A Proud Member of the Reality-Based Community

Acknowledgements

SEARCH eRiposte!

MYTHS V. REALITIES ON SOCIAL SECURITY in the UNITED STATES

Last updated: 03/13/2005 ; Feedback/Corrections should be emailed to: feedback-at-eriposte-dot-com

PREFACE

[Washington Post - brown text is eRiposte edits]: The campaign will use Bush's campaign-honed techniques of mass repetition [er, deception], never deviating from the script [er, dishonesty] and using the politics of fear to build support -- contending that a Social Security financial crisis is imminent when even Republican figures [as the U.S. media loves to say, facts are partisan these days] show it is decades away. [Economist Paul Krugman]: And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past. ... There are two serious threats to the federal government's solvency over the next couple of decades. One is the fact that the general fund has already plunged deeply into deficit, largely because of President Bush's unprecedented insistence on cutting taxes in the face of a war. The other is the rising cost of Medicare and Medicaid. As a budget concern, Social Security isn't remotely in the same league. The long-term cost of the Bush tax cuts is five times the budget office's estimate of Social Security's deficit over the next 75 years. The botched prescription drug bill passed in 2003 does more, all by itself, to increase the long-run budget deficit than the projected rise in Social Security expenses. That doesn't mean nothing should be done to improve Social Security's finances. But privatization is a fake solution to a fake crisis. Markos Zuniga (DailyKos): Here it is (PDF). The GOP's 103-page playbook for destroying social security. In addition to facts and figures they claim show social security in crisis, the playbook has GOP talking points on the issue, quotes from Democrats that supposedly show support for privatization, sample constituent letters, sample speeches for audiences over and under 50 years of age, and reports from several candidates who ran and won on privatization (suggesting that Republicans won't pay a political price for dismantling social security while adding $2 trillion to the deficit over the next 10 years).

To help fight the fraud,  go to Thereisnocrisis.com

SUMMARY

Considering the astonishing amount of distortions, fabrications and propaganda being passed off as fact on the topic of Social Security, I thought it might be useful to compile the real facts in an easy-to-refer format in order to educate myself as well as readers of eRiposte. This page provides such a compilation. 

The facts are as follows. Social Security is financially in very good shape today - it is neither going "bankrupt" nor is it facing a "crisis". Claims that Social Security has an "unfunded liability" of "$11 trillion" are outright deception. The retirement of the baby boomers will not bankrupt social security. As years pass, the projected so-called "doomsday" on Social Security actually has been pushing out even farther; plus even at the so-called [fake] "doomsday" citizens will get 73-81% of the benefits they were promised even if we did NOTHING today. The myth of a social security "crisis" is based on the projection that the economy and productivity will grow much slower in the future than it has in the past (while, incidentally, privatization is simultaneously advocated by the Right using the opposing claim that stock market returns will somehow, in real terms, be much better in the future than in the past!) What is really in crisis is the Federal Budget *excluding* Social Security. The programs that are really raising the prospects of bankruptcy and "crisis" (in a shorter time span) are President Bush's tax cuts and the Big Pharma Corporate Welfare Bill, aka the Medicare Bill.  Not to mention, by the definition of "bankruptcy" used by privatization proponents, our military is "bankrupt" TODAY (not in 2042 or 2052) - why are there no calls to "reform" the military? Medicare is far more of a problem - how come reform advocates are not spending sleepless nights proposing solutions to that?

The Social Security trust fund is not a "myth"; dishonest privatization proponents use the "myth" term when convenient, while dropping it when inconvenient. Claims of some Republicans that the U.S. Government is unlikely or not obligated to pay back the borrowings from the Social Security Trust Fund are downright illegal (this is the equivalent of people advocating that others can default on their credit-card debt with no consequence).

In a real world with a free and truthful media dedicated to fact-finding, this kind of compilation would not be necessary. However, the U.S. media has a long history of mangling its coverage on Social Security (and most other serious policy topics) and unintentionally (or sometimes intentionally - as is often the case with cable "news" media) misinforming the American public on many basic facts. This hasn't changed substantially today. This is a structural problem that provides the Republican party leadership and its operatives (especially those embedded in the media in the form of opinion writers or representatives) an excellent opportunity --- an opportunity to exploit the tendency of a lot of the media to focus on "he said-she said" reporting (as opposed to real journalism) which leads to the uncritical transmission and repetition of misleading or false statements (from the Right) ad nauseam over the airwaves. The ultimate result is that Americans are subject to a vast misinformation campaign, provided relatively inexpensively to the Republican party (Remember the GOP leadership's unspoken motto: If you tell a lie repeatedly you can convince people it is the truth. It has certainly worked spectacularly well, for well over a decade now, to the detriment of the United States and its citizens/residents).

DETAILS

ACKNOWLEDGEMENTS

INTRODUCTION: How the Social Security system is set up in the United States and what it has accomplished

1. Facts on Social Security and Privatization

1.100 Social Security is Financially in Very Good Shape - it is not going "bankrupt" and is certainly not facing a "crisis"

1.100.1 The retirement of the Baby Boomers will not bankrupt Social Security

1.110 As years pass, the projected so-called "doomsday" on Social Security actually has been pushing out even farther; plus even at the so-called [fake] "doomsday" citizens will get 73-81% of the benefits they were promised even if we did NOTHING today   

1.120 The long-standing myth of a social security "crisis" is based on the projection that the economy and productivity will grow much slower in the future than it has in the past

1.130 What is really in crisis is the Federal Budget *excluding* Social Security - the Bush administration doesn't want people to know that massive Social Security surpluses are being used to finance the record deficits due to Bush's massive tax cuts for the super-rich and out-of-control spending on Iraq and GOP pet projects (contrary to Bush's 2000 campaign promises)

1.131 The programs that are really raising the prospects of bankruptcy and "crisis" (in a shorter time span) are President Bush's tax cuts and the Big Pharma Welfare Bill, aka the Medicare Bill

1.132 Claims that Social Security has an "unfunded liability" of "$11 trillion" are outright deception

1.140 By the definition of "bankruptcy" used by privatization proponents, our military is "bankrupt" TODAY (not in 2042 or 2052) - why are there no calls to "reform" the military? Medicare is far more of a problem - how come reform advocates are not spending sleepless nights proposing solutions to that?

