Selling the big lie on Social Security
Reuters.com contributor Mark Miller is a journalist and author who writes about trends in retirement and aging. The opinions expressed here are his own.
Repeat something often enough, and people start believing it. So it goes with Social Security, the target of deficit hawks who say the program is careening toward insolvency. The benefits promised to millions of Americans are now unaffordable, they say. Therefore, we must scale back the program.
Nothing could be further from the truth, but the percentage of Americans who think Social Security is in a crash-and-burn mode is sharply rising.
A recent USA Today/Gallup Poll found that 56 percent of current retirees expect their benefits to be cut — a dramatic rise compared with 32 percent who felt the same way in 2005. A record-high percentage of working Americans — 60 percent — told Gallup that Social Security won’t be able to pay benefits when they stop working. Skepticism was highest among workers between the ages of 18 and 34. Overall, 77 percent said Social Security is either in a state of crisis or has “major problems.”
The poll reflects the nation’s diminished expectations about Social Security, despite these facts:
- Social Security benefits are not gobbling up the U.S. economy. Benefits are equal to 4.9 percent of gross domestic product (GDP) this year, and will rise to just 6.2 percent in 2035, when all baby boomers will be 65 or older, according to last year’s Social Security trustees’ report. After 2035, Social Security expenditures are projected to stay around that percent of GDP through 2085, according to Virginia Reno, vice president for income security at the National Academy of Social Insurance.
- Social Security had a $2.5 trillion surplus in 2009, a number that will hit $3.8 trillion in 2020, according to the Economic Policy Institute. The surplus has been accumulating since implementation of the last Social Security reform measures in 1983.
The 1983 reforms included a gradual cut in Social Security benefits — the retirement age is rising from 65 to 67 — and a substantial boost in payroll taxes. Those changes were implemented to fund the expected huge wave of baby boomer retirements — and they worked.
Where’s the disconnect?
First, consider the debate in Washington about deficit reduction. Those who worry — rightly — about our mounting national debt often conflate Social Security reform with deficit reduction. Social Security is on the agenda of President Obama’s National Commission on Fiscal Responsibility and Reform, and it’s a favorite target of deficit hawks like former Lehman Brothers Chairman Pete Peterson (pictured left), whose influential, well-funded foundation sponsored a June 26 national fiscal summit aimed at generating public discussion of the “tough choices” the nation faces on the budget.
Peterson and others point out that the Social Security surplus isn’t sitting in a piggy bank — funds are invested in a special type of Treasury bond that the federal government must repay to the Trust Fund.
So, Social Security’s surplus is the federal government’s giant obligation. But that obligation is no different than the debt we owe to bondholders in China or anywhere else in the world. Alice Rivlin, an Obama commission member and the first director of the Congressional Budget Office, notes that the bonds must — and will — be repaid.
Social Security took another reputation hit earlier this year when it became known that the program would, for the first time, take in less cash this year than it pays out on a current-year basis. That shift into the red was long forecasted, but occurred earlier than expected due to the severity of the recession, which cut into collections of the payroll tax that funds the program, the FICA tax, and boosted the number of older unemployed workers filing for benefits.
Americans are becoming convinced that Social Security can’t be relied on in the years ahead — just as our need for it is growing. Our three-decade experiment with self-directed retirement accounts is a bust, and the Employee Benefit Research Institute (EBRI) reports that that many Americans are on track to simply run out of money in retirement.
Meanwhile, we’re debating further Social Security benefit cuts at a time when current benefits are modest — and already are being reduced via the 1983 reforms. The current average Social Security benefit paid to retired U.S. workers in 2009 is just a few thousand dollars per year above the official poverty guideline for an older person living alone — $13,860 per year.
Reform advocates want to boost the full-benefit retirement age and adjust the annual cost-of-living adjustment (COLA) — changes that sound reasonable but would lead to very substantial cuts in lifetime benefits for millions.
