Reuters Money

Why do reporters parrot misinformation about Social Security? It’s probably done in the name of balance and a centrist approach. Trouble is, the center on this issue has been pulled so far right that the Beltway consensus portrays Social Security as a program in crisis and a main driver of the federal budget deficit.

But the consensus is wrong, and so is much of the reporting.

The latest example among many: National Public Radio’s story on Feb. 9 claiming that Social Security has hit a tipping point. Why “tipping?” Because the program has gone cash-flow negative. NPR quotes alarmed politicians who express dismay that Social Security is taking in less than it spends — but that’s no surprise at all.

Social Security’s actuaries have long projected that the program would shift to a cash-flow negative status as boomer retirements accelerated. It happened a few years earlier than projected due to job loss in the Great Recession, which reduced Social Security payroll tax collections and also prompted a higher-than-expected number of benefit applications from unemployed older workers.

Yet NPR lets Sen. Lamar Alexander (R-TN) get away with this:

“It’s very significant that this year, Social Security has more money going out than coming in,” says Lamar Alexander, a member of the Senate GOP leadership team. “And it’s very significant that in the next 10 years, Social Security will add a half-trillion dollars to the deficit. Social Security would be a good place to start when dealing with these mandatory entitlement programs that are 57 percent of our budget.”

No challenge or analysis required on that one, it seems.

Question: how, exactly, does Social Security add a half-trillion to the deficit?

Answer: the program will be drawing down the Social Security Trust Fund (SSTF) to pay out expected benefits – over a period of years. The SSTF holds a $2.5 trillion surplus accumulated under the 1983 Social Security reforms, which boosted payroll taxes and the retirement age. But Social Security’s trustees don’t have that money sitting in a piggy bank somewhere. It is invested, sensibly, in one of the world’s safest investment vehicles — U.S. Treasury notes. So, the SSTF now starts redeeming some of those notes to pay out benefits.

Enemies of Social Security like to flip this upside down, describing it as irresponsible Federal government borrowing, for which we must now pay the piper. But there’s nothing more-or less-irresponsible about the existence of SSTF bonds than any other federal debt obligation. Yet NPR gives us this unenlightened exchange between Sen. Kent Conrad (D-ND) and the head of the Congressional Budget Office:

. . .At a recent Senate Budget Committee hearing on the nation’s economic outlook, Chairman Kent Conrad (D-ND) noted there’s been a sea change in Social Security’s finances. ”My staff informs me under the new report, Social Security has gone permanently cash negative now. Is that the case?” he asked.

“Yes, that’s right,” came the response from Congressional Budget Office Director Doug Elmendorf, whose agency prepared the report.

Conrad added that the time had finally come for the money Social Security has lent the federal government to be paid back.

“How’s it going to be paid back? It’s going to be paid back by the other general expenditure of the federal government having to be reduced to make way for the payments that we’re going to have to make on those bonds,” he said.

NPR goes on to acknowledge that the money is, in fact, owed back to the SSTF but then quotes a former Bush economic adviser who calls the borrowing ” … a flaw in the design of the … fiscal system.” What’s not clear is why government borrowing to fund operations from the SSTF is any different — or worse — than selling bonds to the Chinese, for example.

The Beltway consensus also was on full display when David Gregory casually tossed it at Senate Majority Leader Harry Reid (D-NV) in a recent interview.

“How does Social Security have to change?” Gregory asks Reid. “Is it time for Social Security to fundamentally change if you’re going to deal with the debt problem?” He nearly fell off his chair as Reid patiently explained that Social Security’s math works and that the program isn’t in a crisis. Catch the look on Gregory’s face:

NPR, to its credit, quotes Reid to the same effect. But then NPR concludes with this nonsense:

But with the program now operationally in the red, with a new wave of baby boomers retiring and living longer, and with revenues reduced even further by high unemployment and a payroll tax cut, there are few who think Social Security is not more vulnerable today than it’s ever been.

The same Beltway framing cropped up last month in an Associated Press story carrying this lead:

Sick and getting sicker, Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037, congressional budget experts said Wednesday in bleaker-than-previous estimates.

Reporting on the Congressional Budget Office’s annual budget report, AP ignores Social Security’s enormous surplus — and the fact that it has sufficient funds to pay all benefits until at least 2035. At that point, current revenue would be enough to cover three-quarters of benefits, and that’s where the need exists for long-range adjustments to the program. A range of solutions are possible, many of which don’t require benefit cuts. For example, lifting the cap on income taxed for Social Security could erase the long-range deficit entirely.

Instead, AP goes back to the well on those worrisome SSTF bonds:

The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment, with interest.

“Social Security taxes are not going to pay for the spending, so it’s got to come from somewhere else,” said Eugene Steuerle, a former Treasury official who is now a fellow at the Urban Institute. “We can go through long arguments about whether its owed money by the trust funds or not, but that doesn’t alleviate the simple fact that it’s got to come from somewhere.”

The argument isn’t really all that long: the bonds are a full-faith-and-credit obligation of the federal government back to the SSTF. The Treasury is no more likely to renege on that obligation than it is to any other bondholder.

What does CBO actually say about Social Security? It does forecast that total entitlement spending will jump to 12.7 percent of GDP by 2021, from 10.3 percent in 2012. But CBO says that will be driven mainly by healthcare spending in Medicare and Medicaid. Social Security outlays, CBO says, equal to 4.7 percent of GDP this year, and slowly rise to 5.3 percent by 2021.

That’s some crisis!

Full disclosure: No doubt, you’re wondering: isn’t it a case of pot-calling-the-kettle-black for a Reuters contributor to criticize media coverage of Social Security? No. My review of Reuters news coverage on Social Security turns up just one story that conflates Social Security and the deficit — and in glancing fashion, at that. Opinion writers are another matter.