Thursday, January 27, 2011

The Associated Press Packs a Bunch of Lies About Social Security into a News Report

The insidious ways that conservative narratives bleed into our mainstream economic discourse as objective truths is a dominant theme in my book, and this story by the Associated Press's Stephen Ohlemacher -- ostensibly a piece of reporting rather than opinion -- is one of the most egregious examples I've encountered.

Check out the lede:
Sick and getting sicker, Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037, congressional budget experts said Wednesday in bleaker-than-previous estimates.
Is it "sick"? Social Security has $2.5 trillion in T-Bills sitting in a trust fund, is financed through 2037 and if nothing were to change it would still be able to pay out higher benefits than it does today, indefinitely.

Is it getting sicker? Well, the 2000 Social Security Trustees's report (PDF) projected that the trust fund would run out in ... 2037. But the 1997 report (PDF) expected the trust fund to be depleted by 2029 -- 8 years earlier than currently projected. So in that sense, it's "healthier" today than it was 13 years ago.

More from the AP's thinly veiled editorial:
The massive retirement program has been suffering from the effects of the struggling economy for several years. It first went into deficit last year but had been projected to post surpluses for a few more years before permanently slipping into the red in 2016.
This year alone, Social Security will pay out $45 billion more in retirement, disability and survivors' benefits than it collects in payroll taxes, the nonpartisan Congressional Budget Office said.
OK, this is just incredibly dishonest. Let me explain why.

When he says the program is "in the red" what he's talking about is that current tax revenues being paid into the system have fallen below current benefit payments. Which should be unsurprising with wages stagnating and an unemployment rate of 9.4 percent.

But what's unsaid is that the Social Security's revenues aren't limited to current tax receipts, thanks to the interest earned on those T-Bills in the trust fund. They earned 5.1 percent in 2008, and 4.8 percent in 2009.

When you include that earned interest, as any honest reporter must do, the program has not "gone into the red," and -- if we define "going into the red" as total annual outlays exceeding total income, including interest income -- it won't until at least 2018, according to the Trustees' latest report (PDF).

Yes, the Trust Fund grew last year, is growing this year, and will continue to grow for several more years, until it reaches a projected $4.2 trillion dollars.

Back to the AP misinforming the public:
That figure nearly triples - to $130 billion - when the new one-year cut in payroll taxes is included.
Congress has promised to replenish any lost revenue from the tax cut, but that's hardly good news, either, adding to the federal budget deficit. In another sobering estimate, the congressional office said government red ink this year will increase to $1.5 trillion, the most in U.S. history.
Could any ordinary citizen reading that possibly know that, by law, Social Security's financing is separate from the rest of the federal budget, and that the program has not added a single penny to the deficit?

These are two wholly separate issues -- there's Social Security's financing, which has been in surplus since 1983, and then there's the federal budget, which is in deficit because of the downturn, tax breaks showered on the wealthy and trillions in war spending. (Note: unlike the Social Security program, we don't have a War Trust Fund with its own dedicated revenue stream.)

The AP then turns the program's greatest strength into a weakness. Behold the sleight-of-hand:
Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 - unless Congress acts in the meantime.
No, Congress could raise taxes to cover the shortfall anytime -- nothing need be done in "the meantime."

But more to the point, this narrative ignores the fact that the Trust Fund had a specific purpose: to ease the glut of baby-boomers entering the system. As I wrote in September, it "was a far-sighted act of governance."
At the time, the oldest boomers were 37 years old, and the youngest were just 19. In 2037, when the fund is projected to be tapped out, the oldest baby boomers still kicking will be 91 and the youngest will be 73 years old. Not to be morbid, but given that the life expectancy of Americans is 78.1 years today, that means that the “glut” of baby-boomers receiving benefits will be receding in the nation’s rearview mirror. In other words, the trust fund will have done exactly what it was intended to do.
This point never seems to wind up in the conversation.

But it gets even worse, as Ohlemacher advances perhaps the most dishonest spin in the entire debate -- that the trust fund is not a huge pile of T-Bills, but just "IOUs" -- that the funds have been "borrowed" by the government.
The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment, with interest.
Again, this conflates two wholly separate issues. Let's run it down.

The national debt is (approximately) $14 trillion. None of that debt is a result of Social Security, which is fully funded and has run surpluses for years.

The federal government issued $14 trillion in T-bills to cover its budget shortfalls -- that's the national debt. It exchanged those $14 trillion in T-bills for cash (which it spent on programs other than Social Security).

It must pay back that cash, with interest, as those T-bills are redeemed. So, yes, it borrowed money -- it borrows money by issuing Treasury Bills, which are held by individuals, institutions and governments.

One of those institutions happens to be the Social Security Administration -- $2.5 trillion of those T-Bills were exchanged for cash paid into Social Security by workers (and the interest is earned). Which is good, as it's a safe investment for the surpluses that have been generated. They couldn't just stick those trillions under a mattress. 

But those T-Bills could just as easily have been exchanged for cash from China, or from private pension funds -- there would be no difference at all.

