Shaheen is Right: Social Security Doesn't Contribute to the Nation's Debt
By Nancy Altman and Stephen Gorin
PolitiFact, the widely cited fact checker, recently criticized U.S. Sen. Jeanne Shaheen for stating that Social Security “’has not contributed to the debt and the deficits’” (11/27/12).
However, Sen. Shaheen is right and PolitiFact is wrong.
By law, Social Security cannot spend more than it takes in. It can only pay benefits if it has sufficient income to cover the cost. It has no borrowing authority. According to the most recent report of Social Security’s Board of Trustees, Social Security had a $69 billion surplus last year alone. Far from increasing the deficit, Social Security loans funds to the federal government that reduce the deficit.
While the relationship of Social Security to the debt of the United States is a source of misunderstanding and confusion, it is not a matter of conjecture or opinion. By law, when Social Security has a surplus, it must invest that surplus in the safest investment on Earth – interest-bearing Treasury obligations backed by the full faith and credit of the United States. Including last year’s surplus, Social Security currently has an accumulated reserve of $2.7 trillion.
Just as the law requires that employers keep assets from their pension trusts carefully accounted for, separate from their general operating funds, so the law requires that the assets of the people’s pension – Social Security – be held in trust separate from the general fund of the United States. The Social Security contributions deducted from the paychecks of America’s workers, and matched by their employers, are funds dedicated to the exclusive purpose of paying for Social Security; they are held in trust for the beneficial use of working families.
The individuals PolitiFact consulted are wrong in stating that “the interest payments earned by Social Security only amount to a reshuffling of government dollars.” If the federal government borrows money to pay off its obligations to Social Security, it owes more to the general public but less to Social Security. This does not add to the deficit, nor change the debt obligation of the United States. Rather, as the economist Dean Baker has pointed out, it “simply changes the identify of the owner of the debt.”
For those used to thinking about Social Security as just another spending program and Social Security contributions as just another tax, the fact that Social Security does not and cannot contribute to the federal debt and deficit may seem counterintuitive, but it is true.
In a matter of months, the federal government will reach the debt ceiling, or the limit on the amount of money it can borrow. Cutting Social Security’s expenditures or increasing its income will not reduce the amount of debt subject to that limit. This sharply differs from cuts to expenditures from the government’s general fund, such as agricultural subsidies or defense.
If a program paid for from general-fund revenue were cut by $100 billion and nothing else changed, the federal government’s borrowing needs would go down by $100 billion. As a consequence, the federal debt would also go down (or more realistically, given the current large deficits, would go up less than it would have, without the cut). If the savings from that hypothetical cut were offset dollar-for-dollar by a cut in income taxes or an increase in other expenditures funded from general revenues, the federal debt subject to limit would be unchanged.
In stark contrast, if Social Security benefits were cut by $100 billion, the federal debt subject to limit or total debt would remain unchanged. If the $100 billion savings from cutting Social Security benefits were offset dollar-for-dollar by a cut in income taxes or an increase in general-revenue spending, the total federal debt would increase!
Cutting Social Security’s benefits does not reduce by a penny the federal deficit or the total value of debt instruments issued by Treasury. The only way to reduce the amount of federal debt the Treasury issues is to reduce the expenditures of the government’s general operating fund or increase its income.
In short, Sen. Shaheen is right. We thank her for her comments and urge her to oppose any deficit reduction bill that includes cuts to Social Security.
Nancy Altman She is the co-director of Social Security Works and served as assistant to Alan Greenspan in his position as chairman of the bipartisan commission that developed the 1983 Social Security amendments. Stephen Gorin is executive director of the New Hampshire Chapter of the National Association of Social Workers.
steve forte
1:17 pm on Wednesday, December 19, 2012
Social security is one of the easier fixes out of all that ails us. Problem is , no one has the guts to do it.
David Pittelli
4:29 pm on Wednesday, December 19, 2012
If you call a tail a leg, how many legs does a dog have?
Four, because calling a tail a leg doesn't mean it is one.
David Pittelli
4:32 pm on Wednesday, December 19, 2012
The combined shortfall for Old-Aged and Survivors and Disability Insurance (OASDI) trust funds was $36.8 billion (page 453, Table 28-4) in 2010. It rose to $48 billion (page 465 Table 28-4) in 2011. Those figures are from the White House’s Office of Management and Budget.
The nonpartisan Congressional Budget Office in a January 2012 report estimated that the 2012 shortfall will be $59 billion — rising to $76 billion in 2013, $86 billion in 2014 and $86 billion again in 2015. The CBO does not project beyond 2015 because “CBO projects the DI trust fund will be exhausted during fiscal year 2016.”
http://factcheck.org/2012/11/durbin-again-denies-social-securitys-red-ink/
J. Hathaway
6:36 pm on Wednesday, December 19, 2012
Could you please tell me what the definition of an unfunded liability is? Most corporate pensions are underfunded by as much as 50%, so you telling me that pensions must be properly accounted for is a lot different than saying that it is solvent.
