print
Written by Dean Baker   
Friday, 29 April 2011 10:45

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.

 
The Budget Conversation Robert Samuelson Should Be Having Print
Written by CEPR   
Monday, 25 April 2011 15:15
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.
 
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