For example, raising the age to 70 from 67 would reduce lifetime benefits by 19 percent for a worker entitled to a monthly payment of $1,000, according to Social Security Works.
A better solution would be to remove the cap on the maximum amount of earnings taxed for Social Security, currently set at $106,800. That change alone, depending upon its implementation, could entirely erase Social Security’s solvency problems.
Other ideas that have been floated include allowing the Social Security trustees to invest a small portion of its assets — say, 20 percent — in equities, or dedicating a new revenue source to the program, such as an estate tax.
One way or another, it’s time to restore public confidence in Social Security’s future — without cutting the legs off our most important retirement benefit.
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Mr. Miller has completely missed an important point about Social Security: its future obligations are considerably larger than the sum of its current surplus and future contributions from workers. Thus future workers will have to contribute more and/or receive less in benefits.
I agree with the point about removing the earnings cap. In light of the recent volatility in the financial markets, I regard investing part of the social security surplus in equities as a lousy idea.
Mr Miller seems right on. Only thing he didn’t mention was the Reagan legacy that causes US problems in not paying our bills. The idea that “tax” is a four-letter word. (Yeah, I know how to count but Reagan didn’t) Remember the Star Wars cost that he didn’t bother to fund. We have to pay the piper sooner or later. Maybe its now the “barefoot and pregnant” concept to control govt spending that neocons seem to favor.
I really think most rich people look at earnings as a way of keeping score. Most have more than they can spend on themselves anyway! As long as everybody is taxed, taxes won’t be a disincentive to many.
It’ll be great if SS is still around when I retire (in about 2050, but I’m planning to just support myself.
Im 38. I really don’t foresee SS being around by the time I retire, especially if the economic and job market doesn’t improve. Realistically, there’s no way it will be sustainable.
As a consequence of the “Great Recession,” most 50+ Baby Boomers have seen a large portion of their expected retirement savings (including home equities) evaporate. SS has become more important than ever in their now down-sized retirement plans.
First let me say I’m not the Pete Peterson mentioned in the article.
More importantly; by far the best fix for Social Security would be to put Congress on it and watch it become quietly solvent. The practice of get-elected-once-get-paid-for-life is no longer sustainable with $Trillions of debt, besides our elected officials are NOT royalty.
I am a finance major currently and recently took a personal investment course that was pretty much centered around the fact that Social Security can no longer be relied on. Now, as I am in no way an expert, I won’t say that it can’t be sustained at a reasonable level, but I think that anyone who would rely on SS as their only means of retirement support is living in a dream world. Tighten the belts and start saving yourself. Anything you get out of SS should be looked at as a gift at this point, but definitely not relied on. For those of you that are near retirement and do not have your savings built up, good luck.
For what you put in and what you get out, I see SS and a big joke. There is no way to live on what it pays unless you like poverty and living under a bridge in a cardboard box. Look at your SS death benefit. What will $250.00 get you at a funeral home? Maybe a box of memorial cards.
If we are going to survive financially in our retirement years, then there should be no caps on IRA’s or 401K’s.
Our retirement benefits should be exactly the same as our Congressmen and Senators. Let them try to live on Social Security like the rest of us.
Mark Miller is setting the record straight. Social Security is a public trust. It belongs to the American people, not special interests, such as the Peterson Foundation and other advocacy organizations, which have been working so hard for many years to undermine faith in this institution.
It is the most important and secure life insurance protection for America’s children, and retirement and disability and survivors insurance for America’s working persons and their families. It’s benefits are modest (on average, about $1300 a month for all beneficiaries; $1400 for retirees. With housing prices and retirement savings having dropped precipitously during the past couple of years, Social Security is more important than ever.
So, thank you Mark Miller, for writing such a thougtful and balanced piece.
