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.