Why the Language Surrounding Social Security Matters

Over the past few weeks I've talked a bit about Social Security, focusing in particular on whether or not Barack Obama believes there is a crisis in the Social Security system. To get a brief idea about why this matters, take a look at the AP's David Espo:

Three years after the collapse of President Bush's plan for private Social Security accounts, Republican presidential contenders are eager to try again. Not so the Democrats, who gravitate toward increasing payroll taxes on upper-income earners to fix the program's finances.

With the notable exception of former Sen. Fred Thompson, a Republican, presidential hopefuls in both parties shy away from suggestions that might offend their own primary voters. As a result, bipartisan commissions to resolve the program's long-term financial problems are in. And longer waits for retirement are most definitely out.

Thompson's proposal, by contrast, includes lower-than-promised benefits for future retirees, as well as new private accounts to make Social Security solvent for 75 years. "If somebody's got a better idea let them put it on the table," he said recently, daring his rivals.

Of course the Social Security program is not truly insolvent -- it will pay full benefits for at least the next 30 to 40 years, and even then it will pay out a greater amount to beneficiaries than it does today (adjusting for inflation) -- and the relatively small long-term defecit that the program does have would not be plugged by taking money out of the system, as Fred Thompson and just about every other Republican presidential candidate suggests.

But the problem with the DC-driven debate in the country today is that these two facts are not taken as gospel. Instead, pundits talk about a "crisis" in the program as a way of drumming up support for an overhaul that will include a partial or complete privatization. As I noted before but I'll repeat again, siphoning off money from the program to create private accounts wouldn't do anything but worsen the long-term deficit in the program, but that's no matter to those on the right -- their hope is not to maintain the program but rather to gut it.

The good thing is that the American people quite overwhelmingly reject both the notion that Social Security is in crisis and that a partial privatization plan should be implemented. But if Democrats begin to grease the wheels towards a "compromise" (potentially including private accounts) by talking about an urgent problem or a crisis facing the program, this could change. So it's terribly important that the Democrats don't embrace Republican talking points in this debate -- both because of the potential of great problems that could result from giving into the Republicans here and, fundamentally, because there is no crisis.

Tags: 2008, Barack Obama, Social Security, there is no crisis (all tags)

Comments

23 Comments

Social Security Matters

The "crisis" in Social Security is way overblown. If the economy grows at the same rate it has for the last 100 years - roughly 3% - and not the less than 2% the doom and gloom crowd uses, there will not be a shortfall. There are much more pressing issues to be addressed before Social Security.

by common sense ranter 2007-11-24 11:07AM | 0 recs
Re: Why the Language Surrounding Social Security M

This Paul Krugman piece remains the definitive word on Social Security.

I am really, really disappointed in Edwards and Obama for getting it wrong on this important issue.  The fact that they view it as a key distinction from Clinton may end up being a disqualifier in terms of my vote.

by Steve M 2007-11-24 11:09AM | 0 recs
Re: Why the Language Surrounding Social Security M

I dont know about Edwards but Obama is the most deluded individual in the USA. If the GOP demagogues immigration, Dems must demagogue social security.

by Boilermaker 2007-11-24 11:57AM | 0 recs
Obama and Social Security

I'll say it again .. like I did a few weeks ago ..  for whatever reason .. Obama is following the David Cameron playbook ..  he took an issue no one was thinking about .. and used it to bolster himself in the polls to distinguish himself from his rival .. I can't speak for the wisdom of whether the issue Cameron chose is important to every day people in the UK .. but Obama showed a lack of judgment with Social Security .. especially due to the "Village" wanting to do away with it .. and create a crisis.

by Calvin Jones and the 13th Apostle 2007-11-24 12:59PM | 0 recs
Re: Why the Language Surrounding Social Security M

"But the problem with the DC-driven debate in the country today is that these two facts are not taken as gospel."

Can't you see how ridiculous that sounds to me as a progressive, open-minded, educated person to be told to accept something, anything, as "gospel"? Especially a prediction about something as complex and unpredictable as the solvency of the Social Security fund in 2050?

Settled facts in my mind are limited to things that have already happened. Everything else is a prediction, subject to rational analysis and argument. And "crisis" is just a word, and a subjective one at that.