Eric Kingson
Co-Director, Social Security Works
Professor, Syracuse University
P.S. Although widely reported as such, this year is NOT the first time that Social Security benefit payments exceeded payroll tax revenues. Some opposing Social Security have been advancing the notion and many have picked it up as “the truth” — another example of what Mr. Miller discusses as the successful selling of the “big lie” about Social Security. CBO correctly reported that “In 2010, for the first time since the enactment of the Social Security Amendments of 1983, annual outlays for the program will exceed annual revenues, excluding interest credited to the trust funds, CBO projects.” What is left out of this statement though is that this has happened many times since the enactment of Social Security, including 1958, 1959, 1961, 1962, 1965, 1975, 1976, 1977, 1978, 1979, 1980, 1981, 1982 and 1983 (see Table 4.A3—Combined OASI and DI, 1957–2008 in the Social Security Administration’s Annual Statistical Supplement, 2009; http://www.ssa.gov/policy/docs/statcomps /supplement/2009/4a.pdf).
Revenues exceeded trust benefits in all those years. The sky did not fall. Indeed, the trust funds acted as intended. They provided a margin of safety so that benefits could be fully paid, even in very difficult economic times.
Much of the investment product industry operates on the big lie principle. But margins are narrowing, and slowly but surely money is flowing into the Dimensional Funds and Vanguards of the world. Every dime that goes to an indexed fund makes life tougher for the whole crew, and Vanguard now manages many, many billions. Look at the actual data and you can see it getting harder and harder to perpetuate the scam that the mutual fund/financial planner/annuity industry lives on. These guys will get increasingly desperate; gutting SSA is their only hope.
What is interesting about this whole discussion is the rarely mentioned Supreme Court decision in 1960 in which the Court declared that no one has a contractual right to Social Security benefits. This enables the government to do whatever it wants with the funds any time it wants.
I think it is about time that the government come good on its transparency policy and give the information the public needs in order to take better decisions about the direction they want to see the country head toward. After all the Declaration of Independence gives We The People the right to “That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.”
“Selling the Big Lie on Social Security” isn’t accurate in that it doesn’t nearly come close to telling the truth about the “Real Big Lie” about Social Security.
The “inconvenient truth” is that, since the Johnson administration in the 1960s when, in order to finance Johnson’s Great Society programs and pay for the Vietnam War simultaneously (i.e. Guns & Butter, but without creating any economic distress), the government decided to “commingle” the Social Security Trust Fund with the General Fund, to make it appear the US was actually not as deeply in debt as it really was at that time, and began using the Social Security funds to pay current debts and fund new “social programs.”
For those of you who may not be aware of accounting rules, the “commingling” of funds is considered, at the very least, to be a questionable action, and an indication to auditors that something is not quite right with the books.
In other words, the US government at that time deliberately began to break its Fiduciary responsibility to its elderly citizens by embezzling from the Social Security Trust Fund — let me phrase that another way so there is no mistake, the Federal government STOLE money from the Social Security Trust Fund — and “replaced it” with the now worthless IOUs (supposedly “backed by the full faith and credit of the US government”) that were supposed to be paid back when needed.
They probably assumed that no one would live long enough to collect their retirement anyhow, so what was the difference, since the US government desperately needed the money to cover current expenses without raising taxes? Perhaps, the government rationalized the theft away, just like any common embezzler, thinking that they were only “borrowing” it temporarily to balance the budget, but intending to pay it back later at a more convenient time? The reason is immaterial and unimportant.
Whatever the supposed justification, the fact is that the Federal government made some very bad decisions in using the Social Security Trust Fund, beginning half century ago that we now have to face today. But, that is not the whole truth either, because since then the Federal government has compounded its original “mistake” by a series of incredible actuarial miscalculations and outright blunders that has taken the Social Security Trust Fund in wild swings from excess cash to complete insolvency, touching on every point in between.
Unfortunately, instead of actually paying back the stolen funds before the theft was discovered, this started a long tradition of using the Social Security Trust Fund as a “pork barrel/slush fund” for the government to live well beyond its means for decades, which undoubtedly contributed to many of the economic problems of the 1970s and 1980s.
