On Social Security, FactCheck Didn’t

March 2, 2011 at 2:31 pm

Democrats Deny Social Security’s Red Ink,” a recent FactCheck article blared.  The article panned Senators Durbin and Schumer for stating that “Social Security does not add one penny to the deficit” and took Office of Management and Budget Director Jack Lew to task for calling Social Security “self-financing.”  But the senators and the budget director are on solid ground:  FactCheck’s figures ignore the substantial sums that Social Security earns — and will continue to earn for many years — on its investments in Treasury securities.

FactCheck erroneously claims that Social Security will run a $45 billion deficit this year.  In reality, while the program will collect $45 billion less in payroll taxes than it spends on benefits and administrative costs, it also will earn $118 billion in interest on the $2.6 trillion it has accumulated in its trust fund over the years.  Those earnings will enable the program to run a $72 billion surplus in 2011, according to the Congressional Budget Office — the very same source that FactCheck cited.

As we explained last August, although the economic downturn has hurt the program’s finances and large demographic challenges loom ahead, Social Security faces no imminent threat.  It can continue paying full benefits for nearly three decades even if Congress makes no changes in the program.  After that, if policymakers had made no changes, the program would pay about three-fourths of scheduled benefits — because it has no authority to pay out one penny more than it has collected over the years.

Of course, doing nothing for decades and then chopping benefits by nearly one-fourth is an unacceptable outcome.  Policymakers should act much sooner to put the program on a sound footing for the long run.  But they have enough time to do the job right, by phasing in a plan that spreads sacrifices fairly across generations and income groups and gives workers ample notice so that they can adjust their financial plans accordingly.

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More About Kathy Ruffing

Kathy Ruffing

Kathy Ruffing is a Senior Fellow at the Center on Budget and Policy Priorities, specializing in federal budget issues.

Full bio | Blog Archive | Research archive at CBPP.org

3 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    More programs should be funded using this approach. I seem to recall that unemployment insurance works this way also (companies pay into it all the time but it is used when folks are let go for other than disciplinary reasons).

    Weren’t these two programs created in the 40s/50s? Why don’t existing state pension plans work equally well (or maybe they do)? Education also seems like a great candidate for this kind of funding approach.

    Maybe we need an insurance trust fund for “too big to fail” companies that they pay into and it used during each economic downturn to bail them out or at least cushion the shock of them going out of business (which they probably should).

    Too many people (including legislators) don’t get the notion of saving money first and then spending it as needed. Instead, we seem to have a credit card mentality within our current federal and state governments. The only problem is that governments can take more money through legislation. They find raising taxes (or deficit spending) is easier to do than it is to say “no” or “sorry, we can’t really afford what we promised you all these years.”

  2. janeto #
    2

    You state:”Policymakers should act much sooner to put the program on a sound footing for the long run. But they have enough time to do the job right, by phasing in a plan that spreads sacrifices fairly across generations and income groups and gives workers ample notice so that they can adjust their financial plans accordingly.”

    Why do you buy into the rhetoric that we must have austerity when it comes to social security benefits? Why are you parrotting the rightwing and the committee for fiscal responsibility talking points?

    A simple tweek on the $106k would increase funding.

    When has congress ever been worried about a fiscal problem 27 years hence?

    Just a few questions.

  3. Kaye #
    3

    I have long wondered why the taxable income for Social Security is capped at $106,800 When, a few years ago, my earnings finally reached a level where there was extra money in my last one or two paychecks for the year, it was a pleasant surprise, but not one I had expected. It’s as close to a “bonus” as I ever came, but I certainly wasn’t counting on it or in desperate need of it. If, as seems evident, there is a need to increase the fund reserve for Social Security for it to continue to provide future benefits, then it seems reasonable to me to regularly raise the taxable income level slightly.Most people at that income level are not living from paycheck to paycheck, and though they would probably find it unpleasant, it doesn’t seem like such a change would be a threat to their survival. Especially if such changes were phased in over time, as you suggest, the adjustment would be less noticeable and less painful. It also seems more fair than raising the percentage of tax collected on all workers would be, as those who make more, for more years, also benefit more, if I understand the Social Security calculators correctly.



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