Additionally, the ponzi scheme (I really mean SS Trust fund) that I pay into currently is paying out benefits to people who receive SSI currently. It isn't banking those funds for my retirement, all it is doing is writing a big IOU saying that I MAY pay you when you retire. If you look at demographics, you will see that over the next 10-15 years, there will not be enough people paying into the system than will be collecting from it. Therefore, I have no reason to see how your thesis holds any water at all.
Plus I would like to add a simple match equation for you. If a person retires at the current age of 67 and lives till they are 85, they will be collecting on average about $800/month for 18 years, for approximately 180K will be paid out to you over your lifetime. At an average of 50K (I bet I'm high on this) @ 6.2% for 40 years, you will have only paid in approximately $120K into the system. That is a 60K deficit alone with that person. The fact is is that average life expectancy is going up (thank god), allowing people to live productive working lives well into their 70's. Fundamental reform of either reducing benefits or increasing the retirement age is critical in keeping this ponzi scheme going!!!
No Longer interested
7:45 pm on Wednesday, December 19, 2012
Ronald Reagan, way back when, also said that Social Security does not contribute to the National Debt. He said pretty much the same thing Senator Shaheen has said.
One Man Wolf Pack
7:48 am on Thursday, December 20, 2012
Back then the demographics were different.......read Hathaway's post above.
No Longer interested
1:33 pm on Thursday, December 20, 2012
Not relevant.
One Man Wolf Pack
10:17 am on Friday, December 21, 2012
How is it not relevant when then money currently being paid into SS is already being used to cover current expenditure of SS?
Regardless of missmanagement of funds, a simple demographic swing could defund the whole thing by simply having less people working than people who are retired.....which is not exactly out of the scope of reality when you thin about the baby boomer generation retiring.........
Charles Hatch
10:37 am on Thursday, December 20, 2012
Social Security is not nor has it ever contributed to. the Debt , Senator Shaheen is 100% correct.
The only danger to Social Security is republicans.
Just the Truth
12:23 pm on Thursday, December 20, 2012
Hey everyone, the Social Security uses its funds to buy US securities (the "interest-bearing Treasury obligations" in the above opinion piece.) That means, the US government (taxpayers) owes money to Social Security. Owing someone money means that you have a debt. Stop with the rhetoric. Shaheen was wrong.
salemvoter
12:25 pm on Thursday, December 20, 2012
1 + 1 does not equal 3. Its that simple. To say that Social Security does not contribute to the debt is absurd. Last year Social Security payments to recipients was greater then Social Security monies recieved from contributers. Social Security had to "call" the loan to Treaury to make up the difference. The Treasury didn't have the money so they tried to borrow it by selling bonds. China wouldn't buy the bonds because the interest rates were too low so the Fed printed money to loan it at O percent to the Treasury- and the author calls the Fed printing money "the safest investment on earth".
Remember the last debt crisis in Aug 2011 and President Obama saying Social Security checks may not go out. Quote ""I cannot guarantee that those checks go out on August 3 if we haven't resolved this issue, because there may simply not be the money in the coffers to do it," Obama said in an interview on the CBS Evening News Tuesday evening.
Social Security does contribute to the debt because that money has to be paid back. If you borrow 100 dollars from yourself, are you 100 dollars richer?
the machinist
6:10 am on Saturday, December 22, 2012
yep...I said the same thing. Your response was much better,
Seamus Carty
5:02 pm on Thursday, December 20, 2012
Gee, who to believe: Jeanne Shaheen, the director of the New Hampshire Chapter of the National Association of Social Workers, or Politifact?
"Mostly False"
http://www.politifact.com/new-hampshire/statements/2012/dec/10/jeanne-shaheen/social-security-doesnt-contribute-national-debt-sa/
steve forte
4:55 pm on Friday, December 21, 2012
Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.
http://www.ssa.gov/oact/trsum/index.html
ForThePeople
5:08 pm on Friday, December 21, 2012
Why does the author ignore why Social Security contributes to the deficit?
The short answer: by investing Social Security surpluses in United States treasuries, interest is paid out of the general fund to Social Security. In effect, you are moving money out of the general fund into Social Security by doing this investment.
End of debate. And for the record, I support Social Security.
salemvoter
5:41 pm on Saturday, December 22, 2012
What Social Security surpluses. There has been no surplus for the last 2 years. As a result Washington has to borrow, or print money, to pay back the monies they borrowed from Social Security. Washington still nmeeds to fund the other programs as well. Washington use to fund the other programs with the surpluses they borrowed from Social Security. That revenue stream has dried up. So, in addition to borrowing moneyto pay back the loans to Social Security, Washington has to borrow from other sources to fund the other sources. China will not buy our bonds because the interest rate is too low. So, Washington, through Quantative Easing, has simply printed money out of thin air to meets its obligations.
