Social Security was largely ignored over the course of the past election, but it will draw more scrutiny now that the votes have been counted.
A great deal of that focus will come from fiscal conservatives who are concerned about the level of the government’s debt. They want to rein in spending, and the program’s size makes it a relevant target.
Make no mistake, the government has a significant financial challenge with debt. Separately, Social Security has a large structural imbalance in its financing mechanisms. While it is tempting to conflate these concerns, these are really two separate problems — both of which deserve attention, just not in the same sentence.
The issue in Social Security is the level of unfunded obligations. These are promises to future retirees for which the system is less than likely to generate cash. This sum is cash that, under current law, will not be spent at all. The national debt, on the other hand, refers to cash that has already been borrowed to cover the gap between the government’s past spending and its past revenue.
The problem of our debt is the amount of money that we have spent. The problem in Social Security is the amount that we will not spend, which according to the trustees will exceed 20 percent of benefits starting in 2034. These aren’t the same thing.
Social Security’s direct contribution to our national debt is tiny. The program collects modest subsidies from the general fund, primarily from the revenue collected from the taxation of benefits. Since inception, the system has received about $600 billion in debt-creating subsidies.
Nonetheless, pundits and politicians alike want you to believe that Social Security is a driver of our nation’s debt problem. The Committee for a Responsible Federal Budget, for example, claims “those deficits (since 2010) have totaled nearly $450 billion and this year alone will exceed $70 billion.”
Break-out the green eyeshade.
They are talking about a deficit in which the math simulates a world where Social Security is a profit and loss center for the rest of the government. Excess payroll tax revenue didn’t purchase bonds at all. The money was siphoned away and spent elsewhere. In this world, there is no excess cash, or interest earned upon excess cash.
While this reasoning is accepted by some, the trustees of the Social Security trust funds point out that it does not conform to current law. Specifically, the Social Security Act prohibits any expense from the Old-Age, Survivors and Disability Insurance Trust Funds not related to the payment of benefits or administrative costs of the program.
This argument dates back to 1983, when Congress followed the recommendation of the Greenspan Commission. That board said, “The national commission believes that changes in the Social Security program should be made only for programmatic reasons, and not for purposes of balancing the budget.”
Today, we are living the commission’s nightmare. The Committee for a Responsible Federal Budget argues that we need benefit cuts in the program so that Social Security can offset spending elsewhere in the budget. This is what the commission meant by changes to benefit levels for nonprogrammatic reasons.
So, the root question here is what happened to the excess cash created by Social Security between 1983 and 2009. The Committee for a Responsible Federal Budget’s numbers assume that the money was used to pay other expenses of the government. The numbers from the trustees suggest that money was used to buy government securities, which have earned nearly $1.7 trillion in interest.
There may be sound reasons to lower benefit levels, but debt isn’t one of them.
Congress could set benefit levels to zero, and it would not change our deficit or debt level by a dime. The only difference would be the amount of cash that is funneled to the Social Security trust fund.