1.150 The Social Security trust fund is not a "myth"; dishonest privatization proponents use the "myth" term when convenient, while dropping it when inconvenient

1.155 Some Republicans' claim that the U.S. Government is unlikely or not obligated to pay back the borrowings from the Social Security Trust Fund is downright illegal

1.160 Correcting Social Security's projected shortfall is actually easier now than it would have been in past decades

1.170 The number of workers per retiree says little or nothing about the financial robustness of Social Security; yet this metric is frequently used to mislead people into believing the hoax of a social security "crisis" 

1.175 Some say that current projections on Social Security solvency underestimate increases in life-expectancy. However, the data to-date suggests otherwise

1.180 The progressive nature of how benefits are paid is more than fair considering it is intended to offset the regressive nature of the social security tax structure 

1.181 Proposals to index the first social security payment to inflation rather than wages is nothing more than an underhanded attempt to usurp taxpayer funds and deny retirees their due

1.190 Even if social security taxes were to be increased to bridge the manageable gap expected decades hence, workers wages will continue to increase

1.200 Privatization of Social Security would mean a steep drop in program efficiency and sharp increases in administrative fees, leading to significantly lower benefits

1.210 Privatization requires trillions of dollars in additional borrowing (in addition to benefit cuts) and speculative investment of individual's funds in the stock market - the makings of another Bush driven disaster

1.220 Privatization proponents often use highly inflated/exaggerated stock market return projections to push for privatization

1.225 Bush administration claim that the current social security system is "inherently unfair" to African Americans is another outright lie

1.230 The Bush privatization proposal, as it stands, would lead to steep benefit cuts for retirees and poverty for many retirees; younger workers, women and minorities would be impacted the most

1.240 The Bush privatization proposal, as it stands, would also lead to steep benefit cuts for non-retired workers drawing insurance for disability or their families drawing insurance upon the death of the workers

1.250 The Bush privatization proposal will be another exercise in class warfare - doling out massive corporate welfare to key campaign contributors in Wall Street at the expense of the poor and middle class

1.260 The Bush privatization proposal could actually reduce economic growth and thereby further endanger social security

1.270 Bush-style privatization has been tried before in other countries, with costly or disastrous results

1.280 Private accounts would likely require a new Government bureaucracy 

1.290 Private accounts would very likely not protect workers from lower benefits due to inflation

1.300 While giving individuals "choice" sounds good in theory, one needs to be sure that individuals are actually able to exercise the "choice" in a manner that doesn't reduce their benefits; after all, the vast majority of individual investors are not market experts and what investors get when they retire will depend on when they retire

1.400 It is quite likely that the underhanded objective of the Bush privatization proposal is the eventual phasing out of Social Security

2. Where does your Senator or Congressman/Congresswoman stand on Social Security? 

3. Misleading Coverage or Fabrications on Social Security by many U.S. media outlets (including, in some cases, egregious, propagandistic stenography on behalf of the Bush administration)

4. A sample of the Bush administration's and Republican politicians' mendacity/misleading on Social Security

4.1 Bush continues his long-standing tradition of fake "town-hall" meetings using pre-screened die-hard supporters and scripted exchanges to deceive public on Social Security

4.2 Bush administration attempts to use non-partisan government workers (in Social Security Administration) to push partisan, dishonest privatization scam onto Americans

4.3 Bush administration misrepresents quotes from Clinton administration to push their agenda

4.4 Bush's crisis-mongering on Social Security is not new. In 1978 he claimed Social Security would go bust in 10 years -- without privatization.

4.5 Even some Conservatives/Republicans dismiss the notion of a "crisis" in Social Security

5. Fraudulent Republican Front Groups spread the fake "crisis" rhetoric and dishonest propaganda

6. Republican misleaders hope that Americans will be gullible enough to swallow their "framing" and denials of "privatization"

7. George W. Bush's flip-flops on Social Security: A Promise Made is a Promise Unkept

APPENDIX: How should the Democratic Party respond to the fake crisis being propagated through the media?

ACKNOWLEDGEMENTS

The following websites/individuals were the source of the bulk of the information catalogued in this page. I would like to thank them in particular for their extensive coverage on this important topic and for making their analysis available on the Internet so that all Americans can get the real facts on social security.

• Dean Baker and David Rosnick from the Center for Economic and Policy Research (CEPR)
• Princeton Economist/Prof. Paul Krugman writing in the New York Times
• The Century Foundation (TCF)
• Kevin Drum writing at the Political Animal blog on Washington Monthly
• UC Berkeley Economist/Prof. Brad DeLong writing on his eponymous weblog
• Media Matters for America
• Bob Somerby at The Daily Howler
• Josh Marshall at Talkingpointsmemo
• Economic Policy Institute (EPI)

  ---

INTRODUCTION: How the Social Security system is set up in the United States and What it has Accomplished

The Economic Policy Institute (EPI) has a very useful "Social Security: Facts at a Glance".

Kevin Drum (Political Animal) provided a nice common-man's overview which I am reproducing here:

Social Security is funded by payroll taxes. In 1983, Alan Greenspan headed up a commission that recommended saving Social Security from imminent doom by raising those payroll taxes to cover expected increases in Social Security payouts. But there was a twist: Greenspan recommended raising payroll taxes above what was required to actually pay current benefits to retirees, with the resulting surplus used to buy treasury bonds that would be piled up each year in Social Security's trust fund. And since these bonds were sold to the trust fund by the federal government, this means that the federal government got a big chunk of extra money every year for use in the general fund.

Under this scheme, payroll taxes were sufficient to cover payouts plus bond purchases until about 2018 [eRiposte note: this has been pushed out to 2020 as of 1/31/05]. Then, from 2018 to 2042, when payroll taxes would no longer be enough to cover payouts, the difference would be made up by cashing in the bonds in the trust fund. In other words, the feds would tap into the general fund to give back all the money that Social Security had handed over between 1983 and 2018. This money would come from the same place all general fund money comes from: income taxes.

Still with me? Here's what this means:

• Between 1983-2018, this plan calls for payroll taxes to be higher than they need to be to cover payouts to retirees. However, because the surplus payroll taxes are handed over to the feds, it means income taxes are lower than they would otherwise be.

• Then, between 2018-2042, payroll taxes will be less than they need to be to pay benefits to retirees. However, the difference will be made up by higher income taxes, which will be used to pay off the trust fund bonds.

Payroll taxes are paid mostly by the middle class and the poor. Income taxes are paid mostly by the well off.

So: for 35 years the middle class and the poor pay excess payroll taxes and the well off get a break on their income taxes. However, for the following 24 years the middle class and the poor get a break on their payroll taxes and the well off finance it by paying higher income taxes.

Now, this may sound like a dumb idea to you, but that was the deal. The bottom 80% take it on the chin for a few decades, followed by a couple of decades in which the well off get socked.

But suppose — as conservatives are laying the groundwork for — that Bush decides the trust fund is a mirage, just a giant IOU from one part of the government to the other. And as part of his "reform" plan he proposes a complex scheme that, when stripped to its essentials, entails doing away with the flim flam of that illusionary trust fund and the higher income taxes it will require when 2018 finally rolls around. What would that mean?

It would mean that the middle class and the poor got suckered into overpaying their taxes for three decades, and then when the bill came due the well off ducked out of their end of the bargain.

Of course, that would be a brazen rip off of the middle class in order to give a break to the well off and the rich. George Bush would never do something like that, would he?

Kevin also has this update:

The key point here is that payroll taxes are mostly paid by middle and low income workers — and they've been overpaying for years. Income taxes are mostly paid by the well off, and the extra money from payroll taxes has allowed them to underpay for years. In 2018 [eRiposte note: this has been pushed out to 2020 as of 1/31/05] this that reverses, so paying back those bonds isn't just a moral obligation between generations, it's also a moral obligation between the wealthy and the middle class.

