Reuters Money

Republicans are miffed that the Obama Administration and Congressional Democrats won’t take the bait and join them in shredding Social Security benefits (not yet, anyway).

The GOP is engaged in bad policy and bad politics here, so it’s squirming. And that seems to have pushed Republicans to distort the facts about Social Security’s condition even more than usual. Here’s what they’ve been saying this week, as quoted by NPR on Tuesday. I’m appending reality checks to each of the quotes, something I’m sure NPR just forgot to do.

Sen. Tom Coburn (R-Oklahoma): “The fact is … $2.8 trillion was stolen from Social Security . . .The money was spent. It’s broke. And we’re going to have to fund $2.8 trillion over the next 20 years just to make the payments that we’ve got. I would think most people would think we ought to fix that.”

Reality check: The Social Security Trust Fund (SSTF) lends money to the U.S. Treasury under terms spelled out by the Social Security Act. Those terms allow the SSTF to earn a return on the massive $2.5 trillion surplus it’s been building since the early 1980s by purchasing U.S. Treasury notes.

Federal law requires that the surplus be invested in government issued or backed obligations. Though the current practice is to invest in special issue Treasury bonds, this is not necessary. If the budget were in balance and no new Treasury bills were being issued, the SSTF could purchase Treasury obligations traded on the open market or could purchase other Treasury-guaranteed obligations.

(If the law were changed, the SSTF could invest part of the portfolio in equities, but that’s a conversation for another day.)

Yes, the money was spent; the U.S. Government has no reason to borrow money other than to meet its spending needs.

Coburn correctly states that we’re going to have to pay the SSTF as it redeems the bonds it has sold. The government has no choice in this matter; to do otherwise would be to default on government bonds. It also would mean we were all fooled when Congress and the Reagan Administration raised the regressive payroll tax in 1983 for the explicit purpose of building a cushion to fund baby boomer retirements. Twenty-eight years later, are we actually going to say those taxes were collected to fund government spending? I doubt it.

Sen. Rand Paul (R-Kentucky): “Most young people acknowledge that it’s broken — it’s broken so badly that the only way we fix it and the only way it can continue is we have to look at the eligibility. . . But so many people have said, ‘Oh, we can’t talk about entitlement; you’ll be unelected; you’ll be unelectable if you talk entitlement reform.’ ”

Reality check: Social Security isn’t broken — it has a massive surplus and has never missed a dime in payments. In 2035, the Trust Fund will be exhausted; at that point, current revenue would be sufficient to pay only about 76 cents on the dollar. That’s where a fix is needed, but it’s not true that “the only way it can continue is we have to look at eligibility.” For example, we could fix the 2035 problem now by lifting the cap on income eligible for the payroll tax, currently capped at $106,800.

Most young people do think Social Security is broken: Gallup reports that 76 percent of Americans age 18 to 34 don’t think Social Security will be able to pay them a benefit when they retire. But that doesn’t mean young people think benefits should be cut. In fact, a poll commissioned earlier this year by the National Committee to Preserve Social Security and Medicare Foundation found that 69 percent of adults under age 35 agree that Social Security benefits shouldn’t be cut to reduce the federal deficit.

Paul’s argument is an example of self-fulfilling prophecy. Republicans repeat the big lies about Social Security so often that people start to believe them; then, politicians point to the predictable poll results to justify the policies they want to pursue.

Paul probably is correct about one thing — cutting Social Security probably would make some incumbent politicians unelectable — especially those who got a big boost from older voters in last fall’s GOP rout.

Sen. Richard Shelby (R-Alabama): “. . . last year, for the first time since Social Security began in 1935, the program paid out more in benefits than it received in payroll taxes. “Social Security is now at the tipping point, the first step of a long, slow march to insolvency if we don’t do something about it,” Shelby said.

Reality check: This is a feature, not a bug. The 1983 reforms anticipated the looming boomer age wave, which wasn’t exactly a secret to demographers or anyone else who cared to pay attention. We’ve known all along there would be times where benefits exceed taxes. That was the point of building the surplus. It’s false to suggest this shift is evidence of a problem. It’s not.

By the way, 2010 wasn’t the first year when Social Security paid out more in benefits than it collected in payroll tax revenues. Benefits exceeded payroll tax contributions in 1958, 1959, 1961, 1962, 1965, 1975, 1976, 1977, 1978, 1979, 1980, 1981, 1982 and 1983. The system survived.

The NPR story does quote some Democrats offering some general counterpoint to the Republican claims. But that’s your typical “balanced” Beltway journalism — he said this, she said that. Little effort to get at the actual facts.

Speaking of which, the NPR reporter said this: “Republicans also believe the very best time to fix Social Security is now, during a time of divided government when both Democrats and Republicans can share ownership of any changes.”

The word “ownership” suggests stepping up to a responsibility that must be met. That’s a theme you can hear in between the lines in much of Washington coverage of this issue: Come on, man up!

Republicans don’t want to share ownership. They want to share with Democrats the wrath of voters already convinced Washington doesn’t understand their retirement security challenges. Those voters rightfully will be very upset if Congress and the Obama Administration pull a massive bait-and-switch on them by diverting all those payroll tax dollars they’ve paid into the system to pay for something other than Social Security benefits.

Like I said — bad policy, bad politics.