Finally, in the 1990s the economy was beginning to experience some real GDP growth through the paradigm shift in computer technology, but even when the government had the ability repay the funds, it was never seen as a pressing need, perhaps assuming once again that the elderly would probably all die before their “entitlements” came due.
In any case, now since the US economy has crashed due to decades of excessive and profligate spending and speculation, the government is broke — especially after “bailing out” the wealthy class, which is another story entirely — unable to make good on its promise to pay retirement to its poor elderly, and desperate to cover its obligations without revealing the “Real Big Lie” of what it has done.
Anyhow, since the Johnson administration, the Federal government has, through deception, malfeasance and egregious mismanagement, been systematically looting the Social Security Trust Fund, with the result that it has never recovered.
The Federal government is currently engaged in a massive campaign to discredit the “entitlement” programs, and by implicit association, the elderly who depend on them, advertising this as a cheap and easy solution to all the US economic problems, with the inevitable result that simply being elderly has become a “crime” in the minds of many Americans.
However, the only “crime” that has been committed has been one of Federal government malfeasance and fraud in their Fiduciary responsibility to safeguard its elderly in their old age with their own “entitlements” (i.e. per dictionary definition: “the right to guaranteed benefits under a government program, as Social Security or unemployment compensation).
We need to remember that the Social Security Trust Fund is a fund that the American people have trustingly and dutifully paid into — albeit without any choice, since it is a payroll tax levied on them with no recourse but to pay it, and most importantly it is generated by their work, not some sort of government subsidy that was not earned, which is being implied — with a reasonable expectation of getting their money back (without interest, by the way). The Social Security Trust Fund belongs to those who paid into it, and is now legally due and payable to them.
To want what is rightfully yours by law is not a “crime.” Nevertheless, the elderly are surreptitiously being accused by the Federal government of some sort of “crime” against the country. Exactly what is that crime? Apparently, having the audacity to live long enough to be able to actually collect what is rightfully theirs is their “crime.”
This is the “Real Big Lie” about Social Security.
The government is furious that the elderly have, through the miracles of modern medicine — which most of them can barely afford, unlike in other “advanced” nations where proper health care is generally taken as a right of citizenship — lived far beyond the original Federal government actuarial projections, and now actually want the retirement benefits promised to them. They want want the “entitlements” that are OWED to them!
As I said above, in order to evade their legal responsibility and pay their obligations to the elderly, many of whom have no other source of revenue and would be forced into the streets to die of exposure and starvation, the Federal government is currently attempting to use a malicious propaganda campaign to twist the generally accepted meaning of entitlements as being something positive, into something dirty and unscrupulous, diverting attention from themselves and trying to place the blame on the elderly as the “culprits” responsible for the Social Security deficit.
In fact, this smear campaign is nothing more than a perverted attempt to cover up what the Federal government itself has done — broken their Fiduciary responsibility to the American people, through malfeasance and mismanagement which, if these actions had occurred in a private setting, would normally subject the perpetrators to a variety of very significant penalties under law.
I agree that the trust fund truly represents a monumental debt for the US government, one which it cannot possibly hope to pay, nor can it afford to tell the truth about what happened to the Social Security Trust Fund money over the decades due to their own mismanagement, primarily in fear of the reaction of the American people should the truth be known, but the undeniable fact is this shortfall problem is one of the Federal government’s own making.
So now, instead of paying its debt in an honorable manner as it should, the US government is attempting to evade its responsibility for paying the debt by lying about it to cover it up, just like any common criminal.
They are attempting to do this by the simple process of repeating the falsehood so many times in so many ways, that it begins to sound like the truth. Therefore, by deliberately engaging in a huge propaganda program to make the American people (cleverly targeting the young and naive, who are most susceptible to this outrageous fabrication) believe the trust fund is broken because of profligate spending by the elderly — an accusation, which on the face of it makes no sense at all, since the American people, elderly or not, do not have, and never have had ANY control over the Social Security Trust Fund, or the disposition of its funds, so how could the elderly somehow be responsible? — when in fact the only one with complete and unquestioned access to the Social Security Trust Fund has been its Trustee, the Federal government.