Here's an interesting addendum. During the editing of this piece the Monitor's op-ed editor asked me how much income taxes would have to be raised. There's no precise answer to this, but after a bit of mental noodling I told her it was in the neighborhood of 1% per year for 20 years starting in 2018, a total increase of about one-fifth compared to today's tax rates.
...
Just to be clear, if you pay, say, 15% of your income in income taxes, a one-fifth increase means you'd pay 18% of your income in taxes.

Just for additional perspective, here is what George W. Bush promised in Campaign 2000, something the U.S. media have completely, completely allowed him to ignore in this debate:

2/27/01 - [Bush] "...To make sure the retirement savings of America’s seniors are not diverted into any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security and for Social Security alone..."
10/3/00 - [Bush]: "...The revenues exceed the expenses in Social Security to the year 2015, which means all retirees are going to get the promises made. So for those of you who [Gore] wants to scare into the voting booth to vote for him, hear me loud and clear: A promise made will be a promise kept..."
3/22/01 - [Bush] "...For years, politicians in both parties have dipped into the Trust Fund to pay for more spending. And I will stop it..."

Paul Starr has a nice review of Social Security's accomplishments in The American Prospect:

Superficially, Social Security resembles traditional employer pensions: Americans pay into the system during their working years and receive a monthly pension during retirement. But the differences are fundamental. Social Security benefits are based on a balancing of two principles: equity and adequacy. Equity means that what you put in is related to what you get out; in other words, workers with higher wages, who pay more into the system, receive higher benefits later on. But under the principle of adequacy, the Social Security benefit formula overlooks years of low earnings (for example, when a worker may have been disabled or unemployed), and it replaces a higher proportion of earnings for the poor than for the rich. That’s why it’s our most successful anti-poverty program. In addition, Social Security benefits are indexed against inflation and protected from the ups and downs of the economy and financial markets. That’s why the program provides security for the middle class.

Privatization would do away with the idea of guaranteeing a minimally adequate income for the elderly who have worked all their lives. From their own earnings, low-wage workers would be unlikely to generate enough funds in an individual account to maintain a decent standard of living in retirement. Even middle-class workers would be at greater risk of poverty in old age. It’s intrinsic to financial markets that they yield unequal returns; many of those who did badly with their individual accounts wouldn’t have enough from other sources to live on. And markets fluctuate: Some generations would retire during one of the long downturns that periodically hit the markets, when their investments would be convertible only into paltry annuities. Those who lived into their 80s or 90s would be especially likely to outlast their individual accounts, or, if they had bought annuities at retirement, see those annuities severely eroded by inflation.

The elderly used to be an age group with an especially high rate of poverty. One of the signal achievements of Social Security, hardly noticed today, is that poverty has fallen dramatically among Americans over age 65 to just 10 percent, lower than the 12-percent rate for the population as a whole. For millions of the elderly who would otherwise be poor, Social Security is the single biggest source of income, the financial bedrock of their lives. Indirectly, their working-age children are beneficiaries of the program because the elderly no longer have to move in with them. People under age 65 also benefit from two other elements of Social Security that often get forgotten: benefits during long-term disability and survivor benefits for dependents if a worker dies before retirement. These are also important anti-poverty programs that don’t carry the stigma of welfare.

Social Security was never expected to be the sole source of retirement income for the middle class, who ideally also have employment-based retirement plans and personal savings. But if one thinks of these various sources of income as making up a “portfolio” of retirement assets, Social Security’s distinct value is even clearer. While other assets typically erode or become exhausted with advanced age, Social Security pensions keep their value because they have an annual cost-of-living adjustment. Moreover, as many employers convert from pension plans with a defined benefit to 401(k) and other plans with uncertain payouts, workers are already bearing more risk for retirement. In that context, Social Security provides a valuable hedge against the financial markets.

But what’s wrong with voluntary and partial privatization -- giving people the option of holding back 3 percent or 4 percent of their Social Security contributions to deposit in individual accounts? Although we haven’t yet seen the details of the Bush plan, these proposals typically come with sharp reductions in future benefits for younger workers who opt to remain in the system. These are really proposals to cut Social Security in which the individual-account option is an eye-catching decoy. Voluntary in appearance, these proposals would make Social Security such a bad deal that they’d trigger a run on the system: Workers, especially those with higher earnings, would likely not only opt for private accounts but demand that the entire program become optional.

Social Security works because it is a compact that extends across income groups. If the affluent leave the system, it would become a welfare program, shorn of the political clout that comes from universal participation. The result would be a self-reinforcing cycle of decline.

Social Security also works because it has been a rolling compact across generations. For decades, the basis of the program was entirely pay-as-you-go -- the taxes paid by workers went to pay for current retirees. When those workers retired, they depended on the next generation to support Social Security. Then, in 1983, Congress raised payroll taxes above the level needed for immediate benefits in order to accumulate savings for the baby-boom generation’s retirement.

1. Facts on Social Security and Privatization

1.100 Social Security is Financially in Very Good Shape - it is not going "bankrupt" and is certainly not facing a "crisis"

Rex Nutting pointed out the following in CBS Marketwatch:

Bush: “As a matter of fact, by the time today's workers who are in their mid-20s begin to retire, the system will be bankrupt. So if you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now.”

The facts: The Social Security system cannot go "bankrupt," for it has no creditors. By law, the trustees will continue to pay reduced benefits even if the trust fund is exhausted. Payroll taxes will continue to come in and benefits will continue to be paid.

According to the trustees' intermediate economic forecast (neither doom nor boom), the trust fund will be able to pay about 73 percent of scheduled benefits in 2042 and about 68 percent of scheduled benefits in 2078.

Future presidents and Congresses could also choose to fully fund scheduled retirement benefits from general tax revenue.

As CEPR says (bold text is eRiposte emphasis):

According to the Social Security trustees report, the standard basis for analyzing Social Security, the program can pay all benefits through the year 2042, with no changes whatsoever. Even after 2042 the program would always be able to pay retirees a higher benefit (in today's dollars) than what current retirees receive. The assessment of the non-partisan Congressional Budget Office is that Social Security is even stronger. It projects that Social Security can pay all benefits through the year 2052 with no changes whatsoever. By either measure, Social Security is more financially sound today than it has been throughout most of its 69-year history.

Their accompanying chart ("Source: SSA, CBO, and authors’ calculations") says it all.

Princeton economist Paul Krugman points out the following in his column "Inventing a Crisis" (bold text is eRiposte emphasis):

There's nothing strange or mysterious about how Social Security works: it's just a government program supported by a dedicated tax on payroll earnings, just as highway maintenance is supported by a dedicated tax on gasoline.

Right now the revenues from the payroll tax exceed the amount paid out in benefits. This is deliberate, the result of a payroll tax increase - recommended by none other than Alan Greenspan - two decades ago. His justification at the time for raising a tax that falls mainly on lower- and middle-income families, even though Ronald Reagan had just cut the taxes that fall mainly on the very well-off, was that the extra revenue was needed to build up a trust fund. This could be drawn on to pay benefits once the baby boomers began to retire.

