Tuesday, June 12, 2012

Can we just tell the truth about Social Security?

Periodically some politician or talking head on TV wails about our national debt and the "need to do something about programs like Social Security and Medicare."

As a nation, we owe almost $14 trillion. Not a single dime of that debt is due to Social Security! Froma Harrop of the Creators' Syndicate wrote a great column a few days ago reminding us of the truth about Social Security.

"Social Security is an independent, self-funding program. It is not welfare. The workers and their employers pay for all of it. About 25 years ago, Social Security taxes were raised above that needed to support current retirees and the surplus put in a trust fund. The goal was to create a buffer to keep the program healthy as the number of retirees grew and lived longer."

Here's where Social Security intermingles with the national debt. As with the money in the NYS Teachers' Retirement System, the money in the Social Security trust fund will eventually be needed to pay benefits earned by retirees. In the meantime, what should be done with the money? Should it be invested in stocks or real estate in the hopes that it would grow? No, we're looking for a much safer investment, so we buy U.S. Treasury bonds. They don't pay spectacular returns, but they're rock solid. In fact, they're known as the "widows and orphans" investment because of their safety.

Meanwhile, the government is spending more than it takes in in taxes, and so politicians are delighted to see this purchase by the SS trust fund. Of course, others buy Treasury bonds as well. If you believe the late-night comedians, you would think that China owns all our debt. Let's see who we really owe the money to:

The biggest chunk of our debt, 42.1%, is owed to "U.S. individuals and institutions." I own some U.S. bonds, and you probably do too. Maybe not directly, but you may own shares in a mutual fund that does. The college you attended may have parked some money in treasuries for safekeeping. We buy treasuries because we can't think of a safer investment. You and I count these investments as real dollars in our portfolios and we expect these debts to be honored. We do not see these bonds as mere "worthless pieces of paper." They are IOU's which we fully expect to be paid.

The Social Security trust fund accounts for the next biggest share, 17.9%. As with the 42.1% above, these are real investments which the trust fund expects to be honored.

11.7% of our debt is owned by foreign nations (with the exception of China, Japan, England, the oil exporting countries and Brazil). China owns 9.5% of our debt (probably much less than you thought). Japan, 6.3%. 6% of our national debt is money borrowed from the U.S. Civil Service Retirement Fund, 1.4% is owed to England, 2.1% is owed to the U.S. Military Retirement Fund, 1.6% to the oil exporting countries and 1.3% is owed to Brazil.

None of the above investors--including the Social Security trust fund--sees their investments as "worthless IOU's." Now back to Harrop:

"Left alone, Social Security can pay all promised benefits for the next 20 years, and can continue doing so with some minor adjustments, such as raising the cap on income subject to payroll taxes."

"The Social Security Trust Fund is a big piece of change, and by declaring the Treasury securities sitting in it "worthless pieces of paper," our right-wing politicians can throw the obligations overboard in the service of more tax cuts for the rich -- with the added bonus of killing off a program they never liked much. Often citing some scuzzy accounting methods applied to the surplus, they tell us, "Whoops, the money has been spent."

"Well, duh, all the money the Treasury borrows has been spent. That's why it borrows money. Every bond it issues to investors across the globe represents a debt. And if the Treasury hadn't been able to borrow that money from the trust fund, it would have had to borrow more from the public."

Social Security did not cause one cent of our federal deficit, so let's stop talking about reducing Social Security benefits as a way to "fix the deficit."

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