Doesn’t Social Security Pay for Itself, Since It’s Taken Out of My Paycheck?
Paul Solman answers questions from NewsHour viewers and web users on business and economic news most days on his Making Sen$e page. Here’s Monday’s query:
The following email comes via the PBS Ombudsman:
Name: Phyllis Koch
Question: I am constantly frustrated as I listen to your interviewers and commentators talk about deficits/budgets/where to cut and always including Social Security. Social Security is always mentioned as part of the budget when in fact it is a “stand alone” program which pays for itself and in fact the payroll deductions are separate from tax withholdings.
The last several administrations going back to at least Reagan and probably further have constantly borrowed from the Social Security trust fund in an attempt to either balance or reduce their deficits. It is not Social Security payments that cause budget problems, it is the government borrowing from Social Security that covers up some of the borrowing. The trust fund has enough money to [keep] going for a decade or more, but not if it is used to cover other deficit problems. I am sure both Mr. Brooks and Mr. Shields are aware of this.
If your own reporters and commentators would look at their own payroll stubs, they would see this is a different program, it is old-age insurance into which we all pay & for which there are no exceptions, loopholes, tax breaks or whatever.
I continue to be concerned that [the] PBS news department brings in too many people with an ax to grind rather then give an accurate picture on whatever the subject might be.
I do not expect your moderators to have every fact in hand but somewhere you must have a large enough research department to clear up glaring discrepancies if for no other reason to make sure that what is discussed has some semblance of factual accuracy.
I continue to be a supporter of PBS and I still believe you have some of the best programming but please, keep accuracy as a major goal. Thank you for your time.
Paul Solman: We thought this issue worthy of something more than a one-to-one response.
Yes, as Phyllis Koch points out, Social Security can be considered a “stand-alone” program, separable from the rest of the government budget.
But no, for the most part, it does not “pay for itself,” nor was it designed to.
Social Security was created as a “pay-as-you-go” system, with current workers paying for current retirees. The “pay for itself” component — the “trust fund” — was initiated in 1983 on the advice of the Greenspan Commission. The idea: set aside enough money to cover an expected (temporary) shortfall as the wave of baby boomers started retiring around 2010, a wave that would grow disproportionately to the pay-as-you-go workforce.
Nor, technically, does the government “borrow from the trust fund.” If its expenses are greater than its revenues, it simply borrows. Period. The greater the gap, the more the borrowing.
We paid a visit to the trust fund a few years ago to explain its workings as graphically as possible. For those who don’t wish to relive our 2001 trip to Parkersburg, West Virginia, here’s the nub of what we found: file cabinets filled with photocopies of U.S. Treasury bonds — the same bonds held as investments by banks, individuals, the Chinese and every other risk averse investor out there.
In other words, the trust fund is owed money by the government, just like any holder of Treasury IOUs.
Or, as President Bush put it in Parkersburg in 2005: “There is no ‘trust fund,’ just IOUs that I saw firsthand, that future generations will pay — will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs.”
(And/or, he ought to have added, in devalued U.S. dollars.)
It is true, of course, that the Greenspan Commission concept has been violated from the very outset. When the amendments authorizing the trust fund were signed into law by President Reagan in 1983, they included a provision to be accounted for “off-budget.” So the reported budget balance does not include the Social Security account — the billions supposedly being socked away or, in the term of a few years ago, protected in a “lockbox.”
This is of course your point, Ms. Koch, when you write about “borrowing from Social Security”: the lockbox has indeed been raided, in the sense that the money in the trust fund was never really set aside or meaningfully protected.
In a 1990 story for the NewsHour, the late great economist Paul Samuelson suggested diversifying the trust fund’s holdings – into stocks, for example. The effect would have been funds isolated from government debt. The downside of that approach, which President Bush did not mention in Parkersburg: PAST generations would have paid — in higher taxes, or reduced benefits, or cuts to other critical government programs. Or a larger, more honest, reported national debt.