The grain of truth in claims of a Social Security crisis is that this tax increase wasn't quite big enough. Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem.

But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.

Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come.

It's true that the federal government as a whole faces a very large financial shortfall. That shortfall, however, has much more to do with tax cuts - cuts that Mr. Bush nonetheless insists on making permanent - than it does with Social Security.

But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one.

My favorite example of their three-card-monte logic goes like this: first, they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless. Social Security, they say, isn't really an independent entity - it's just part of the federal government.

If the trust fund is meaningless, by the way, that Greenspan-sponsored tax increase in the 1980's was nothing but an exercise in class warfare: taxes on working-class Americans went up, taxes on the affluent went down, and the workers have nothing to show for their sacrifice.

But never mind: the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own.

There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success.

For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it.

1.100.1 The retirement of the Baby Boomers will not bankrupt Social Security

Mark Weisbrot and Dean Baker of CEPR write in the Washington Post (via Maxspeak):

"The baby boomers' retirement will bankrupt Social Security." Far from it. The first boomers actually begin retiring in 2008. Most of them will be dead before Social Security faces any financial difficulties.

1.110 As years pass, the projected so-called "doomsday" on Social Security actually has been pushing out even farther; plus even at the so-called [fake] "doomsday" citizens will get 73-81% of the benefits they were promised even if we did NOTHING today

Kevin Drum (Political Animal) has produced this useful and excellent chart. His comments on it are provided below the chart, but be aware that 2042 is NOT a real "doomsday" either! It is just the date when Social Security will cover only ~73-81% or so of promised benefits (depending on which estimate you use)! 

Chart from Kevin Drum (Political Animal): Note that 2042 is NOT a real "doomsday" either! It is just the date when Social Security will cover only ~73-81% or so of promised benefits! (depending on which estimates you use)

So Silent E, this chart's for you: a year-by-year rundown of how much time is left until the Social Security trustees predict Social Security doom. Remarkably, no matter how much time goes by, we never seem to actually get any closer.

There's a very serious point to be made here. Projections of Social Security solvency are based on projections of future economic growth, and the Social Security trustees have been systematically too pessimistic about the economy for the past decade. What's more, there are good reasons to think that they're probably still being overly pessimistic.

If that's the case, then it's probable that the system as a whole is solvent forever and that we won't even have to touch the trust fund for another 40 years — if then. And frankly, a "crisis" that's at least 40 years off and might very well never occur at all just isn't something we should be spending a lot of time on right now. Predicting economic growth within a few tenths of a point 40 years in the future is a mug's game, and trying to justify radical changes on such speculation is foolish.

Social Security is safer without private accounts than it is with them. We should leave it alone and convene again in ten years to see how things are going.

Rex Nutting pointed out the following in CBS Marketwatch:

Bush: "Most younger people in America think they'll never see a dime."

The facts: Social Security says younger people will see a lot more than a dime. Their retirement benefits–even under a "flat-bust" system–will be significantly higher than today's benefits in real terms.

For low-income Americans, currently scheduled benefits for those who retire in 2080 are $19,906 per year in 2004 dollars. If Social Security can pay only 68 percent of those benefits, that would be $13,536 per year, compared with benefits of $8,804 for low-income retirees who retired last year.

For the highest earners, Social Security is currently promising $53,411 per year for those who retire in 2080 (or $36,319 per year if Social Security can pay only 68 percent). Current maximum benefits are $21,891 per year for those who retired last year.

Roger Lowenstein also mentions this in the New York Times magazine (bold text is eRiposte emphasis):

The debate over Social Security's solvency is really two debates. The first is over how long the trust fund will last. The law requires the Social Security Administration to estimate its financial condition for 75 years into the future, and the agency's conclusions depend on the assumptions it makes about what America will look like decades hence -- how much people will earn, how large their families will be, how long they will live.

Politicians and other commentators tend to speak about these long-range trends, or at least about Social Security's finances, with an air of precision. This is almost amusing, since few economists can predict the swings in the federal budget even a year in advance. Joshua Bolten, head of Bush's Office of Management and Budget, said of Social Security last month, ''The one thing I can say for sure is that if left unattended, the system will be unable to make good on its promises.'' But the Social Security Administration itself pretends to no such certainty. Its actuaries (about 40 are on staff) frankly admit that the level of, say, immigration in 2020, or of wages in 2040, is impossible to forecast. ''The only thing we are sure of is that it won't happen precisely as we project,'' says Stephen Goss, the chief actuary at the agency. And the trustees' annual report, which is based on the actuaries' analysis, takes pains to say that it is not making a prediction. It makes a projection -- three different ones, actually -- that amount to informed but very rough guesses. The agency's best guess, labeled its ''intermediate'' case, is that the system will exhaust its reserves in 2042. At that point, as payroll taxes continue to roll in, it would be able to pay just over 70 percent of scheduled benefits. That would leave a substantial deficit, but one that Congress could easily avert if it were to act now when the projected problem is more than a generation away.

What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years.

No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate.

And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.

1.120 The long-standing myth of a social security "crisis" is based on the projection that the economy and productivity will grow much slower in the future than it has in the past (while, incidentally, privatization is simultaneously pushed using the opposing claim that stock market returns will somehow, in real terms, be much better in the future than in the past!)

Bob Somerby at The Daily Howler points out one of those occasional columns from George Will that is founded on some degree of honesty:

How gloomy are the projections of the SS trustees—the ones which Kerry and Kennedy cited? You don’t have to be a wild-eyed liberal to know their assumptions are quite pessimistic. For example, here’s George Will in the Washington Post, after saying that SS faces no “crisis:”

WILL (1/20/05): What constitutes a crisis is a matter of opinion, and everyone is entitled to his or her own. But not to his or her own facts. Here are some:

Social Security outlays may exceed revenue by 2018—that date almost certainly will recede further into the future, as it has before, as the economy outperforms expectations. After that, the government bonds that Social Security surpluses have bought (money used to fund the government) will be entirely redeemed, as the Social Security Administration calculates, by 2042. Or 2052, according to the Congressional Budget Office, using different assumptions about the rate of economic growth....

Some people warning of a distant Social Security crisis postulate 75 years of 1.8 percent annual growth. But if America has 75 such sluggish years, Social Security's insolvency will hardly be the nation's largest problem.

But the figures Will cites in that last passage are (allowing for a slight apparent mistake) the figures of the SS trustees! In other words, even Will is willing to say that the SS projections are excessively gloomy. (He also says the trustees’ projection about 2018 is “almost certainly” wrong.) But Kerry and Kennedy? Good grief! They run onto network TV, eager to use unreliable figures which cut against their party’s position.

