Ten Myths about Social Security

[Donnachaidh]

http://www.socsec.org/publications.asp?pubid=507

Myth #1: Social Security is in crisis and facing bankruptcy.

Even if Congress were to leave Social Security untouched, the program would be able to pay currently guaranteed benefits in full until 2042, according to the program's trustees. Thereafter, about 70 percent of promised benefits could be financed. The nonpartisan Congressional Budget Office is even more optimistic: it projects that, without changes, Social Security will be able to meet its obligations in full until 2053, after which about 80 percent of benefits still could be paid for. Even under those worst-case scenarios, decades from now the system would be far from "bankrupt," "flat-out bust," or "broke," which imply that no resources would be available to pay any benefits. At that time, workers and their employers still will be contributing payroll taxes to finance benefits for retirees.

:snip:

Myth #2: Social Security is unsustainable.

Over the course of the next seventy-five years, the gap between promised Social Security benefits and resources available to pay those benefits—the shortfall projected to arise beginning in 2042—is predicted to be about 0.7 percent of gross domestic product (GDP), or $3.7 trillion, according to Social Security's trustees. Without question, that's nothing to sneeze at. But by way of perspective, the tax cuts enacted in 2001 and 2003, if made permanent, would cost nearly three times as much: $11.6 trillion, or 2.0 percent of GDP, according to the Center on Budget and Policy Priorities. Furthermore, the new prescription drug benefit enacted last year will cost more than twice as much as eliminating the Social Security shortfall.

So saying that Social Security isn't "sustainable" or "affordable" is simply wrong. The program's entire seventy-five-year shortfall could be paid for simply by rescinding just a third of the planned tax cuts, which primarily benefit the highest earners—people who would still be paying substantially less to the government than they did in the prosperous 1990s. A myriad other trade-offs are possible as well. But the long-term challenge confronting Social Security is by no means insurmountable.

Myth #3: Social Security's trust funds are filled with worthless IOUs.

When investors become worried about the economy and the stock market, they "flee to safety" by selling their other securities in exchange for U.S. Treasury bonds and bills. Backed by the full faith and credit of the United States government, U.S. Treasury securities are considered to be the safest, most reliable investment worldwide. Because the federal government is legally obligated to pay back interest and principal on those securities, it would take an almost unimaginable calamity for a default to occur. Social Security's trust funds, which now amount to $1.5 trillion and are expected to grow to $5.3 trillion by 2018, hold nothing but U.S. Treasury securities.


The rest of the myths are at the link - both on the page and in a downloadable pdf format. Download the pdf and fire it off to any wingnuts or catfood commission followers who start spouting nonsense.

[ChoppinBroccoli]

1. I Had A Right-Winger Tell Me Just The Other Day............

..............that all authorities on the matter have been saying that Social Security would be completely bankrupt by 2016. BUT (and get this one) the CBO looked into it and found out that things were MUCH worse than that. The CBO concluded that the bankrupting of Social Security would happen SIX YEARS EARLIER than originally projected.

For those of you doing the math, that would make Social Security's drop-dead date.........hmmmmm, let's see here............2010. How many years away is that?

I mean, really, just how stupid and gullible DO you have to be to not only BELIEVE these right-wing lies, but to actually REPEAT them as if they were facts???

[NoNothing]

2. Not "bankrupt," but "in deficit"

Social Security is in deficit. That has already happened.

[Hannah Bell]

3. as it has happened a number of times since its inception, & as it was PLANNED

to be when st. ronnie made us double up on payments in 1983 to "save up" so we could DRAW IT DOWN (i.e. go into deficit) when the boomers started to retire.

not only that, but the "deficit" only exists if you ignore interest payments. with them, no deficit.

[NoNothing]

5. So? That doesn't mean you can ignore the ramifications

Since there are no assets in the trust fund as far as the U.S. government is concerned, that deficit has to be made up somehow. Just because the system allows for that doesn't mean it doesn't have to be dealt with.

[Hannah Bell]

6. i have no idea what you mean by "there are no assets in the trust fund as far as the US

government is concerned"

[NoNothing]

9. See post #4

In order for a bond to be an "asset," someone else must hold the corresponding liability, which is not the case when the U.S. Government owns both the asset and the liability. The two cancel each other out, yielding a net value of zero.

[Hannah Bell]

12. This?

"However, trust fund holdings, which are invested in Treasury
bonds, are liabilities to the rest of the government (which
will need to pay for the bonds when they are redeemed).
Thus, such holdings are not assets of the government as a
whole."