In fact, no matter how the situation is examined, whether as a case of flagrant government abuse and mismanagement, or simply a mistake in providing sufficient funds for the elderly when they retire, how could this possibly be the fault of anyone except the Trustee itself, the Federal Government?
If it is the US government who is responsible, and I cannot see any possible way for that not to be the case, the Trustee is solely responsible for making up the shortage, not the rightful beneficiaries of the trust fund, who are the elderly.
It is an ugly truth, but in fact, it is not the Social Security Trust Fund that is broken. It is the Federal government itself that is broken. For example, how is it even remotely possible that such an egregious theft, or to give them the benefit of the doubt, such an incredible error in judgment by the Federal government go unnoticed for five decades? Obviously, at the very least, there are some very serious questions the American people should be asking the Federal government to explain. And, meanwhile, not allow ourselves to be emotionally swayed by the self-serving rhetoric coming from Federal government at the moment.
Obviously, if there is no accountability to ensure that the Social Security Trust Fund will be properly managed by its Trustee, then the Trust Fund is worthless, nothing more than empty promises. This kind of egregious embezzlement and malfeasance, when they occur and are discovered need to be dealt with promptly and severely in accordance with the law.
Since the Federal Government is the ultimate Trustee for all of us, it poses a real quandary for the American people. According to the supposed “Social Contract,” the people agree to turn over certain rights to the government in return for certain benefits. Among these benefits, I would think would be to expect “reasonable honesty” among our government officials — at least to meet the standards equivalent to a commercial setting. (Since these people are “elected representatives,” acting on our behalf, I would think they should be held to a much higher standard of conduct, but this is evidently not the case at all).
So this brings us to the ultimate dilemma the American people must face. Who can we trust to safeguard our property, if not the “civil servants” specifically assigned the responsibility for that task — those required by law and oath of office to protect our interests? But, who in fact, have shown nothing but a reckless disregard for the rights of the people they are meant to “serve.”
This situation is an absolute travesty of justice, which should not be allowed to stand! This fiscal malfeasance must be corrected, and the truth be told — there simply is no other choice available for the Federal government. Honesty from our government would be a refreshing change after what we have seen done to our economy recently.
It is quite apparent that the US government as Trustee for the Social Security Trust Fund cannot be trusted to administer it properly, or to safeguard it for those vulnerable people in this country who depend on it for their very existence when everything else fails.
Without removing the ability of the government to loot the Social Security Trust Fund as it has in the past, there is no way to fix it, or restore public trust in it.
The problem is not that the Social Security Trust Find is broken — the problem is that our Federal government is broken.
The Social Security Trust Fund cannot be restored to public trust until and unless someone starts telling the truth about the “Real Big Lie” about Social Security.
Gordon
Mark Miller has it right, but biomedlives raise a point often misunderstood, including by biomedlives. Yes, the surplus is smaller than the future obligations of SS — because it was always intended to be that way. The surplus is a CUSHION — not the whole fund. Payroll taxes will continue to roll in making up the bulk of the fund. The surplus was created in 1983 to soften the retirement landing of the boomers — soften it so that the smaller Gen X and Millenials won’t bear the full brunt. The surplus was ALWAYS INTENDED TO BUILD UP AND EVENTUALLY BE SPENT DOWN because Gen Boomer is so large. But with the surplus (now $26 Trillion, on it’s way to about $4.3T) the nation’s nest egg only needs very minor fixes. Raiding it the way Peterson wants to (from his daily — this is for real — daily luncheon seat at the Four Seasons in NYC) would be the real “generational theft” that the fox warns the chicken about. (“Oh, won’t you let me in to help you.”)