UC-Berkeley economist Brad DeLong has this to say (bold text, except the header, is eRiposte emphasis):

Dean Baker Gives Us All a Social Security Test

He writes, apropos of Social Security:

MaxSpeak, You Listen!: DEAN RESPONDS TO SAMWICK: I have a test of my own that I have been trying to get economists to take (thus far unsuccessfully), in which I ask proponents of privatization to write down the set of dividend yields and capital gains that will give them the 6.5-7.0 percent real stock returns that they conventionally assume. Such returns were possible in the past because the price to earnings (PE) ratios have historically been much lower and profit growth was much faster. The price to earnings ratio averaged about 14.5 to 1 over the last seventy years, compared to more than 20 to 1 today. This is important, because if 60 percent of profits are paid out as dividends (or used for share buybacks), this gets you a dividend yield of over 4.0 percent with a PE ratio of 14.5 to one. It gets you just 3.0 percent with a PE ratio of 20 to 1, and of course less when the PE ratio is higher.

Let's see... Assume a payout ratio of 60%. Earnings yield of 5% per year... That gives you a dividend yield of 3% per year... That means that the profits of currently existing and traded companies (not aggregate profits!) have to grow at 3.5%-4% per year... That means that the economy as a whole has to grow at 4.5%-5% per year forever... That's much higher than the Social Security actuaries' long-run growth assumption, which heads for productivity growth of about 1% per year and very low population growth by 2050...

In other words, the stock market can attain its 6-7% per year real payoff only if the macroeconomic news in the future is much better than Social Security is projecting, in which case there's no Social Security financing problem at all.

What grade do I get?

Matthew Yglesias at The American Prospect also writes about this here:

The $11 trillion long-term Social Security deficit we've been hearing so much about lately -- and that pundits have been screaming about since, quite literally, I was one year old -- are based on a prediction that the economy will do significantly worse in the future than it has in the past. If this is right -- which it may be -- then the stock market will do worse, too, and solve nothing. Changing the underlying assumptions, which is what the privatizers are really doing, solves the problem on its own without any changes to policy.

Part of the Social Security Trustees' pessimism is warranted and based on the idea that population growth will slow down in the future. Demographic projections are never perfect, but demographers have gotten pretty good at making estimates, so this probably will happen.

Much less reasonable are the Trustees' assumptions about productivity growth. They say that after growing 3.8 percent in 2002, 3.4 percent in 2003, and 2.7 percent in 2004, productivity growth will crash to 1.8 percent in 2005 and then slowly decelerate to 1.6 percent by 2012. After that, growth will average 1.6 percent until the end of time. The historical table at the top of the Web page on which this prediction is to be found shows that productivity growth averaged 1.7625 percent from 1960 to 2000. Since 2000, annual productivity growth has averaged 2.75 percent. The postwar years up to 1960, not included on the chart, saw faster growth than did the 1960-2000 period.

The important thing to note is not that the Trustees are necessarily wrong but, simply, that it's silly to pretend to think a panel of government accountants can predict economic events in the year 2037, much less offer a full 75 projection of the future course of the American economy. The trustees might be right: An aging society might prove less innovative and less productive than the America we've come to know. If this is true, Social Security is going to have a problem. So will the stock market. So will the Defense Department. So will just about every aspect of the American government and economy. And if that happens, we'll have to figure out how to respond, ideally by coming up with policies that will boost productivity and get us out of the jam. If we can't do that, we're all going to need to tighten our collective belts -- not just on retirement security, but on all aspects of our lives -- compared with the rapid growth we've learned to expect.

In the meanwhile, we can focus on problems that we do have: a war on terrorism, a large general fund deficit, an inefficient health care system, and a decaying infrastructure. This is how we deal with other areas of public policy. We don't look at the growth in defense spending over the past few years, project it forward, compare it with the tax revenue we can expect under dubious economic assumption, and worry that we may go bankrupt in 2043. Instead, we ask if the size of our military is suited to our present defense needs, and we see if we can't mobilize the resources we need. If we can get by with spending less in the future, we'll spend less.

Kevin Drum (Political Animal) went a step further to point out how the future of Social Security would look like with more reasonable assumptions - using the Social Security Administration's own data/chart. Here is his summary and the accompanying chart from SSA.

SMOKE AND MIRRORS, PART 2....In my previous post I mentioned in passing that it's hard to come up with future projections in which (a) economic growth is bad enough that Social Security goes bust in 2042 but (b) economic growth is good enough that private accounts have investment returns of 7% annually — and thus are lucrative enough to save Social Security. This point is worth expanding on a bit.

Every year the Social Security trustees produce a 75-year financial estimate. To do this, they make estimates of population growth, life expectancy, economic performance, and so forth, and then add them all up into an overall estimate of long-term solvency. In fact, they make three estimates (see chart on right), and the one you hear about in the news is the middle one, or "intermediate projection." In that projection, Social Security starts running a deficit in 2042. The key assumptions in the intermediate projection from 2015 forward are the following:

• Labor force growth: 0.2% per year.

• Productivity growth: 1.6% per year.

• Average hours worked: no change.

Which leads to the following overall estimate:

• GDP growth: 1.8% per year.

This growth is lower than we're used to, but that's because GDP growth = population growth + productivity growth. Since population growth is slowing down, so will GDP growth.

Still, what if you assume that things will be a little more robust than this? If you project GDP growth of around 2.6% per year, you end up with Estimate I, and in that scenario Social Security never runs out of money. In fact, if you project GDP growth just a few tenths higher than 1.8%, Social Security stays solvent for the next century.

In other words, if GDP growth averages, say, 2.2% over the next 75 years, Social Security is in fine shape and we don't have to do anything. We only need to "fix" it with private accounts if GDP growth is less than that.

So here's the puzzler: for private accounts to be worthwhile, they need to have long-term annual returns of at least 5%, and 6-7% is the number most advocates use. But are there any plausible scenarios in which long-term real GDP growth is less than 2% but long-term real returns (capital gains plus dividends) on stock portfolios are well over 5%?

Privatization enthusiasts are encouraged to leave their answers in comments.

[From SSA.gov report] Figure II.D7.--Long-Range OASDI Trust Fund Ratios Under Alternative Assumptions   [Assets as a percentage of annual cost]

Kevin has a follow-up post in which he points out that the projection labeled I in the chart above is actually quite believable based on historical results.

When the Social Security trustees project the future, they actually make three projections: pessimistic, optimistic, and intermediate. The intermediate one gets all the press, but which one has historically turned out to be most accurate? Roger Lowenstein tells us today in the New York Times Magazine:

David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case — sort of a doomsday situation — was wildly inaccurate.

In the "optimistic" case, of course, Social Security is solvent forever even with no changes — as the chart on the right shows [eRiposte note: the chart that Kevin is referring to is the one on top and by "optimistic" case he is referring to the line labeled "I"]. (Note: the chart illustrates the projected health of the trust fund under all three scenarios. When the blue lines hit zero, the trust fund is exhausted. Click the chart to read the underlying details.)

1.130 What is really in crisis is the Federal Budget *excluding* Social Security - the Bush administration doesn't want people to know that massive Social Security surpluses are being used to finance the record deficits due to Bush's massive tax cuts for the super-rich and out-of-control spending on Iraq and GOP pet projects (contrary to Bush's 2000 campaign promises) 

Brad DeLong's chart provides a visual picture of what is going on:

1.131 The programs that are really raising the prospects of bankruptcy and "crisis" (in a shorter time span) are President Bush's tax cuts and the Big Pharma Welfare Bill, aka the Medicare Bill

Josh Marshall at Talkingpointsmemo offers some perspective (bold text is eRiposte emphasis):

Here is one of many comparisons and observations we'll be making to provide some counterweight to the White House's efforts to deceive the American people about Social Security.