Is this supposed to be revelatory? Everyone knows this. Workers paid extra FICA for 30 years. The government borrowed it. Now it's time to start repaying. Duh.

The government owes the Trust Fund. The government asset is US production & the government's continuing ability to levy taxes on that production. For example, rescinding the Bush era tax cuts on the top 1% yields 1 trillion over 10 years.

What is your point?

[NoNothing]

4. As per #3, they would be wise to actually read the CBO report they linked to in #1

Quoting:

"The trust funds serve mainly as an accounting mechanism
to track revenues and outlays for Social Security.
The funds’ balance represents the total amount that the
government is legally authorized to spend on Social Security.
That balance provides only a limited perspective on
the program’s finances, however, because it does not consider
the interaction with other federal tax and spending
programs. Although the Social Security system is authorized
to spend certain amounts, the resources to finance
those outlays derive from the budget as a whole—and
ultimately from the economy.
...
However,
trust fund holdings, which are invested in Treasury
bonds, are liabilities to the rest of the government (which
will need to pay for the bonds when they are redeemed).
Thus, such holdings are not assets of the government as a
whole."

[Hannah Bell]

7. trust fund resources don't come from the budget; they come out of the pockets of

workers.

the government told workers to pay extra for the last 30 years as a way to "save".

then the government borrowed the extra, saying it would pay it back, with interest, when the boomers retired.

at the same time, it gave huge income tax cuts to the rich & superrich - tax cuts which, in the bush years alone, amounted to nearly 1 trillion in lost revenues, or nearly half of what's currently owed to the SS TF.

now the boomers are retiring, but suddenly the government is poormouthing.

blatant attempt at deliberate theft.

[NoNothing]

8. No, your understanding is wrong

The government didn't "borrow" the money from the fund because there was never any "money" in the fund. You don't think they had a big vault full of cash, did you? Instead, surplus revenues were used to buy U.S. Treasury Bonds, extolled in the OP as the safest investment in the world. But what is a Treasury Bond? It's a promise, bought with cash, that the government will pay back the cash plus interest at a later date. That's all that ever happened.

So, either Treasury Bonds are fantastic investment as per the OP, or it amounts to a blatant attempt at deliberate theft as per your reply. You can't have it both ways.

And it's a fair question to ask, if they didn't use the surplus to buy Treasury Bonds, what should they have done with the cash?

EDIT: Sorry, misattributed the OP to you.

[Hannah Bell]

10. the government most definitely did borrow the surplus fica collections from working

people.

i didn't write the op, try reading.

what they should have done with the cash is never collect it in the first place; reagan's 1983 SS "reform" was a deliberate scam to collect more revenue than needed to fund then-current retirees to "save" for the boomers' retirement.

this was supposed to "save" social security.

30 years of excess payments, taken out of the pockets of workers & funneled into the pockets of capital.

now at repayment time, the story changes.

you can't have it both ways.

[NoNothing]

11. I agree with you 100%

But that doesn't change the situation NOW, which is that the theory posited by the OP (sorry, again) that there's no problem because we have this big trust fund is silly.

Maintaining Social Security is certainly possible through tax hikes alone. However, as the CBO report points out, taxes raised to pay for Social Security cannot *also* be used on other spending priorities, like Medicare or debt service. Something has to give somewhere - the question is how to spread the pain. The point is that there's a limited amount of money that even tax hikes can generate, especially in slow economic times.

[Hannah Bell]

13. The OP says nothing like that. Again, try reading:

Myth #3: Social Security's trust funds are filled with worthless IOUs.

When investors become worried about the economy and the stock market, they "flee to safety" by selling their other securities in exchange for U.S. Treasury bonds and bills. Backed by the full faith and credit of the United States government, U.S. Treasury securities are considered to be the safest, most reliable investment worldwide. Because the federal government is legally obligated to pay back interest and principal on those securities, it would take an almost unimaginable calamity for a default to occur. Social Security's trust funds, which now amount to $1.5 trillion and are expected to grow to $5.3 trillion by 2018, hold nothing but U.S. Treasury securities.



What's silly is your idea of "a limited amount of money" (the government can inject money into the economy at any time, & does so regularly through deficit spending, & contrary to popular belief, doesn't have to "borrow" that money from the chinese or anyone else). Such spending has ripple effects as well, creating the demand that loosens the fingers of "investors" from the cash they're currently hoarding.

As for tax hikes, rescinding the Bush era tax cuts on the top 1% alone pays off almost half the current TF in about 10 years.

The capitalist class doesn't want to pay back the money, that's all. They prefer to kill old people.