How can anyone with any sense of truthfulness write that there is a social secuirty trust fund. There are IOU’s. Beginning now, social security is going in the red and will be forever into the future. We are ok as long as our goverment can continue to print money as fast as they can without inflation. One day it will all come crashing down like our banking and housing industries have in the last two years and our country will crash and we will start over. The great depression is in fron of us, it will make 1929 look like a windfall.
As the author of this post, I need to jump into the discussion to comment on the Social Security Trust Fund. As Alice Rivlin notes in her post at Brookings, these are special Treasury bonds, and they are, in fact, full faith and credit notes.
Let me further quote from Page 24 of the 2009 trustees’ report:
“All securities held by the trust funds are backed by the full faith and credit of
the United States Government, as required by law. Those currently held by
the OASI Trust Fund are special issues (i.e., securities sold only to the trust
funds). These are of two types: short-term certificates of indebtedness and
long-term bonds. The certificates of indebtedness are issued on a daily basis
for the investment of receipts not required to meet current expenditures, and they mature on the next June 30 following the date of issue. Special-issue
bonds, on the other hand, are normally acquired only when special issues of
either type mature on June 30. The amount of bonds acquired on June 30 is
equal to the amount of special issues maturing, plus accrued interest, less
amounts required to meet expenditures on that day.
Even setting aside this language, the government has a clear moral obligation to live up to the promises made when the payroll tax was increased to build the reserves back in the 1980s.
So, it’s a disservice to the future of Social Security to suggest that the obligations of the federal government to the Trust Fund are worthless IOUs. That is clearly not the case.
Miller could do another article detailing out the failures of the past three decades of self-directed retirement accounts. social Security has been a rock compared to the weaknesses of other pension plans in the past 30 years.
I see the big areas of failure as follows: 1) the specified annual limits for 401k’s and IRA’s gave false hope that this would generate enough at retirement, 2) the 401k’s and IRA’s were originally meant to supplement retirement, but provided employers with an excuse to ditch their pension plans, 3) corporate layoffs beginning in the 1980s left a lot of people with chump change from their previous pension plan, 4) later stage baby boomers could not start saving in the 1970s given how hard it was to get a job with the recession and the competition from others in their age group for the limited jobs available, 5) there is a lot of political risk in investing for 30-40 yrs in a tax-deferred account when Congress can raise taxes by the time you start to withdraw, 6) individuals were exposed to a lot of market and interest rate risk, and 7) individual accounts totally lose the actuarial benefits of pooling and put all the risk of how long will one live on the individual or couple. It’s been a series of risks and inefficiencies, brought to you by the corporations who improved their bottom lines over the decades by raiding, or avoiding funding, a reasonable pension plan for all workers.
It’s pretty clear now that everyone will need multiple sources of retirement income. Social Security is only one part of the mix. The ones with the best chance of making it work are today’s young adults just starting out. They can, and must, start to save now and plan to take care of themselves. They know that the rules can change and can plan multiple ways to try to cover their retirement. It’s not much fun, but will be necessary as people will assume that Congress will change the rules of the game. I doubt that a rational, comprehensive pension system will ever be created in the US.
How can you trust a reporter when they don’t even check their facts? The baby boom did not end in the 1970 but in 1960. All of the baby-boomers will be 65 in 2025 not 2035. I had to stop reading after that.
Mark, you stae it yourself, they are basked by the full faith and credit of the United States. The United States is running a full 1.4 Trillion dollar deficit for the forseable future. With SS, Medicare and now Obamacare continuing to increase we are doomed when the printing presses cease. This is a problem brought on by both parties no matter who is in control, neither will repair it. The more you try to defend it in political speak, the bottom line is there is only trust in the trust fund, there is no money.
How long can our government, both parties, continue the lies…. as long as we have this type of journalism it will never be repaired. We need journalist to tell the truth, not perpetuate the falsehoods. SS is broke now, and the ponsi scheme can not continue as it is.