ForThePeople
10:27 pm on Saturday, December 22, 2012
There most certainly was a surplus while the boomer generation was growing up. That's where the investments came from. Do you know anything? About anything?
Arthur Clough
5:12 pm on Friday, December 21, 2012
The interest income is basically the return on investments in surplus years. What is the investment? US Government Bonds. Where does US government bond interest come from? It comes from taxes or other US holdings. It's artificial interest, just like the NH State Retirement program has. It's a shell game that ignores that the investment interest is really government funded interest. The NH retirement interest rate is not what they make based on investments. It's a mandated rate for the return on contributions for the pensioners. If all investments loose money, the interest rate is still earned, but the return is paid for by the taxpayer. The government relies on its citizens not paying attention.
the machinist
5:26 pm on Friday, December 21, 2012
http://www.cbsnews.com/8301-503544_162-20078789-503544/obama-says-he-cannot-guarantee-social-security-checks-will-go-out-on-august-3/
"I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it,"
Stephen D. Clark
3:59 pm on Saturday, December 22, 2012
Republicans have been trying to stick a knife in the back of Social Security since the days of Roosevelt and Truman. It would be much easier for them if they can get Democrats to do it instead.
Stephen D. Clark
5:25 pm on Saturday, December 22, 2012
You like Social Security? Then thank the Democrats. We created it.
Republicans have hated it for decades.
salemvoter
5:36 pm on Saturday, December 22, 2012
When Social Security was enacted the average life span was 65 years old. You could not collect Social Security until you reached 65. Democrats may have created Social Security but they did not expect anyone to collect it for a long time. Democrats have also "borrowed" every excess dime in Social Security and spent it on other programs.
Stephen D. Clark
9:33 pm on Saturday, December 22, 2012
Social Security is sound.
http://www.epi.org/press/news_from_epi_social_security_is_financially_sound_epi_report_finds/
StraightTalk
9:01 pm on Saturday, December 22, 2012
The Democratic assumption is that every problem gets fixed by spending money on it. They try to put things into nice little comfortable buckets and pretend that they aren't connected. Just wait until the healthcare mandates fully kick in. Be prepared for massive inflation as our currency deflates and contraction of our economy as we are taxed into oblivion. You can't pretend that it's 1999 and 2000 and that we have an overheated dot com economy. We are dragged into the global recession and our counterparts are cutting back while the Democrats are trying to use the power of positive spin to conjure a miracle. You can say a mantra to yourself all day and tell your cancer to go away but when your body consumes itself the mantra will be pretty useless. Time to swallow some very unappealing medicine, like it or not.
Dane Frederick Hoover
9:08 am on Sunday, December 23, 2012
Shaheen's wrong, and you Democrats, complaining about private funds being under funded, how much money is in actual funds for private retirements and hire much is actually in accounts got Social Security?
Social Security ZERO DOLLARS! But $3.5 trillion collected spent and $17 trillion in promised benefits.
Private pension funds have $16 trillion of REAL money in INDIVIDUAL accounts.
Social Security was ALWAYS a slush fund for politicians. FDR from the first day LIED to the people about it purpose. While IN SPEECHES he said ths money would be put away for you, he called it a tax to the supreme court so he could immediately spend it from the general fund. He like current politicians over spent, over promised, and instead of making hard choices passed the bill on to future generations.
Dane Frederick Hoover
9:34 am on Sunday, December 23, 2012
No courage in Obama or most politicians to do what is right and reduce the deficit and it of control spending! No deal from either party will do anything to reduce the debt currently but at least the Republicans plan slows the rate of increase in debt.
Since 2006 when democrats took house and senate and have controlled at least 2 of the 3 branches of government the yearly deficit climbed from an embarrassing $161 billion a year to record MONTHLY HIGH OF $223 billion! In that month if you read the article below the federal government spent $333 billion while only taking in $107 billion!
(2007 budget was last budget Republicans passed with control of white house, House and Senate. Democrats have had lead since and drove spending way beyond our means!)
http://www.reuters.com/article/2007/10/11/usa-budget-idUSWBT00770120071011
http://online.wsj.com/article/SB10001424052748704823004576192791330273986.html
Nelson L
11:55 am on Sunday, December 23, 2012
This article is all about semantics. Social Security will be insolvent by 2033 ( http://www.pbs.org/newshour/bb/business/jan-june12/socialsecurity_04-23.html ) Even if it doesn't contribute to the national debt, it is contributing to the debt of all the individuals who are mandated into paying it. There are alot of young people out there including myself who could benefit from not having to pay for something for which I won't be seeing a single penny of. Having Social Security automatically deducted from my paycheck is a DEBT I wish not to incur. The president needs to allow for those younger than a certain age the option to opt-out.
To put it simply, Social Security is a government sanctioned ponzi scheme. Bernie Madoff couldn't of done it any better.