[NoNothing]

14. I said there's a limited amount of money that can be raised

through income tax hikes. Sure, the fed can inject money any time they want, but that has its own set of consequences. I don't seriously see anybody proposing we finance the deficit that way, and I'm assuming you don't either.

The larger point, I'm sure you understand, is that the Social Security deficit is but one piece of a much larger problem with government finance. Unless the economy makes a much stronger than expected recovery, we are still looking at massive deficits as far as can be projected. There are no *easy* solutions to this problem, and pretending otherwise is counterproductive.

[Hannah Bell]

16. no one's suggesting we finance debt that way because it means the "investing class"

doesn't get their pound of flesh.

in a depression, there are no consequences to financing economic activity through government money creation except:

1. it pisses off "investors" who are liable to retaliate in nasty ways (coups, capital strikes, etc)


there is an easy solution to this "problem" - tax the rich fucks & remove some of their money-created power.

[JDPriestly]

19. We would not be in this recession had we retained a higher

marginal tax rate on the wealthy. Google a historical tax chart and look at the progress of tax rates on the wealthy and the overall health of the economy.

WWII and the government investment during the Great Depression were paid for by imposing very high tax rates on the wealthy. That's the only way to handle the situation we are in.

It worked then. It will work now.

Had the majority of those who got the tax cuts invested their money in the American economy, in creating jobs and caring for our country, we would not be in a recession.

Based on my knowledge of the real history, I support doing away with the Bush tax cuts for the rich. They did not help the economy. They just created the housing bubble and the whole excessive derivatives mess.

The economic theory on which those cuts were based was bunk. Our economy has never worked well when we tax the rich at very low rates. The rate was 25% during the 1920s. The country boomed until it burst. The rate on top marginal income was 35% after the Bush tax cuts for the rich. The economy boomed until it burst.

Let's look for balance in the amount of wealth in the hands of the rich and the amount of buying power in the hands of the poor and middle classes. The economic theory that favors low, low taxes on the rich is simply wrong -- unless you want to return to a feudal society.

Unfortunately, at this time we need massive government investment in infrastructure -- something like a WPA for young people who want and need work. Maintain Social Security for seniors. Gradually, the government spending will ripple through the economy and we will return to prosperity. Without even more government spending, we will remain in this recession.

[JDPriestly]

18. They hit low-income workers hardest.

If you are earning $300,000 per year, you are paying Social Security taxes on only about 1/2 of that income.

[Greyhound]

15. We've got to keep these truths out here, else the Reich-Wing will stampede the greedy

and the dim into screwing themselves and the rest of us.

And I don't care which side is spreading the lies, they are still lies.

[JDPriestly]

17. Some historical facts.

1. Much of the ERISA Act which governs retirement funds was passed under the Nixon administration in the 1970s.

2. The Reagan administration foresaw the demographic bubble that would affect Social Security when the baby boomers started retiring in big numbers -- which is this year. As so many people on Du have posted, beginning in the mid-80s, the percentage of our pay that was taken for Social Security contributions rose. Actuaries, I presume, had figured that would pay for the retirement benefits of the baby boomers.

3. At least by the late 1980s, early 1990s, rather than offer fixed retirement benefits, increasing numbers of employers set up retirement accounts into which employees could place a portion of their income on which taxes would be deferred. Many, many of the baby boomers put the maximum amounts in those accounts.

4. The 401(K)s served as a vehicle for "investment" in the stock market. It was common to invest in mutual funds and of course the accounts were handled by pension fund companies and brokerages. These middle folks, of course, took a handsome cut.

5. Wall Street loved the good years when the demographic bulge of the baby boomers were putting money into their accounts. Isn't it interesting that we had a crash in the stock market and a lingering recession in our economy just around the time that the baby boomers would be expected to start withdrawing their savings or at least certainly any gains they made on their savings.

My cynical theory is that Wall Street and the government enticed baby boomers into saving in ways that transferred our money to the Wall Street brokers and traders and then just basically did a shell game with it.

Some warnings about the future.

We are going to hear a lot about private savings accounts set up by the government to enable people to save their own money for retirement. Before you support that, learn a lesson from the recent past. Private investment accounts for retirement are a gimmick -- they are a set up for a Wall Street shell game. Which shell is the money under? The mutual funds, the bonds, the municipal bonds.

Just picture your 90-year-old grandmother straining her eyes to try to figure out where the money is. And then decide whether you prefer good old Social Security funded in times of deficits out of tax money (maybe obtained by reducing military expenditures overseas) or private investment accounts for the elderly.

I for one cannot picture myself trying to pick investments when I am in my late 80s or early 90s. What a nightmare.