The Social Security Board just released its Trustee’s Report, and it’s generated the usual hand wringing about the program’s long-term demise – much of which is perfectly appropriate for reasons I’ve already discussed.
But I’m usually unhappy about the press treatment of this issue.
Here’s some of what Stephen Ohlemacher and Ricardo Alonso-Zaldivar wrote for the Associated Press.
Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians’ reluctance to take painful action to fix the huge retirement and disability program. The trust funds that support Social Security will run dry in 2033 – three years earlier than previously projected – the government said Monday. …Unless Congress acts – and forcefully – payments to millions of Americans could be cut. …Potential options to reduce Social Security costs include raising the full retirement age, which already is being gradually increased to 67, reducing annual benefit increases and limiting benefits for wealthier Americans. Policymakers could also increase the amount of wages that are subject to Social Security taxes. Social Security is financed by a 6.2 percent tax on the first $110,100 in workers’ wages. It is paid by both employers and workers.
There are two flaws with what’s written in this story. One is a sin of commission, failing to expose the government’s dishonest accounting. The other is a sin of omission, analyzing the issue solely through the lens of government finances.
1. The sin of commission is that the story assumes the Social Security Trust Fund is real, when it is nothing but a collection of IOUs. When extra Social Security taxes are collected, the Treasury keeps those monies and spends them on other programs. In exchange, it engages in a bookkeeping exercise and credits the Social Security Trust Fund with some government bonds.
When one part of the government owes another part of the government some money, it is a wash. There’s no pile of assets to finance benefits. Those bonds simply represent a claim on future taxpayers.
This is why politicians can play dishonest games, such as approving a payroll tax holiday and declaring – by waving a magic wand – that this won’t affect the amount of IOUs in the Trust Fund. Just in case you think I’m joking, the AP story notes that “Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012, though the program’s finances are being made whole through increased government borrowing.”
Needless to say, that’s phoniness on top of phoniness. I guess the next step is for politicians to enact legislation adding several zeroes to all the existing IOUs. They can then declare that Social Security is solvent. Problem solved…other than the itsy-bitsy problem that there’s still no money.
2. The sin of omission in the story is that it focuses on the government’s finances and overlooks the implications for households. It is possible, at least on paper, to “save” Social Security by cutting benefits and raising taxes. But such “reforms” force people to pay more and get less – even though Social Security already is a very bad deal, particularly for younger workers.
My video on Social Security reform explains that personal retirement accounts are the only way to simultaneously deal with government finances and household finances in a constructive fashion.
Sadly, neither Obama nor Romney seem interested in this type of pro-growth reform.
By the way, I don’t mean to pick on the Associated Press. The report excerpted above simply happened to be the first one I read. You ‘ll find the same myopic analysis in the Wall Street Journal and Bloomberg, to cite just two of many examples.
In closing, Social Security reform is actually the least important of the entitlement reforms. The long-term fiscal problems caused by Medicare and Medicaid are much larger. This three-part video series looks at the reforms that could address all three programs.
[…] correct. Under current law, there will be automatic benefit cuts once there no longer are any IOUs in the Social Security Trust […]
[…] correct. Under current law, there will be automatic benefit cuts once there no longer are any IOUs in the Social Security Trust […]
[…] Most people, when that annual report is released, focus on when the Social Security Trust Fund runs out of money. But since the Trust Fund only contains IOUs, I view that as a largely irrelevant number. […]
[…] Most people, when that annual report is released, focus on when the Social Security Trust Fund runs out of money. But since the Trust Fund only contains IOUs, I view that as a largely irrelevant number. […]
[…] Most people, when that annual report is released, focus on when the Social Security Trust Fund runs out of money. But since the Trust Fund only contains IOUs, I view that as a largely irrelevant number. […]
[…] has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalismsince the Trust Fund has nothing but IOUs (as illustrated by this […]
[…] has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalismsince the Trust Fund has nothing but IOUs (as illustrated by this […]
[…] has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalismsince the Trust Fund has nothing but IOUs (as illustrated by this […]
[…] has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalismsince the Trust Fund has nothing but IOUs (as illustrated by this […]
[…] has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalismsince the Trust Fund has nothing but IOUs (as illustrated by this […]
[…] has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalismsince the Trust Fund has nothing but IOUs (as illustrated by this […]
[…] has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalism since the Trust Fund has nothing but IOUs (as illustrated by this […]
[…] that Norway’s fund is filled with real assets. The Social Security Trust Fund, by contrast, is nothing but a pile of IOUs (as even the Clinton Administration […]
[…] shortfall. If nothing else, the so-called Trust Fund (which isn’t a real Trust Fund since it is filled with IOUs) runs out of money in […]
