Once more into the breach! How many times do facts have to be mustered to show that Social Security is NOT a Ponzi scheme? Eleventy? Well, this is the first time I have tried it, anyway. [Cross-posted from my occasional blog, Change the Debate.]
In this relatively short piece I cover all the salient facts, with links to sources, of the true financial status of Social Security.
So, for the eleventy-twelfth time: Social Security is NOT a Ponzi Scheme!
Please spread this far and wide. All facts and figures not immediately cited can be found in the sources listed at the bottom. I know that it's probably too much to ask some people to wade through the original source documents, but these are the facts on Social Security.
Many of my most reasonable friends buy into the myth that Social Security is in deep trouble. It's so accepted and commonly heard amongst major media talking heads, not to mention Republican politicians. In the debate held 9/7/11 at the Ronald Reagan Presidential Library, Rick Perry notoriously labeled Social Security a "Ponzi scheme" and "montrous lie."
What are the facts about Social Security's solvency?
Well, Social Security continues to be in better shape than everything else in government. It has run a surplus not a deficit for the majority of its years in existence.
Reasonable entities (meaning parties like the Congressional Budget Office not right-wing hysterics) assure us that Social Security will continue to be able to operate paying full benefits for the next 25 years. After that it is true that there will be a period in which more would need to be paid out to retirees than Social Security would have. It is projected that the monies coming into Social Security (combined payroll tax collection and interest on the Trust Fund), beginning in about 2038 2036, would only cover around 80% 77% of benefits (revised due to the bleak economy affecting Social Security Trustees' 2011 report). The government could choose, if it so wished, to make up the remaining funds with deficit spending. Screeching conservatives seemed to have been fine with using debt to pay for wars, tax giveaways to the wealthy, and everything else for years and years! But Social Security is a different matter. One, Republican politicians hate it. And, two, it was always designed to be self-sustaining -- not to require federal financing. All it would require to make Social Security last forever would be to raise the income cap. Today Social Security withholding is only taken on the first $106,800 of income. Everything earned above that is exempt from the Social Security system. That cap is abitrary. Setting it at a higher level, or removing it entirely, completely solves the Social Security "crisis." *
"We're living longer so it only makes sense to raise the retirement age at which Social Security kicks in."
Sounds reasonable, right? Only if you do not examine your assumption one bit. The thinking that "we're living longer" is due to the fact that we are not dying younger. The two are not quite the same thing. For example, during a period in which total life expectancy at birth rose 22 years for men, "a young adult in 1969 could expect a retirement only 5.5 years longer (13.8 years) than a 20-year-old in 1919 (5.8 years)" [Center for Economic and Policy Research pdf]. Which is not to say that 5.5 years (times millions of retirees) is nothing. But not dying at younger ages also translates into more years spent working and thus more total money paid into Social Security. The authors of the CEPR study raise the question, do more years lived and worked take the same toll on an office worker as a coal miner? Do we want 66-year-old firemen?
Moreover, according to Lawrence Mishel of the Economic Policy Institute, longer life expectancies at retirement age are, not surprisingly, unevenly distributed according to wealth. In 1972, a 60-year-old man in the bottom 50% of wage earners could expect to live until age 77.7. At the same time a 60-year-old man in the top half of income earners would on average live about a year longer, to age 78.9. In 2001, the average life expectancy of a 60-year-old man in the bottom half of the earnings distribution had increased by less than two years, to 79.6. Meanwhile, the life expectancy of 60-year-olds in the top 50% of income earners -- in which we can safely place all the politicians and media personalities who casually advocate raising the retirement age -- rose to an impressive 85.4, six and a half years longer than they lived in 1972 [see graphic].
Finally, I'd like to liberally (how else?) draw from Sen. Sanders' editorial and other sources on the matter in an attempt to remind all of us why Social Security exists in the first place and why we should remain committed to supporting it.
Quick facts in defense of Social Security:
Before Social Security over half the elderly in America lived in poverty; with Social Security less than 10% do.
In the entire history of Social Security, no matter the prevailing economic conditions, the program has always met its obligations 100%. Are other savings vehicles equally sound?
Social Security, by design, contributes not one penny to the deficit.
Social Security returns more than 99 cents of every dollar collected to beneficiaries. Privately managed 401(k) plans typically charge 15% to 20% in administrative costs.
Last but not least, Social Security unlike the rest of the federal government continues to make money, due to the interest earned on its massive Trust Fund. It ran a surplus until 2010. Due to the lagging economy, money paid into Social Security was less than that paid out by $49 billion in 2010 and an estimated $46 billion for 2011. The difference was made up by the Trust Fund which currently totals about $2.4 trillion. Despite running deficits in 2010 and 2011, the total assets of the Social Security Trust Fund continue to grow, due to interest earned. By 2023 it will have a surplus of over $4 trillion. [Social Security Administration: 2009 | 2011]. *
Attackers say that the money in the Social Security Trust Fund does not exist -- a "Ponzi scheme" was the offensive term chosen by Republican 2012 presidential frontrunner Rick Perry. The Social Security surplus is held in Government Treasury bonds. Remember the debt ceiling debate? That was over the ability of the U.S. Government to continue to meet its financial obligations to bond holders. If the U.S.A. continues to pay (as it always has) its debts to foreign governments and banks and investors, then Social Security does have a huge surplus. If Republicans insist that U.S. Government debts are imaginary, then lights out, everybody! If Social Security is a "Ponzi scheme" then the entire world economy is a Ponzi scheme! There may be many Americans who hold that view, that the global markets are a giant house of cards. The Ron Pauls of the world, decrying phantom paper money in favor of a return to gold, most likely feel that way. I would venture to guess that most American citizens are closer to my view, the particular systems of world commerce may not be perfect but they are not illusions. Goods and services are produced and exchanged in a relatively efficient manner for the benefit of all (at least, those who can afford them). Are the new-and-deproved extreme GOP up for destroying all that? I sometimes wonder.
Sources:
Defending Social Security. Senator Bernie Sanders (I-VT). The Hill, 3/02/11.
"More on Raising the Retirement Age." Ezra Klein. Washington Post, 7/08/10.
"To Deficit Hawks: We the People Know Best on Social Security." Nancy Altman. New Deal 2.0, 6/14/10.
Lawrence Mishel. Economic Policy Institute.
Top 5 Social Security Myths. MoveOn.org.
Straight Facts on Social Security [pdf]. Economic Opportunity Institute.
Social Security and the Age of Retirement [pdf]. Center for Economic Policy Research.
Operating Budget Actuarial Table. Social Security Administration.
Trustees' Report. Social Security Administration, 2011. *
* Stars indicate new content added since this diary was first published, to reflect the most recent (and more bleak) information contained in the 2011 Trustees' Report. That's the way living in the reality-based community works!