The Social Security Trustees estimate that over the next 75 years the program faces a budget shortfall of $3.7 trillion.

As we've noted previously and will again, the Trustees use a very pessimistic estimate of future economic growth to arrive at that figure. But, for the moment, let's stipulate to that amount.

$3.7 trillion is a lot of money.

But how much will the president's Medicare drug benefit plan cost over the next 75 years?

$8.1 trillion, say the Trustees of that program.

And over the next 75 years how much will the president's 2001 and 2003 tax cuts cost if made permanent, as the president wants?

$11.6 trillion.

So you add that up and you get $3.7 trillion we need to cover Social Security's shortfall and $19.7 trillion we need just to cover the costs of the two major domestic policy initiatives of the president's first term.

And yet Social Security, says the president, is in crisis and destined to chew through the rest of the federal budget.

(These statistics are noted in this budgeting summary from the Center on Budget and Policy Priorities.)

I would submit to you that in any reasonable universe this simple comparison shatters the president's credibility on fiscal 'icebergs' and spending crises. And yet these basic facts seem to garner little notice.

That is because, in the last couple decades, in the culture of Washington -- particularly among the elite commentators and reporters (just watch Meet the Press) -- presuming that Social Security is financially unviable has become an ready shorthand for public policy seriousness, much as many use a basic knowledge of imported wines or a familiarity with classical music to signal refinement.

This is something the president is exploiting. And the defenders of Social Security must find ways to overcome it.

Angry Bear (an economist) offers this:

"Off-budget" means social security -- it's currently running a surplus of around 1.5% of GDP or over $150 billion/year. Hardly a crisis, that. The general fund, however, is running a deficit in the neighborhood of 5% of GDP. That's about $600b for 2004 (based on these somewhat dated numbers.) Now that sounds a lot more like a crisis. Of course, fixing that will require spending cuts, tax hikes, or both, so don't hold your breath.

By comparison to the malignancies in the general fund, Social Security looks quite benign indeed (this figure is based on the trustees' intermediate projections for economic performance). Social Security spending is barely projected to rise above 5% of GDP. Of course, that is a lot of money. But we would all be better served in the short to medium run by fixing the massive general fund deficit and Medicare. (And no, this monstrosity does not count as fixing Medicare; quite the opposite in fact.)

1.132 Claims that Social Security has an "unfunded liability" of "$11 trillion" are outright deception

Dean Baker, among others, has pointed this out in The American Prospect:

But the proponents of the crisis story have been largely successful in spreading fear. Part of this success is due to the use of deceptive language in framing the issue. The promoters of the crisis routinely speak of an $11 trillion “unfunded liability” for Social Security. But most of the people who hear the $11 trillion figure or use it (including reporters) probably have no idea what it means.

The $11 trillion is obtained by projecting Social Security taxes and spending for the infinite future. The gap between projected spending and taxes for all time is then summed up (using a 3-percent real-discount rate) to get a projection of $11 trillion of debt.

However, more than two-thirds of this projected debt is due to spending beyond the 75-year planning period for Social Security. This means that the debt is not something that we are imposing on our children or grandchildren. Rather, it is a debt that we are projecting that our great-grandchildren would impose on their grandchildren -- assuming pessimistic economic projections.

The basic story is that life expectancies are projected to increase through time. This raises the cost of the program through time. If taxes are never raised and benefits are never reduced, the shortfall would eventually be very large.

But serious people don’t worry about designing Social Security for the 22nd century. (The secret here is that we don’t actually get to design Social Security for the 22nd century anyhow -- the people who are alive in 50, 60, and 70 years will design the program in a way that makes sense to them. They will not care at all about what we thought was a good system in 2005.)

If we just confine ourselves to the already lengthy 75-year planning period, the projected shortfall comes to $3 trillion. This may still sound very large. However, the Social Security trustees calculate that this shortfall is 0.7 percent of national income over the planning period. The CBO projects an even smaller number, just 0.4 percent of income over the next 75 years.

By comparison, the increase in annual defense spending since 2001 has been more than 1 percent of the gross domestic product, twice the size of the Social Security shortfall projected by the CBO. And Bush’s tax increases equal about 2 percent of the GDP. In fact, rolling back Bush’s tax cuts on the very wealthiest would raise sufficient revenue to cover the shortfall for 75 years.

Incidentally it is the Bush administration that is spreading this garbage. As Josh Marshall points out at Talkingpointsmemo:

If you have a blog and can't think of a topic to dig into today, try reading through this online Q&A the White House just held with Chuck Blahous, President Bush's Social Security phase-out maven.

Listen to this exchange with "Stuart" from New Jersey (italics added) ...

Stuart, from New Jersey writes:
How can we make the transition to invester owned social security without incurring 2 trillion in dept to fund current citizans recieving assistance?

Chuck Blahous
As long as we have a Social Security system, there will be costs no matter what we do. The Social Security Trustees have told us the cost of maintaining the current system without change. It is approximately $10.4 trillion, in present value. That is the extra revenue that the system would need to have on hand today, above and beyond all payroll taxes, to meet the gap between taxes and promised benefits.

A number of comprehensive proposals have been put forward, some by Members of Congress, others by the President’s bipartisan Commission to Strengthen Social Security. President Bush has not selected a specific reform proposal. Several of these proposals would fix the system permanently while considerably reducing the cost of sustaining the system under current law.

The current system would begin its “transition” from the black to the red in 2018. From that date onward, under current law, the current system would face a deficit that is growing worse with each following year. The President has proposed that we head off this event by beginning to invest now in the future of Social Security. We can do this for far less than the $10 trillion cost of sustaining the current system.

Wow, Social Security Administration needs ten trillion dollars on hand today and it's got nuthin'. That really is a crisis!

Infinity? Today? But, hey, who's counting?

Does Blahous not think anybody's going to read this stuff?

Josh has this note as well:

The Times states the facts correctly: "Starting last year, as the groundwork was being set for the emerging debate, the Social Security trustees took the liberty of projecting the system's solvency over infinity, rather than sticking to the traditional 75-year time horizon. That world-without-end assumption generates the scary $10 trillion estimate, and with it, Mr. Bush's putative rationale for dismantling Social Security in favor of a system centered on private savings accounts."

The whole editorial is well worth your reading.

What follows also tells an important part of the story ...

The American Academy of Actuaries, the profession's premier trade association, objected to the change. In a letter to the trustees, the actuaries wrote that infinite projections provide "little if any useful information about the program's long-range finances and indeed are likely to mislead any [nonexpert] into believing that the program is in far worse financial condition than is actually indicated."

As it often does with dissenting professional opinion, the administration is ignoring the actuaries. But that doesn't alter the facts or common sense. If the $10 trillion figure is essentially bogus, so is the claim that Social Security is in crisis. The assertion that doing nothing would be costlier than enacting a privatization plan also turns out to be wrong, by the estimates of Congress's own budget agency.