That would have happened if there had never been a Social Security program in the United States. The $14 trillion in debt would be exactly the same -- it doesn't matter who holds the T-Bills.

All of the above is why the deficit has nothing to do with SS -- they are two completely separate issues being conflated by the "entitlement crisis" crowd. And no "neutral" reporter should ever write a story that simply carries their water for them. 


Anonymous said...

THANK YOU! Will spam this far and wide.

By the way, have you checked on Irwin Kellner's CBS Marketwatch pieces from 2005 and thereabouts? He patiently explained therein that so long as the US economy averages at least 2.7% growth over the long run, Social Security never runs out of money. Period. And guess what? During the period of 1929-2004 (years including the whole of the Great Depression), the average growth of the US economy was 3.6%! However, the not-so-trusty Trustees keep using incredibly low-ball growth estimates that would require the US to be in permanent, country-killing depression for them to be real.

Anonymous said...

See also this:

Joshua Holland said...

Thanks, phoenixwoman. I'll check those links out.

I think it's fair to assume that GDP growth won't equal the period that included the post War boom. But there are also all kinds of demographic assumptions in the projections that are equally dubious.

Consider giving this piece I wrote about the Trust Fund a look, and here's a great one looking at the demographic assumptions by Doug Henwood.

Joshua Holland said...

I have a whole section of my book on that one. Yes, let's project it out over the "infinite horizon."

Anonymous said...

Thanks! Will check out more of your stuff. I've definitely got to blogroll you.

Meanwhile, here's the key Irwin Kellner piece, from Feb 8, 20005:

And here's the meat therefrom:

The actuaries assume that the U.S. economy will grow by an annual rate of 1.9 percent per year over the next 75 years. This is far below the 3.6 percent average of the past 75 years -- a period that includes the Great Depression.

The system's actuaries have a somewhat more optimistic projection. It assumes, among other things, a slightly faster rate of growth of 2.7 percent per year over the same period.

While this, too, is below the economy's 75-year average, it shows that the system never runs out of money. That's right, never.

George Fulmore said...

The Basics:
$10 billion - The amount, on average, that our federal government spends every day of the year.
$6 billion - The amount, on average, that our federal government collects in revenue every day of the year.
$4 billion - The amount, on average, that our federal government adds to its total debt and has to borrow every day of the year.
$1.5 trillion - The current projected annual deficit for the federal government, due to the difference between its annual spending and its annual revenue.
$14 trillion - The total federal debt at the beginning of 2011.
$15.5 trillion - The total federal debt projected for the end of 2011.
$17 trillion - The total federal debt projected for the end of 2012.
$45,000 - The debt, per every U.S. resident, resulting from the total federal debt at the beginning of 2011.
$5,000 -- The approximate debt to be added each year to the obligation of every U.S. citizen, if the projected annual federal deficit of $1.5 trillion, per year, continues.

The Entitlements:
The “entitlements” of Social Security and Medicare have little or nothing to do with the federal debt. The federal payroll is the dedicated funding source for these programs.
Social Security, which has a Trust Fund that currently holds about $2.5 trillion, has not added a dime to our federal debt. Each year, this Trust Fund receives approximately $200 billion in interest payments. Its annual balance increases or decreases because of this, plus or minus any annual surplus/deficit in the payroll tax revenue.
Medicare also is funded by the payroll tax, but it is also supplemented by premiums paid for Part B and Part D by Medicare beneficiaries. And, it receives funding from the general fund of approximately $200 billion per year.
The Options:
Spending Reductions: Significant reductions in federal spending are not likely in the near future. Too much of the federal spending is connected with “sacred cows.” Many do not want reductions to costs connected with “national security.” Many do not want reductions that would eliminate federally funded jobs, especially in U.S. communities that heavily depend on jobs with the federal government.
Increased Revenue: It is said that federal tax revenue is at a 30-year low, when compared with the nation’s overall economy. Revenue from corporations has been reduced significantly. People in the U.S. have been led to believe that they are paying “enough” in federal taxes. But they are not. Most in the U.S. suffer from “deficit denial.” Most in the U.S. do not realize the magnitude of the current annual federal deficit.

Implementation of the recommendations in the ”THE NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM (of December 2010),” also known as the Simpson-Bowles Deficit Plan, offers a comprehensive set of suggestions for federal financial reform. This document appears to be the best hope we have to turn our “deficit denial” around. The document can be found via the following link:
Continuation of our annual federal deficit of $1.5 trillion per year is unsustainable. This requires us to, essentially, find a way to take out and maximize a new credit card every year just to pay our bills. Every year the per-person debt for U.S. residents increases by approximately $5,000. Again, the continuation of our annual federal deficit of $1.5 trillion per year is unsustainable.
We cannot “grow” our way out of this problem. Reducing our federal spending, even by hundreds of millions per year, will not solve our problem. Only a combination of a reduction of federal spending over time, plus significant increases in federal revenue soon, will solve our problem. Again, the recommendations from the Simpson-Bowles Deficit Plan document would appear to be our best hope. These should be implemented by the end of 2011, if at all possible.