Five Reasons not to buy the hype.
Though most economic attention of late has been focused on Obama’s likely stimulus plans, there has been a growing background hum about the need for “entitlement reform.” In outlining his economic plans more broadly last week, Obama said “I would expect that by February, in line with the announcement of at least a rough budget outline, that we will have more to say about how we’re going to approach entitlement spending.” That comment prompted a misleading article in the New York Times about the supposed problems facing social security and a series of editorials and articles in the Washington Post that raised the usual alarmism about the long-term viability of the program.
Since misleading characterizations about social security are so widespread and since a majority of Americans, especially young ones, are convinced that the program won’t exist by the time they retire, here are five points about its real state:
1) The program is fully funded decades into the future
According to the Congressional Budget Office (CBO), the program will be fully able to pay all projected benefits through the year 2049. That’s forty years from now. In 2049, the oldest baby boomers will be 101, the youngest 85. You will hear lots of dates thrown around – 2017, 2025, 2030, etc – for when doomsday is set to occur. But the trust fund that will help cover all obligations to all retirees will not run out until 2049 (the Social Security Trustees estimate that the trust fund will run out in 2041, still decades into the future and using arguably flawed assumptions).
2) Even when the trust fund runs out, social security will still be in good shape
When reporting on the expected date that the trust fund will run out of money, media commonly and mistakenly use words like “broke,” “insolvent” and other adjectives to describe social security. The trust fund was established in 1983 (under a reform commission headed by Alan Greenspan). Its specific purpose was to ensure that social security could meet its obligations when the baby boomers began to retire in about 2013. As the projections suggest, by the time the trust fund is exhausted, it will have done its job – having provided the extra money to cover the retirement years of the vast majority of baby boomers. That the trust fund will eventually exhaust its reserves is by design, not an unforeseen disaster. This is why describing social security as broke, or insolvent once the trust fund runs out is simply false. Social security will always be able to provide benefit levels for all retirees at a higher level than retirees receive today. This is because social security is funded by payroll taxes, and as long as those are being collected, retirees will continue to receive their checks. Nothing will change this fact unless Congress decides that social security taxes should no longer be collected, and retirees should no longer receive benefits. In other words, unless Congress decides to abolish the program or deliberately reduce its scope, none of the doomsday scenarios will come to pass.
3) Repeat after me – Social Security is not Medicare, Social Security is not Medicare
One of the common errors in reporting on social security’s (non-existent) problems is to lump it in with the (real) problems facing Medicare and Medicaid. But those programs are separately funded from social security. And their problems are traceable to a simple source – the runaway costs of our bloated, bureaucratic and highly inefficient health care system. And it’s the inefficiency of the private sector of the health care industry that is largely responsible for the explosion in costs. This has nothing to do with social security. Whether intentional or not, lumping social security in with Medicare and Medicaid amounts to simple fear-mongering about social security’s future viability
4) To the extent that there is a long-term hole, it’s easily fixable
The Trustees calculate a 75-year projection for the program. So does the CBO. When one projects the potential shortfall over 75 years, one gets some pretty large numbers. As of the year 2083, according to the Trustees, there will be a $4.3 trillion hole in the program. That sounds like a lot. But as a point of comparison, that is the equivalent, in current spending, of roughly six or seven years of Pentagon expenditures. As another point of comparison, the Bush tax cuts of 2001 and 2003, which largely benefitted the well-off, will be roughly three times more costly to America’s bottom line over the next 75 years. Furthermore, closing the 75 year long hole would require a quite modest increase in payroll taxes equivalent to a roughly one percent increase in workers’ deductions (or less). In other words, though the size of the very long-term social security deficit looks scary, it’s not and is, therefore, easily correctible.
5) The Crystal Ball
Point four assumes that the estimates about the 75-year shortfall are correct. The main actuarial organization in the United States – this is the professional association whose membership does all of this head-spinning work – said back in 1993 that 75 year projections are “of little practical value” and “pure speculation,” likely to scare a misinformed public without providing any useful information. And speaking of 1993, Paul Krugman noted in March that the Trustees own 2008 report acknowledged that the program appears healthier than it has at any time since 1993. The 2008 report prompted Krugman to write that “what this tells us is that projections made in the mid-to-late 1990s were, in the light of subsequent revisions, way too pessimistic.”
Moral: Social Security’s financial problem is relatively minor. It doesn’t deserve the emphasis it receives from most pundits.”
Needless to say, America faces massive problems – a major economic crisis that will require trillions of dollars to fix when all is said and done; climate change; the deteriorating state of health care, violent conflict and terrorism to name just a few. These problems all require urgent attention and will, over the course of the next generation, let alone roughly three generations, cost us extremely large sums of money. These areas each face what could reasonably be called a crisis, demanding very large investments and financial commitments for the foreseeable future. By contrast, social security’s problems, to the extent that they exist at all, only exist in the frankly unforeseeable future, making social security well down on the list of urgent concerns facing Americans.