Those are just a few of the comments we hear frequently from journalists, politicians, and policymakers about Social Security. But they’re all false–and that’s a big problem. Social Security is one of our most important linchpins of retirement security, yet discussion and analysis of the program and its future are remarkably fact-free.
So, let’s dispel the fog. Here’s my list of the top 10 myths about Social Security–along with the facts.
Myth 1: Social Security is going bankrupt
A quick Google search turns up plenty of supporters for this myth–none more prominent than President George W. Bush, who floated it in his 2005 State of the Union address, as he campaigned to replace Social Security with private investment accounts. “The system . . . on its current path, is headed toward bankruptcy,” he said. “And so we must join together to strengthen and save Social Security.”
Facts: The word “bankruptcy” is meaningless in the context of a federal government program. Nancy Altman, an advocate for Social Security and historian of the program, notes in her book The Battle for Social Security: From FDR’s Vision To Bush’s Gamble that “As long as the federal government has, under the Constitution, ‘Power to Lay and collect Taxes’ and the authority to issue and sell Treasury bonds, it and its programs will not go bankrupt.”
Social Security does face a long-term financial challenge. The Old-Age and Survivors Insurance (OASI) retirement trust fund is on course to be exhausted in 2035, and its cousin, the Disability Insurance Trust Fund, will be exhausted around the end of 2016. The Republican-controlled Congress is on course to push for reform of both programs during its current session, perhaps in the lame duck period following the 2016 elections.
Exhaustion doesn’t mean the programs would be out of money, because current revenue would be sufficient to continue paying benefits. But retirement benefits would have to be cut nearly 25 percent in 2035, and disability payments would be slashed 20 percent if no fix is implemented before 2017.
Benefit cuts aren’t a fair or acceptable outcome – and I doubt we’ll get there. It’s difficult to imagine any member of Congress eager to explain cuts of that magnitude to voters—so bet on a fix taking place ahead of these deadlines.
The disability insurance fund’s woes should be dealt with through a simple reallocation from OASI, although it’s not clear Congress will approve that approach. Still, the real question is what to do about the OASI fund. It can be fixed through benefit cuts, injecting new revenue into the system, or a combination of the two.
Still, it’s a fact that Social Security will have substantial assets even after 2035.
Myth 2: Social Security is a key driver of the national deficit
Facts: Social Security lends money to the federal government, not the other way around. It was designed as a pay-as-you-go program, and every penny it receives is credited to the trust funds. Social Security is prohibited by law from borrowing, so it needs some level of reserve to pay benefits whenever cash on hand runs short. Those reserves are at a historical high point as a result of reforms made in 1983 aimed at funding the anticipated retirement of the baby boom generation.
The surplus trust funds are lent via a special type of Treasury note to the federal government, which uses the funds to finance ongoing operations. But Social Security is no more a driver of the debt than China. Both are lenders to a government that chooses to spend significantly more than it levies in taxes–and both have the right to be paid back what they are owed.
Myth 3: The Social Security Trust Fund is nothing but a bunch of paper IOUs
Facts: This is a favorite argument of Social Security conspiracy theorists, who argue that the government has raided Social Security to fund other programs, and that the money will never be seen again. President Bush in effect amplified the myth during his 2005 privatization campaign by paying a visit to a file cabinet in West Virginia where the aforementioned Treasury notes are kept.
Every year, the report issued by Social Security’s trustees confirm that the surplus funds are invested in “special issue Treasury bonds” and that they are “full faith and credit” obligations of the government. At right, you will find the language from the 2012 report.
Myth 4: Social Security is a Ponzi scheme
Facts: Social Security and a Ponzi scheme are as different as night and day.
The Merriam-Webster Dictionary defines a Ponzi scheme as: “An investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.”
The perpetrators of Ponzi schemes lie to their investors; Social Security is an open and transparent system. Its trustees send a very detailed actuarial report to Congress that projects the program’s finances 75 years into the future. The trustees include three cabinet secretaries, two independent appointees (one Democrat, one Republican), and the commissioner of the Social Security Administration.
It’s irresponsible to suggest that the program is an unethical fraud or swindle. What’s more, Social Security has never missed paying a dime’s worth of benefits, and it will be there 25, 30, and 75 years from now.
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