I don't think it's that helpful to act as though you're 100% sure that there is no problem when I know for sure that you're not. Nobody could be. Will you personally guarantee that if it's not there when I retire, you'll make up the difference for me and all of my peers?

Valid or not, as a Gen X-er, I've never been confident that Social Security will be there when I retire in, yes, "30 or 40 years". I've thought this since way before Bush's second term. I don't need a calculator to look at my parents and their siblings and all of their friends to know that there's a lot of Baby Boomers out there and they're going to live long lives.

I would feel much more secure about my future and the future of my country if I was more confident that Social Security was going to be solvent to perpetuity. Now I absolutely agree that cutting benefits or privatization should be off the table. But Barack Obama has suggested a very fair, progressive, simple and reasonable way of addressing the issue: just raise or get rid of the salary cap on the payroll tax, which I find fundamentally regressive and unfair in the first place.

Not to cast aspirations, but I do wonder how many of the Krugman-types who are trying to convince us that there is no crisis actually themselves benefit from the cap?

by dmc2 2007-11-24 11:16AM | 0 recs
Pitting Progressives Against Each Other

Much of what the SS privatizers have tried to do is pit progressives against each other -- Baby Boomers against Gen-X and Millenials, rich versus poor. Don't help the Right by doing this too.

A crisis is a bad event that is happening now or will happen soon. There is no Social Security crisis. If you want to worry about a crisis worry about the Iraq occupation and how it inspires terrorists to attack us, Bush launching a military attack against Iran, the looming economic recession, worsening global warming, the demise of US manufacturing. All of these are crises or may be very soon.

I join you in supporting the elimination of the income cap on Social Security payments. But we don't need a "crisis" to make this change. A "crisis" just helps the Republicans/privatizers destroy SS.

By the way, I also think we should go back to age 65 for normal retirement. Most people start having age-related health problems by age 65 (even active, healthy baby-boomers) and many need to retire. But this isn't a "crisis" that requires privatization either.

by RandomNonviolence 2007-11-24 11:37AM | 0 recs
Re: Pitting Progressives Against Each Other

I don't see getting so worked up over the semantics. None of those things you mentioned are really crises or maybe they all are. The Cuban Missile Crisis was a true crisis -- act now or we're all dead. Everything else is just a policy discussion -- which way should we go going forward. I personally wouldn't use crisis to describe any of it, but I realize that advocates always use the term to describe their particular issue, be it AIDS, drugs, war or anything else. What are you gonna do, that's the nature of political rhetoric?

Also, believe me it's not about pitting one generation against the next. I love my parents and all of their friends and siblings. It's just that it's clear to me that at the time they were born, everyone was having lots of babies. In my own generation and those younger than me, it's clearly not like that (other than immigrants, who generally don't make very much). So it's clear that for the next 30 or 40 years there's to be fewer workers and more retirees. Not to mention that our economy is going down also.

by dmc2 2007-11-24 12:06PM | 0 recs
Re: Why the Language Surrounding Social Security M

Raising the cap now makes the problem worse, not better.  It's not a rainy day fund.  All you do is worsen the problem caused by the general fund deficit.

There are, of course, things that could happen which would prevent you from receiving your benefits when you retire.  Our currency and economy could collapse altogether.  Republicans could take power and privatize the system or slash scheduled benefits significantly.  But there is nothing that can be accomplished by Obama's plan or anyone else's to make these problems disappear.

I cannot say with 100% certainty that you or I will receive our benefits when the time comes.  But I can say with 100% certainty that the correct policy prescription right now is to do nothing.  Not 99%, 100%.

by Steve M 2007-11-24 12:08PM | 0 recs
Re: Why the Language Surrounding Social Security M

I've heard it before, but I really don't understand this line of reasoning. Educate me on why putting more money into the fund doesn't help keep it into solvency farther into the future.

by dmc2 2007-11-24 12:21PM | 0 recs
Re: Why the Language Surrounding Social Security M

Steve M.:

Thinks that somebody making 300,000 dollars per year having 2/3rd's of his/her income exempt from social security taxes is okay where as, those making 100,000 dollars or less have 100% OF THEIR INCOME subject to the social security tax is okay. I think it is regressive.

by BDM 2007-11-24 12:35PM | 0 recs
Not rocket science, but not easy either.

