Deficit Hawks Should Listen to the Public on Social Security

This is the first of a series of guest posts about Social Security reform, which was organized by the Roosevelt Institute's New Deal 2.0 blog. Nancy J. Altman has a thirty-five year background in the areas of Social Security and private pensions. She is co-director of Social Security Works and the author of The Battle for Social Security: From FDR’s Vision to Bush’s Gamble (John Wiley & Sons, 2005).

Deficit hawks plotting to cut Social Security to reduce the deficit are seriously misguided. The truth is that Social Security contributes not a single penny to the deficit. Indeed, it is the poster child for fiscal responsibility.

Social Security has administrative costs strikingly lower than those of private sector retirement plans. Unlike 401(k) plans, for example, whose administrative fees are routinely 15 or 20 percent of plan contributions, Social Security’s administrative costs are less than one percent. It returns in benefits more than 99 cents of every dollar collected.

Moreover, Congress has been scrupulous about paying for every Social Security benefit it has ever enacted. To meet the anticipated higher retirement costs of the baby boom, workers and their employers have contributed more over the past few decades than has been needed to meet current costs. These higher contributions have, as intended, resulted in an accumulated surplus in 2009 of $2.6 trillion, a surplus which is projected to grow to $4.3 trillion by 2023.

To ensure that all benefits will always be paid in full and on time, Social Security’s Board of Trustees annually reports to Congress on how the program is projected to do over the next three-quarters of a century. Obviously, projections extending so far out in the future will sometimes show deficits or, for that matter, unintended surpluses. The simple, mundane truth is that the actuaries refined some of their assumptions and methodologies in the 1990s and began, as a consequence, forecasting a manageable deficit over the 75-year valuation period. These constantly-evolving long-run projections, part of the program’s prudent, conservative management, demonstrate that Social Security is closely monitored, a fact which could and should reassure the American people about Social Security’s reliability. Instead, the fact of a projected manageable shortfall, still decades away, has been used in exactly the opposite way, to convince the American people, against all evidence, that Social Security will not be there in the future.

The shaken confidence produced by hyperbolic rhetoric surrounding every release of quite ordinary trustees reports has been exacerbated by the cavalier tone of today’s deficit hawks toward the legal requirement that Social Security’s revenue be used exclusively for paying benefits and related expenses. Today, there is talk about cutting Social Security to reassure the bond market. Indeed, Federal Reserve Board Chairman Ben Bernanke, among others, has explicitly invoked the name of the notorious bank robber, Willie Sutton, to assert that Social Security should be cut “because that’s where the money is.”

These arguments are stunning. Reassure bond holders by defaulting on government obligations purchased with funds deducted from the pay of workers and backed by the full faith and credit of the United States? Act like a bank robber and take money that is paid by, and is held in trust for, hardworking Americans and their families?

Today’s effort by policy elites in Washington to raid Social Security will simply result in greater anger by the electorate against Washington – as well it should. Poll after poll has made clear that a large majority of Americans -- Democrats, Republicans, Independents, young, old, tea partiers, and union members alike -- are united in support of Social Security. The American people overwhelmingly want the deficit hawks to keep their hands off Social Security. They want policymakers who value Social Security to restore it to actuarial balance without benefit cuts and without raising the retirement age, as a number of policy experts have advocated.

The deficit hawks should listen to the people they have been elected to serve. On the subject of Social Security, they just might discover that it is the people, not the politicians, who know best.

Comments

[Pensiongeek]

Thanks, I needed a good laugh today.

But, seriously, The SSA Trust Fund is a collection of IOU's from the federal government. The program has worked so far because the cash inflow from current workers has exceeded the outflows of benefits. Congress has been spending the difference and adding IOU's (Treasury Notes) to the supposed trust fund. Saying Social Security is in good financial shape is like saying someone who withdrew their life savings, spent it all and then wrote themselves an IOU is in good financial shape.

When Social Security's cash inflow drops below the cash outflow for benefits, it's time to turn in some of those IOU's in the "Trust Fund". Where do you think the money is going to come from to pay off those IOU's? I guess they could just sell more Treasury notes and let our grandchildren figure out how to pay for it.

If anyone other than the federal government was running Social Security, they would be imprisioned for running a Ponzi scheme.

[Frank Katz]

Where to start. I'm afraid that I have only been in the Pension field for 30 years so I may not have quite the perspective of the author. Some facts:

The ratio of workers to retirees is shrinking. This means that fewer contributions are coming in relation to the benefits going out. This will not be a problem in the immediate future, but ultimately it will be.

There is no trust fund, the earlier comment is correct in that regard. But as far as I am aware, to date the US Government has never defaulted on an obligation. Yes, general funds will have to be used to repurchase those notes, but that is all part of the interest (and, in this case principal) on the National Debt.

People are living longer. When Social Security was first passed, the life expectancy of a worker was around age 65. Now, it is well over 75. Therefore, benefits are being paid longer than originally expected. People are also working longer. A small tweek like raising the retirement age from the current phased 65 - 68 to, perhaps, 65 - 70 would save quite a bit of money and hurt virtually no one.

Finally, the biggest laugh of the original article was the comparison of Social Security's administrative costs to that of 401(k) private plans. There are over 2 million participants in Social Security. Many 401(k) plans have under 20 participants. Talk of the ecomomics of scale!!

[David]

You're kidding, right?

"They want policymakers who value Social Security to restore it to actuarial balance without benefit cuts and without raising the retirement age..."
This is an actuarial oxymoron. Just wanting it to be balanced does not make it so. If the author will review the actuarial literature, it becomes obvious that the single most important change needed to achieve balance is to raise the retirement age.

[Another Actuary Speaks]

What the author really says is:
RAISE TAXES!

[Julie Walker]

From my understanding of FICA, it is not a tax on wages, but a mandated savings account. I have paid into this 'savings account' for most of 40 years and now the Obama administration wants to use my savings as leverage to gamble on getting Republican support for a bill that would raise taxes on the rich, with MY nest egg? How is this any different from what the Banks did in '07/'08 with depositors funds when they created the current mess?

[Another Actuary Speaks]

To Julie Walker - you were told that it looks lika a mandated savings account. But plenty of people have paid taxes and then died without receiving any benefits because they were too young. Sorry, this is just an income transfer program from workers to retired people, one in which the eventual income to the retiree has some relationship to the taxes paid.