[…] explain why the so-called Trust Fund is an accounting fiction, which is understandable since even supposedly knowledgeable people pretend IOUs are real […]
[…] let’s examine a second issue. Most news reports incorrectly focus on the year the Social Security Trust Fund runs out of […]
[…] let’s examine a second issue. Most news reports incorrectly focus on the year the Social Security Trust Fund runs out of […]
[…] Norway’s fund is filled with real assets. The Social Security Trust Fund, by contrast, is nothing but a pile of IOUs (as even the Clinton Administration […]
[…] Oh, and don’t be under the illusion that the “Trust Fund” will solve the problem. It’s nothing but a pile of IOUs. […]
[…] made a related observation about this approach back in […]
[…] previous years (2012, 2013, 2014), I’ve used this opportunity to play Paul Revere. But instead of warning that the […]
[…] previous years (2012, 2013, 2014), I’ve used this opportunity to play Paul Revere. But instead of warning that the […]
[…] previous years (2012, 2013, 2014), I’ve used this opportunity to play Paul Revere. But instead of warning that the […]
[…] previous years (2012, 2013, 2014), I’ve used this opportunity to play Paul Revere. But instead of warning that the […]
[…] previous years (2012, 2013, 2014), I’ve used this opportunity to play Paul Revere. But instead of warning that the […]
[…] “Trust Fund” can finance promised benefits until the early 2030s. But the so-called Trust Fund has nothing but IOUs, which means that benefits can only be paid by additional government borrowing. As you can imagine, […]
[…] Fund” can finance promised benefits until the early 2030s. But the so-called Trust Fund has nothing but IOUs, which means that benefits can only be paid by additional government borrowing. As you can imagine, […]
[…] By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs. […]
[…] By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs. […]
[…] By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs. […]
[…] By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs. […]
[…] the good news. But the bad news, as I’ve previously noted, is that the Trust Fund is filled with […]
[…] the good news. But the bad news, as I’ve previously noted, is that the Trust Fund is filled with […]
[…] the good news. But the bad news, as I’ve previously noted, is that the Trust Fund is filled with […]
[…] the good news. But the bad news, as I’ve previously noted, is that the Trust Fund is filled with […]
[…] we recently learned Social Security is even more financially decrepit than previously estimated, let’s cheer ourselves up with a couple of […]
[…] does include some analysis of the Social Security Trust Fund, even though that supposed Fund is nothing but a pile of IOUs – money that one part of the government promises to give to another part of the […]
[…] we recently learned Social Security is even more financially decrepit than previously estimated, let’s cheer ourselves up with a couple of […]
[…] we recently learned Social Security is even more financially decrepit than previously estimated, let’s cheer ourselves up with a couple of […]
[…] does include some analysis of the Social Security Trust Fund, even though that supposed Fund is nothing but a pile of IOUs – money that one part of the government promises to give to another part of the […]
[…] does include some analysis of the Social Security Trust Fund, even though that supposed Fund is nothing but a pile of IOUs – money that one part of the government promises to give to another part of the […]
This is not intended to be an argument against the mathematical realities which are being stated here, but there are certain legal issues with implying that the U.S.Treasury bonds issued to the U.S. Social Security Administration are nothing but “worthless IOUs”. Legally, a U.S.Treasury bond is a U.S.Treasury bond. If some U.S.Treasury bonds are “worthless IOUs”, then ALL U.S.Treasury bonds are “worthless IOUs”. It isn’t valid to claim that the U.S.Treasury bonds held by the Social Security Administration are worthless, while accepting that the U.S.Treasury bonds held by some private pension fund are “valuable assets” which demonstrate the solvency of that private pension fund.
[…] does include some analysis of the Social Security Trust Fund, even though that supposed Fund is nothing but a pile of IOUs – money that one part of the government promises to give to another part of the […]
[…] There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion. […]
[…] this story from the Associated Press about Social Security’s […]
[…] this story from the Associated Press about Social Security’s […]
[…] About that Social Security Privitization thing. In Townhall Finance Daniel J. Mitchell has the following articleAustralia vs. the United States: Two Charts that Tell You Everything You Need to Know about Social Security ReformFirst he restates the problems with Social Security in a nutchell. There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion. […]
[…] We dare not privatize social security Written By: PT on May 4, 2012 No Comment If we did that, then people would get a taste of freedom. freedom from the government’s incessant intrusions into our lives….freedom from destitution….freedom to live with some sort of financial dignity. And our elected politicians will have none of that! There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion. […]
[…] There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion. […]
[…] There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion. […]
There may be no Trust Fund, but don’t worry: there’s a Lock Box.
[…] There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion. […]
[…] There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion. […]
[…] we recently learned Social Security is even more financially decrepit than previously estimated, let’s cheer ourselves up with a couple of […]
[…] we recently learned Social Security is even more financially decrepit than previously estimated, let’s cheer ourselves up with a couple of […]
I tell people over and over again, there is no trust fund. There is no trust fund. There is no trust fund!