Well it is not easy to explain.

Try thinking about the nature of a savings account, or an insurance policy, or a corporate bond. In each case you give the bank or the insurance company or the company via your broker real cash dollars, in return you get a promise to get that money back with interest, with or without a physical piece of paper to serve as a marker. But that money doesn't just sit someplace, the bank or the insurance company or the company puts that money to work with the plan of earning a premium over what they have to pay out if and when. In a very real sense there are no dollars in your savings account at all, 'money in the bank' does not mean actual physical dollar bills in the bank.

The Social Security Trust Fund is not much different, they take any surplus income over cost and lend it to the General Fund. If Social Security is running a surplus as it is today pouring more money into it simply means making bigger loans to the General Fund and so increasing future claims on the General Fund. Now if that extra source of funding was actually being used in ways that increased the ability of the General Fund to repay the money borrowed it would be one thing but it isn't. Instead it simply enables the government to subsidize current spending and tax cuts without necessarily growing the economy going forward.

The ability of the General Fund to meets its obligations after Income excluding Interest lags cost (currently projected at 2017) and when all Income lags Cost and the principal has to start being repayed (currently projected for 2023) is entirely dependent on revenue being earned in those years. Now certainly an increased tax on wages delays the dates of shortfall and depletion but it is difficult to see why taxing the professional class for the benefit of the investment class makes sense from the perspective of the average wage worker today.

If the extra taxes paid could actually be shown to being invested in a way that leveraged returns to the General Fund then we might be tempted, but nothing in current financial policy shows that to be the case. Instead the extra flow of funds subsidizes a certain current sub-set of Americans (the investment class) while simply increasing the obligation of future taxpayers to repay the interest owed on the excess funds.

That is you need to flip the question around. Why should we who paid all this extra money in not expect to start drawing it out in our lifetimes? I mean that was the point. I understand that keeping the excess contributions collected to date and then boosting that to new levels makes it easier on the taxpayer in 2041 or points thereafter, but where is the equity in that equation?

As the situation sits today Boomers have paid our way. In 2041 the median Boomer will be 84 which is to say slightly over the life expectancy in that year.
http://www.ssa.gov/OACT/TR/TR07/V_demogr aphic.html#wp194031
The ten years after that should sweep most of us off the planet. Why ask us to pay more now when we have plenty in the bank already?

by Bruce Webb 2007-11-25 08:30AM | 0 recs
Re: Why the Language Surrounding Social Security M

Obama is Joey's 'boy' on this issue like many other. If you vote for him you are not a Democrat.

by Pericles 2007-11-24 11:50AM | 0 recs
Re: Social Security an impending disastewr

When you remove the fictional convolutions of intragovernmental voodoo accounting, all that matters is the size of the tax revenue compared to expenditures. In the case of the social insurance programs, this is an impending disaster. According to the 2007 report (Table VI.F9) from the board of trustees, the combined cost of social security and medicare begins rising faster than revenue in 2010. While the social insurance programs are still running a positive balance at this point, the government will have to increase its borrowing to make up for the shrinking net revenue source (the "surplus" which is spent on non-social insurance programs). By 2015 this net revenue source dries up entirely, as social security and medicare combined begin running a deficit. Past 2015, the social insurance programs become an accelerating source of total government debt. By 2035 the annual social insurance deficit is projected to be 1.5 trillion dollars, ballooning to 6.3 trillion dollars in 2060. Economic growth (5.6% annually averaged over the last 2 decades) doesn't even begin to cover this increase in expenditure. According to an August 2007 GAO report, a 90% increase in income taxes would be required to balance the budget in 2040. A terrorist could only dream of causing damage on the scale of this self inflicted fiscal disaster.