I wouldn't imagine that the American Academy of Actuaries annual convention would be the one you'd want to go to for the most rockin' parties. But presumably this is a topic they know something about.

1.140 By the definition of "bankruptcy" used by privatization proponents, our military is "bankrupt" TODAY (not in 2042 or 2052) - why are there no calls to "reform" the military? Medicare is far more of a problem - how come reform advocates are not spending sleepless nights proposing solutions to that?

Matthew Yglesias notes this at TAPPED (bold text is eRiposte emphasis):

WHEN IS A BANKRUPTCY NOT A BANKRUPTCY? I was groping toward this analogy myself, but Daniel Mitchell, professor of management and public policy at UCLA (via Mark Kleiman) has the numbers:

Those seeking radical restructuring of Social Security use the word "bankruptcy" to mean that the day will come when the program's trust fund will be exhausted and its earmarked tax revenue will be insufficient to pay all entitlements. By that definition, the military is bankrupt today. We spend about $500 billion per year on the military, including veterans' payments. Yet the Pentagon has no earmarked tax revenue and no trust fund. If our indefinite entitlement to national defense were treated analogously to Social Security, the Pentagon's "unfunded liability" would be on the order of $15 trillion to $20 trillion — that's trillion! Yet no calls for radical restructuring of the "bankrupt" military are heard.

There are two points to be made here. One is that the non–Social Security budget deficit is a much more pressing concern than is Social Security's projected financial shortfall, which may not even arise depending on how things go in the future. The other is that government programs -- and, indeed, whole governments -- don't go "bankrupt" when expenditures exceed revenues. If promised benefits do wind up exceeding payroll tax receipts at some point in the future, the government can just run a deficit for a year or two while the politicians of that era decide what to do.

Kevin Drum provides an excellent comparison of Social Security and Medicare here.

Bob Somerby has more at The Daily Howler:

...almost everyone agrees that, in some sense or other, Social Security faces future revenue problems. But should we refer to this as “bankruptcy?” For the record, this situation doesn’t “sound a lot like bankruptcy” to us, the judgment our reader reports. When John Smith can’t afford to pay his full rent, people don’t normally say that he’s bankrupt. They say he should move to a cheaper apartment, or that he should take on a second job, or that he should borrow some money or sell his slick car. So no—English being our mother tongue, we don’t feel inclined to say that SS is going “bankrupt,” “broke” or “belly-up.” We think those formulations are semantic propaganda—carefully chosen formulations designed to mislead, not inform.

And make no mistake—these locutions have misled the public. For the most obvious example, consider what our e-mailer says about his own past understanding. “I have long assumed that ‘Social Security won't be there for me,’” he writes. “It appears that I was wrong.” But why did our reader ever believe that Soc Sec “wouldn’t be there” for him? Most likely, he reached this conclusion because he kept hearing people say that the system was going “bankrupt” (“belly-up”). These locutions are vastly misleading, as the e-mailer’s experience shows. Most likely, that’s exactly why the locutions were chosen as conservative talking-points.

Over the course of the past several decades, the RNC has become quite adept at formulating poll-tested bits of language—locutions baldly designed to mislead. In their 1996 book, “Tell Newt to Shut Up,” David Maraniss and Michael Weisskopf wrote a brilliant chapter on the mid-90s Medicare debate, describing how the GOP developed the language that became their great banner: No one is cutting Medicare; we’re just slowing the rate at which the program will grow. This formulation was vastly misleading; along with Standard Data the party used in its sales pitch, many voters were led to believe that the GOP plan would produce a vast increase in Medicare services, a belief which was pleasing but surely mistaken. The locutions were slick—and vastly misleading. For a full discussion of this episode, you know what to do: Just click here.

The “bankruptcy” metaphor serves the same purpose. Why must this locution be challenged? Because it has led a generation of Americans to believe things that are plainly false—to believe that Social Security “won’t be there” when they retire, for example. In his e-mail, our reader says he realizes now that he was wrong in that belief; 81 percent of promised benefits isn’t nothing, after all. But why do so many younger Americans believe SS “won’t be there” for them? The “bankruptcy” metaphor has vastly misled them. For ourselves, we’ll assume that’s why the locution was chosen. But at any rate, the locution does mislead, and that’s why it should be challenged at every turn in this debate.

1.150 The Social Security trust fund is not a "myth"; dishonest privatization proponents use the "myth" term when convenient, while dropping it when inconvenient  

Mark Weisbrot and Dean Baker of CEPR write in the Washington Post (via Maxspeak):

 "That money's all been spent": When anyone lends money to the federal government by buying a bond, the government spends it. But the government still pays interest and repays what it borrowed. That goes for the Social Security trust fund. Social Security has been running annual surpluses (now at more than $150 billion) since 1983. By law it must invest that surplus in U.S. Treasury obligations.

"But the trust fund is only holding I.O.U.'s -- just pieces of paper!" Another canard: All bonds are I.O.U.'s. Those "pieces of paper" are backed by the full faith and credit of the U.S. government, which has never, ever defaulted on its bonds.

Bob Somerby at the Daily Howler says:

Pundits love to wring their hands about those worthless IOUs in the trust fund. But please note—an “IOU” is all anyone gets when he loans money to the government! When Ross Perot buys government bonds, he expects that he’ll be repaid on schedule. But all he has is the government’s promise—a promise that becomes a “worthless IOU” when we start talking about SS. Everyone who loans money to the government receives a promise to be repaid. And no one calls this a “worthless IOU”—until we start using the slick-slippery spins cooked up to bring down this key system.

As Somerby also notes here:

But, just like the other Scary Scripts, this one is pure propaganda. Over the past twenty years, Congress has sold bonds to (borrowed money from) the Soc Sec trustees, as it has done with many other individuals and entities. Over that time, Congress has borrowed money from (sold bonds to) many sources—and everyone always gets paid back. If Congress hadn't borrowed the money from the SS trustees, they would just have borrowed it from someone else—and those parties would have been paid back too, just as everyone gets paid back, just as the trustees will get paid back. This "IOU" story is Pure Grade A Bullroar, but it's been recited about ten million times. Here’s how Baker and Weisbrot approach it:

BAKER/WEISBROT (page 29): What does it mean, then, to say that Social Security must be cut rather than that the government must meet its obligations to the trust fund? When government bonds held by Bill Gates or Ross Perot or any other wealthy individual or pension fund mature, nobody proposes that the creditors should not be paid their principle. Yet the reformers insist that the 144 million Americans who loan money to the U.S. Treasury from the Social Security trust fund somehow do not have the same claim.

Over the past two decades, the government has borrowed large sums from many sources. Everybody gets paid back. But when they think about paying back the SS trustees, scripted pundits gasp and gag, suggesting that it just can’t be done. Perot and Gates? All they have is IOUs too! But no one suggests they shouldn’t be paid. It’s just the same with these other “IOUs”—the ones the trustees are holding.

The Russerts have peddled a fake tale for years—but citizens need the full range of facts.

