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5 Myths About Social Security Often Accepted as Facts

Image: 5 Myths About Social Security Often Accepted as Facts
The Social Security Administration office in downtown Los Angeles, on October 1, 2013, in California. (Frederic J. Brown/AFP/Getty Images)

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Wednesday, 05 Jul 2017 10:16 AM Current | Bio | Archive

The discussion of Social Security has degenerated into a shouting match in no small part because ideology is more important than fact in any exchange.

Pundits are more interested in the sound of the bite than its accuracy. As a result everyone has a fact that is someone else’s myth. The consequence is fairly simple. We have polarized stalemate in which victory is claimed by the person who can shout the loudest.

Here are 5 staples of the debate that are entirely untrue.

1. Social Security has not added one penny to the deficit.

By law, Social Security is not "counted" toward the deficit. That does not mean that the program does not collect general fund subsidies which contribute to the deficit on a dollar-for-dollar basis.

According to the Social Security Administration, (see source), the General Fund has contributed more than $500 billion to Social Security, not including the cost of financing. Every penny of that subsidy created an offsetting penny of deficit.

2. Social Security can pay every penny of benefit to every eligible American for 17 years.

This myth stems from a contradiction in the 2016 Trustees Report. On one hand, the Trustees clearly warn Congress that the estimates have a high degree of uncertainty in their forecast. On the other hand, they use language that suggests a degree of infallibility that is normally only granted to the Pope.

Here is the statement that from which the myth starts:

"Social Security’s combined trust funds increase with the help of interest income through 2019 and allow full payment of scheduled benefits on a timely basis until the trust fund asset reserves become depleted in 2034."

The language omits the conditional: if the economy cooperates. That is a huge uncertainty.

Here are the facts. We have no idea how long Social Security will pay full benefits. On page 192, the Trustees affirm that the system has a coin flip's chance of paying scheduled benefits in full in 2034.

3. Social Security is going/is not going bankrupt.

As usual, everything about the issue of Social Security comes down to the meaning of words. In this case, bankrupt is an emotional trigger to describe the automatic reduction of benefits.

Under current law, most of the experts expect Social Security to pay a depleted level of benefits. Some pundits refer to this process as "bankruptcy" or "being broke." It is largely emotionally driven hyperbole, which is designed to collect shares on Facebook.

Social Security cannot go "bankrupt" because the program does not have legally enforceable obligations. If Social Security benefits were legal obligations, then the system would already be "bankrupt." The fact that you may continue to collect some percentage of your benefits is irrelevant to the discussion of Social Security and the concept of bankruptcy.

4. Social Security is a driver of our long term debt.

Social Security’s immediate concern is the automatic reduction of benefits that start sometime in the 15-20 year time frame. That sum reflects money that will not be spent under current law. As worrisome as the prospect of automatic benefit cuts is, not spending money will not drive our debt level higher.

Today the general fund subsidies (see myth #1) run around $30 billion. That is less than 1 percent of our total spending. That subsidy is not driving our nation’s debt.

5. The government has raided the Trust Funds to pay for other programs.

Typically this myth refers to the process by which the government borrows money from Social Security.

A couple of facts: Social Security receives better terms on its loans to the government than private pensions get. The fact that the securities are not marketable is a matter of common sense rather than a concern. These securities have a redemption option on demand that makes the marketability of the securities little more than a straw dragon. The Trustees of the program do not have a loan loss reserve, meaning that they expect the repayment including interest in full by the government.

In short, if the money has been raided, the Trustees of the program are unaware of it.

Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.

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The discussion of Social Security has degenerated into a shouting match in no small part because ideology is more important than fact in any exchange.
social security, myths, deficit, bankrupt
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2017-16-05
Wednesday, 05 Jul 2017 10:16 AM
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