The two possible ways of fixing this problem, increased taxes and/or reduced benefits, both require sacrifice. Politicians realize the road to high office is paved with promises of handouts in the form of debt funded tax cuts or new programs. Honesty about a necessary sacrifice is political suicide, which is why this issue will not be substantively discussed in the current campaign or any other. You cannot tell conservatives that we need to pay more in taxes, and you cannot tell liberals that we need to cut benefits, not if you want to win an election. Unlike most of the non-issues which dominate political theater, this one has real and unavoidable consequences. This a problem which requires people to give up their short term "what's in it for me right now" mentality and look at the long term greater good. My guess is that nothing will be done until the checks stop coming. I hope I'm wrong.

by BDM 2007-11-24 12:53PM | 0 recs
Conflation of inflation

The relevant tables are not VI.F9 but instead VI.F7 and VI.F8 which address OAS and DI which together make up Social Security.

Claiming that 'Social Security is an impending disaster' because once you add HI to OAS and DI  it is in imbalance makes no more sense than claiming that 'Social Security is an impending disaster' because once you add scheduled defense spending in it is in imbalance. There is no such program as SocialSecurityMedicareMedicaid, if we have some sort of impending crisis in medical expenditures the answer is to address medical costs, not to put a band aid on the problem by raiding senior retirement security.

(By the way the date of depletion for HI got pushed back a full year in last years Report, continuing a trend that has been going on for a decade. Relying on dates plucked from table VI.F9 that ignore the poor historical track record of the Trustees on this is maybe not the solidest way to go on this topic.)

by Bruce Webb 2007-11-25 08:44AM | 0 recs
Why it doesn't matter (on this issue)

In 2005, President Bush made privatizing Social Security his signature domestic issue of his second term, screaming crisis along the way.  He had majorities in the House and Senate, screaming crisis along the way.  How far did privatization get?  Nowhere, NO WHERE!  Privatization is deader than Julius Caesar.

Even if Democrats said there was a crisis, where is your evidence that this would mean a greater probability of privatization?  It didn't happen during the 1980's fix.

My question for you: Do you believe there is a real problem with Social Security or not?

If no, be a straight talker and tell that to the 92% of Americans (per the October, 2007 CBS poll) who think it is in crisis (30%), in serious trouble (36%) or some trouble (26%).

If yes, what are your solutions?  Kick the can down the road?  

I think your larger point is to not let Republicans get away with framing issues using hyperbolic scare language.  On this we agree, but Social Security is a weak example.  

by mboehm 2007-11-24 01:02PM | 0 recs
Re: Why the Language Surrounding ....

There is a way to "fix" Social Security without raising taxes or cutting benefits -- increase economic fairness.

The fact is that revenue projections are based in large part on assumptions regarding the amount and distribution of wages -- and one of the most effective ways of increasing revenue to the trust fund is raising the minimum wage, and the more income is distributed through wages to people making less than the "cap", the more money SS takes in.

by plukasiak 2007-11-24 01:43PM | 0 recs
What the actuaries say.

The problems facing Social Security, when placed in the context of the enormous US economy, are not nearly as daunting as they might seem when presented in stark dollar terms. In the 70-year history of Social Security, the tax rate has increased from 2 to 12.4 percent of taxable payroll;the estimated increase required to fund the current system over the next 75 years is far less. Further, the need for such tax increases can be reduced, or even eliminated, by changes in benefits and other features; and any required changes can be phased in gradually. Does this mean we can do nothing and just wait to see what develops? While waiting will not destroy the system, there are advantages to acting now.

Waiting until the last minute to make changes is not a good idea. Enacting changes under pressure can lead to inequities, intended or not, in the distribution of benefit reductions. It does not give current beneficiaries or workers near retirement whose benefits will be reduced ample time to change their retirement plans. This, in turn, can lead to needless dissatisfaction with and loss of confidence in the system. With a longer lead-time, changes can be designed with greater care and introduced more gradually. Although a longer lead-time may not change the ultimate level of benefit cuts or tax increases required to eliminate the deficit, reductions introduced over time can be less abrupt and therefore less onerous to those who have planned accordingly.