And here:

In U. S. News, Jodie Allen laid out a bit of the logic of these gonzo claims about the “mythical” trust fund. “[M]uch of the current sound and fury signifies less than reigning politicians may want you to believe,” she wrote. Then, remarkably, this:

ALLEN (1/24/05): Take, for starters, the myth of the "mythical trust funds."... "The trust fund is just an accounting exercise," warned Congressional Budget Office Director Douglas Holtz-Eakin recently, echoing similar cries. In fact, the extra money has been used to cover other federal spending—things like defense and education. All the trust funds hold is a bunch of treasury bonds. IOUs. Mere paper.

This is true. But, and I don't want to disillusion you too much, the same is also true of that account you have at your local bank. No, there is no lockbox full of gold bars in the bank's repository with your name on it—just the bank's promise to pay up. In fact, hold on to your hat, the whole modern economy runs on mere paper...

Duh! And let’s make that one additional point. If the trustees had kept that trillion bucks in a lockbox—if they had buried the money out on the mall—then Congress would have been forced to borrow the same amount from somebody else! In short, the government would have carried the same amount of debt. Bury the money in a gold box? Loan the money to the feds? It doesn’t make a lick of difference. Democrats need to learn to lay these points out—and they need to learn to go after sophists like Moore when they do so. Unless, of course, they just don’t care, which often looks like their problem.

Roger Lowenstein writes the following in the New York Times magazine:

The second debate concerning solvency is over whether the securities in the trust fund will be honored or whether, in Moore's pointed imagery, the fund will resemble a bank ''after it's been robbed by Bonnie and Clyde.'' This seems an odd preoccupation. Social Security does not own junk bonds or third-world debt; it invests in U.S. Treasuries, considered the safest investment on the planet. Since 1970 there have been 11 years in which Social Security has operated at a deficit; each time, it redeemed bonds from the trust fund without a fuss. Goss, the agency's actuary, says he has no doubt it will be able to do so again. ''Absolutely,'' he said when asked if the trust-fund bonds are sound.

This isn't what some conservatives have said. Paul O'Neill, the former treasury secretary, went so far as to say that Social Security has no assets. In anti-Social Security literature, the ''no assets'' contention isn't even debated; it's treated as gospel. According to Michael Tanner, head of the Cato Institute Project on Social Security Choice, the agency's pauperism has turned America's seniors into ''supplicants'': after working and paying taxes their entire lives, ''they earn the privilege of going hat in hand to the government and hoping that politicians decide to give them some money for retirement.'' The implication is that the money isn't there: graybeards will have to beg for it.

Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion. Though that is a lot of money, it could be covered by an immediate surcharge to the payroll tax of less than two percentage points, or by various combinations of tax hikes and benefit cuts, each of them quite manageable. But $26 trillion is too big a hole to fix. When I asked Tanner about the footnote, he admitted that the trustees didn't actually say $26 trillion; Tanner derived the figure by counting the cash-flow deficits that the trustees project from 2019 on out. In other words, he ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040's, won't exist, either. Tanner counts only the bad years and only the bad numbers. Another doomsayer, former Republican Representative John Kasich, pegged the Social Security deficit at $120 trillion in a recent op-ed -- some 32 times the agency's figure. (Kasich toted up annual deficits in nominal -- not inflation-adjusted -- dollars for every year through 2080, by which time a hamburger could cost $40.)

Such hyperbolic claims aside, there is a serious issue at the heart of what worries critics. It isn't that the trust fund is broken; it's that the existence of the fund is seducing the government to spend more than it otherwise would, thus brooking larger deficits in the future. Since Social Security lends its surplus to the Treasury (that's what it means to be investing in Treasuries), it is parking its surplus cash with the government. And just as lending money to a child outside a candy store may impose an impossible temptation, so the government may feel tempted while it holds onto Social Security's purse.

Ideally, Congress would recognize that the surplus is only temporary and would, therefore, take pains that the money lent to it is properly saved -- that is, that it run a surplus. But the government is operating at a deficit. So you must conclude that rather than saving Social Security's surplus, the government has been spending it -- on the military, education, tax cuts. In only 15 years, the government will have to start repaying its debt to Social Security. It will be able to do so. If need be, it will borrow, as it has borrowed for many purposes since 1776. The amount of borrowing, which could very gradually scale up to 1 or 2 percent of the country's gross domestic product, will be far smaller than the present federal deficit, which is just under 4 percent of G.D.P. But to avoid layering one deficit atop another, the government needs to exercise discipline -- to not overindulge in candy -- in the years when Social Security is running a surplus.

Kevin Drum at Washington Monthly also commented on this hoax being pushed on to Americans:

REAL MONEY....One of the most common conservative critiques of Social Security is that the Social Security trust fund is a myth. Since it consists solely of treasury bonds, it's nothing more than a promise from one branch of the government to another. It's not real money, it's just an IOU.

But that's a serious misunderstanding of what money is. It's a promise. After all, you don't think those dollar bills in your wallet or the bits and bytes in your bank account have any real value, do you? In fact, their only value is that they're a promise: a promise that you can exchange them at some future time for concrete goods and services. When people no longer believe in that promise (think Weimar Germany), money no longer has any value.

The trust fund works the same way: it's a promise to the taxpayers who filled it up that at some later date it can be used to buy goods and services. The mechanism for honoring this promise — that is, ensuring that at some point in the future the original investors get the goods and services they were promised — is to collect taxes and turn the resulting revenue over to retirees. This promise can no more be broken than the promise that the United States government accepts dollar bills as legal tender.

Still not convinced? Try this instead: how about if we sell off the current contents of the trust fund to outside investors? They think it's real, and they'd be happy to buy those bonds — in an orderly way, of course. After that was done and the money was reinvested, the trust fund would be full of stocks and corporate bonds — and voila, suddenly everyone would magically agree that it's real money.

So yes, the trust fund is real. It's a promise from the United States government backed up by its taxing authority, just like real money, and it's accepted by outside investors, just like real money. How much more real can it get?

Economist Paul Krugman has written eloquently on the dishonesty of privatization proponents in The Economist's Voice:

But the privatizers won’t take yes for an answer when it comes to the sustainability of Social Security. Their answer to the pretty good numbers is to say that the trust fund is meaningless, because it’s invested in U.S. government bonds. They aren’t really saying that government bonds are worthless; their point is that the whole notion of a separate budget for Social Security is a fiction. And if that’s true, the idea that one part of the government can have a positive trust fund while the government as a whole is in debt does become strange.

But there are two problems with their position.

The lesser problem is that if you say that there is no link between the payroll tax and future Social Security benefits — which is what denying the reality of the trust fund amounts to — then Greenspan and company pulled a fast one back in the 1980s: they sold a regressive tax switch, raising taxes on workers while cutting them on the wealthy, on false pretenses. More broadly, we’re breaking a major promise if we now, after 20 years of high payroll taxes to pay for Social Security’s future, declare that it was all a little joke on the public.

The bigger problem for those who want to see a crisis in Social Security’s future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, it’s just part of the federal budget: there can’t be a Social Security crisis. All you can have is a general budget crisis. Rising Social Secu