Debt and Social Security:

The Venn diagram with no center

Today, Friday, February 18, 2011, Morning Joe spent most of its time discussing the protests over Wisconsin Governor Scott Walker’s plan to require public sector union members to pay a higher percentage of their salaries toward health care and pensions. His plan also eliminates the ability of public sector unions to negotiate with the state, a truly undemocratic thing to do. The discussion was balanced, but it became heated at times.

One of the show’s great strengths is that its guests come from across the ideological spectrum. It is a guarantee that on any given day Morning Joe will have both conservative and liberal guests. That is something that few other cable news shows can boast.

One of their guests today was former National Republican Committee Senior Advisor Terry Holt. The panel’s discussion shifted temporarily from the fiscal situation in Wisconsin to the fiscal situation in Washington. Holt stated, “If you look at what we promised to do in Social Security, over time, it is a mushroom cloud of debt.” He then went on to suggest that Congress make small reductions in the Social Security benefit scheme and for politicians to stop using Social Security fear-mongering to get elected.

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I strongly agree with Terry Holt’s positions on Social Security. In fact, if you add raising the cap on income that is subject to the Social Security payroll tax, than that is my position. Unfortunately, his claim that in the long run Social Security will become, “a mushroom cloud of debt” isn’t true.

Social Security currently has a surplus. In fact, it has a 2.5 Trillion dollar surplus (NPR). That’s trillion with a “t”. In layman’s terms it has a two and a half million million dollar surplus. That’s a lot of money. Social Security taxes will continue to be larger than Social Security payments for a few more years. After that, the surplus Social Security has accumulated will be used to make up the difference between costs and revenue. The non-partisan, non-ideological Congressional Budget Office projects that the Social Security trust funds [the surplus] will last until  2039 (CBO p 15). If Social Security isn’t tinkered with before then, Social Security benefits would be cut by about 20 percent to match the yearly revenues (CBO p11). In short, Social Security doesn’t have the legal authority to go into debt. Therefore, it cannot, in the short or long term, add to the deficit. Social Security and the debt are two completely separate topics. To say otherwise is intellectually irresponsible.

But that’s not quite the end of the story. The Social Security trust fund is invested in government treasuries (NPR). Essentially the government borrowed it, just as it borrows money from China. Like all borrowed money, it was spent. The rest of the government used that money to pay for everything in our discretionary budget: the Department of Health and Human Services, the wars in Iraq and Afghanistan, the EPA, and so on. There appears to be some uncertainty whether that money will be paid back. It is horrific to even think that it wouldn’t be, because Congress could easily borrow money from China to pay back the loan if it couldn’t pay it back any other way. But that borrowing won’t be due to Social Security, but to the other things that were initially paid for using borrowed Social Security money. Blaming this part of the deficit on Social Security is like trying to blame our debt on China, it blames the lender for the money it allowed us to spend.

So no matter how you slice it, Social Security will not contribute to the national debt. There is no doubt that we ought to try to fix social security. But let’s not confuse the issue. There is the debt crisis and then there is Social Security. The former will never be the result of the latter.

Sources

CBO. "Social Security Policy Options." Congressional Budget Office, July 2010. Web. 18 Feb 2011. <http://www.cbo.gov/ftpdocs/115xx/doc11580/07-01-SSOptions_forWeb.pdf>.      

NPR. The Friday Podcast: In Search of the Social Security Trust Funds. Planet Money. National Public Radio, 12 Nov 2010. Web. 18 Feb 2011. <http://www.npr.org/blogs/money/2010/11/12/131281247/the-friday-podcast-in-search-of-the-social-security-trust-funds>.




CORRECTION: It sucks to do a correction on a factcheck. This article used to describe Social Security as a, "0 interest credit card." In fact the tresuries in the Social Security trust fund do collect interest. (Politifact)