The 2007 report also projects that trust fund expenditures will exceed tax income beginning in 2017. If this occurs, Social Security will start putting demands on the U.S. Treasury to begin redeeming securities held in its trust funds. Thereafter, the projected cash flow shortfall will rise, reaching 5.20 percent of payroll for 2081. All this assumes that future demographic and economic experience will follow the intermediate assumptions and that the Social Security Act is not changed. Given the uncertainty of the future over the next 75 years, many other reasonable scenarios are possible. The projected exhaustion date for Social Security's trust funds may be over three decades in the future, but Social Security still faces long-term financial problems. The need for timely and effective action to make Social Security not only solvent, but also sustainable, is demonstrated by the findings in the trustees' report. The sooner reforms are enacted, the more gradual and flexible they can be, and the more advance notice can be provided for those who will be affected.

I copied the conclusions of two reports from their professional organization.

http://www.actuary.org/socsec/index.asp

by misscee 2007-11-24 03:20PM | 0 recs
Well that is the problem

All this assumes that future demographic and economic experience will follow the intermediate assumptions
The intermediate assumptions have proven to be too pessimistic over the last decade and on examination seem likely to be too pessimistic over the short run going forwards (2007 to 2012). If we hit the Low Cost assumptions or anything close to them the problem either vanishes or is pushed back by decades.

You can calculate the Cost of Inactivity on Social Security with precision. Doing Nothing has the same net effect as a tax cut, it leaves current dollars in your wallet which can then be used for current utility or invested for the future. Whereas you can make an informed estimate of what delay for a year would cost over the long run. If Social Security were really in crisis then each year of delay should make the cost of the fix going forward to be larger, instead the problem continues on trend to shrink and get shoved out farther in time. There is every reason to believe that the trend shown in this table will continue. EPI: Changes in Trustees Projections over Time. Now it is true that these numbers fluctuated some in the 2005 to 2007 time frame, on paper the situation is marginally worse than it was in 2004 (the end point of the table). But a close up examination of the numbers shows that we can expect the revealed trend to continue going forwards. At a minimum there is a solid argument for taking a wait and see approach to Social Security.

There is in fact no solid reason to simply assume the Intermediate Assumptions, they have been a poor guide in the recent past and seem overly pessimistic over the short fun going  forward. At a minimum we would want to front those assumptions and attempt a probability analysis. That discussion is simply not happening.

by Bruce Webb 2007-11-25 09:01AM | 0 recs
Re: Well that is the problem

To their credit, they list "doing nothing" as an option. I agree with you. Instead of simply listing a bunch of possible "fixes," they could have stuck more numbers in there and put their money where their mouth was.

I met an actuary one time. I feel like I'm talking to a brain surgeon about the brain. Thanks for the response.

by misscee 2007-12-02 07:32AM | 0 recs
Re: Agree totally

Yes, I agree that the Democrats should not feed the false fears that the Repubs have introduced in their attempts to eliminate Social Security.

Anyone reading this from within the Obama campaign should think again about this dangerous rhetoric.

by Bush Bites 2007-11-24 06:37PM | 0 recs
Re: Why the Language Surrounding Social Security

Why should we believe Hillary's republican talking points of a trillion dollar increase on the middle class by removing the social security cap. We are not talking about raising the 12,2% tax but taxing those above 100,000 dollars on all of their income.

by BDM 2007-11-25 05:03AM | 0 recs
Well no you are not

Raising the cap does not in fact tax the wealthy on "all of their income". It does not touch gains on capital which is the overwhelming source of the income of the ultra-wealthy. If raising the cap actually added 12.4% to top marginal rates or to capital gains tax then we might have a reason to discuss this. But it doesn't. Instead a cap increase targets the professional class all to the benefit of the investment class. While there is a certain amount of overlap basically a cap increase equates to a free pass for the top 1%, most of their income is not derived from wages to start with.

by Bruce Webb 2007-11-25 09:05AM | 0 recs
Re: Why the Language Surrounding Social Security M

GOP also doesnt want Federal Govt to pay SS what they owe to SS to cover federal deficits.

This is wrong.

Govt should pay and honor the SS treasury bonds just as they should honor the treasury bonds bought by China, Saudi Arabia, coprorations, individuals.

GOP talks about that there is really no such thing as IOU's.  The money is not there.  Well, if the money is not there,  they should find it or raise federal taxes from the rich especially those who earn more than 97,0000 to pay for the debt.

by jasmine 2007-11-25 09:45AM | 0 recs

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