A Hat Tip to Factcheck.org on Social Security
By Charles Bird Posted in Elections — Comments (26) / Email this page » / Leave a comment »
During the election season, factcheck.org (not factcheck.com, Dick) did a stellar job at evaluating the truthfulness of advertising and claims made by the respective presidential campaigns. After the election, the non-partisan group did not go completely dormant, and has set its primary sights on the Social Security reform debate. Importantly, the organization has taken no positions yea or nay on Social Security, seeing its role as debate referee. In its first entry, the group analyzed an ad produced by the pro-reform group Progress for America Voter Fund, and one made by AARP agin the Bush reform package:
A pro-Bush TV ad gets the central fact right about Social Security: by the time today's young workers retire there are projected to be only two workers paying Social Security taxes for every one person receiving Social Security Benefits. Today there are 3.3 workers per beneficiary.
But a different ad opposed to Bush's efforts uses a misleading photograph. It shows wild trading in commodities like cocoa futures to depict the risk that workers could face with private Social Security accounts. Actually, what's being proposed is not investment commodities, but in far less risky stock and bond mutual funds, which would be broadly diversified.
The AARP ad was misleading because it showed commodities traders whooping and hollering in a trading pit free-for-all, inaccurately portraying the actual proposal of investments in bond and stock mutual funds. In factcheck.org's next offering, Bush and Cheney are taken to task for claiming that Social Security faces an $11 trillion shortfall if no action is taken:
Read on.
President Bush and Vice President Cheney have told audiences that Social Security faces an $11 trillion shortfall if nothing is done to fix the current system. But they fail to mention that this is over the course of the “infinite future." Over the next 75 years -- still practically a lifetime -- the shortfall is projected to be $3.7 trillion.
The "infinite" projection is one that the American Academy of Actuaries says is likely to mislead the public into thinking the system "is in far worse financial condition than is actually indicated," and therefore should not be used to explain the long-term outlook.
Beware "infinite horizon" statistics. After skewering Bush/Cheney for using misleading numbers, factcheck.org turned its skewers on another dot.org, the one with the "moveon" prefix:
MoveOn.org launched a false TV ad in the districts of several House members, claiming through images and words that President Bush plans to cut Social Security benefits nearly in half. Showing white-haired workers lifting boxes, mopping floors, shoveling and laundering, the ad says "it won't be long before America introduces the working retirement."
Actually, Bush has said repeatedly he won't propose any cuts for those already retired, or near retirement. What MoveOn.org calls "Bush's planned Social Security benefit cuts" is actually a plan that would hold starting Social Security benefits steady in purchasing power, rather than allowing them to nearly double over the next 75 years as they are projected to do under the current benefit formula. The White House has discussed such a proposal, and may or may not adopt it when the President puts forth a detailed plan expected in late February.
A sad testament and lowpoint for the Bush-hating, Soros-funded keyboarding crew. The factcheckorg folks then peered over to the right of the aisle and found it wanting:
In his State of the Union Address, President Bush said again that the Social Security system is headed for "bankruptcy," a term that could give the wrong idea. Actually, even if it goes "bankrupt" a few decades from now, the system would still be able to pay about three-quarters of the benefits now promised.
Bush also made his proposed private Social Security accounts sound like a sure thing, which they are not. He said they "will" grow fast enough to provide a better return than the present system. History suggests that will be so, but nobody can predict what stock and bond markets will do in the future.
Bush left out any mention of what workers would have to give up to get those private acounts -- a proportional reduction or offset in guaranteed Social Security retirement benefits. He also glossed over the fact that money in private accounts would be "owned" by workers only in a very limited sense -- under strict conditions which the President referred to as "guidelines." Many retirees, and possibly the vast majority, wouldn't be able to touch their Social Security nest egg directly, even after retirement, because the government would take some or all of it back and convert it to a stream of payments guaranteed for life.
This was also the moment when Bush officials conceded that personal accounts would have a "net neutral effect" on the fiscal situation of Social Security; therefore, other measures will be necessary to shore up the forthcoming shortfalls. In its next go-round, factcheck.org shreds an ad by Campaign for America's Future, a liberal Democratic group:
New information turned up by FactCheck.org shows that the type of private Social Security accounts being proposed by President Bush would yield very little profit to the securities industry, contrary to persistent claims of a potentially huge "windfall" to Wall Street.
What we have discovered is that the model for Bush's accounts -- the Federal Thrift Savings Plan for federal workers -- actually paid securities firms a net total of only 16 cents for every $10,000 in workers accounts. The TSP had refused to make that information public -- until now. It shows that fees actually being paid to Wall Street are hundreds of times smaller than some critics had assumed.
For that reason and others we find that ads run in Louisiana by the liberal Democratic group Campaign for America's Future are grossly misleading. The group is accusing Republican Rep. James McCrery, who is chairman of the Social Security subcommittee and a supporter of Bush's private accounts, of "corruption" for accepting campaign donations from Wall Street, which it falsely claims will "profit most" from private accounts.
So much also for Paul Krugman's misleading Chile comparisons. AARP's "moderate changes" proposal came next under factcheck.org scrutiny:
Can the current Social Security system -- without individual accounts -- be fixed with only "a few moderate changes," as AARP suggests in a recent newspaper ad? A look at some of proposals that have been verified by neutral experts shows that they rely more on tax increases than benefit cuts. Whether the required changes are "moderate" or not will be a matter of opinion, but readers can judge for themselves by looking at the details we present here.
We note here that some proposals turn out to be only temporary fixes. They put the system in balance for a 75-year period immediately following enactment but leave it with a large and growing gap between benefits and taxes at the end. Worse, such "75-year fixes" actually come undone within a few years, just like the 1983 package of tax increases and benefit cuts that was supposed to solve the system's financing problems, but didn't. Achieving sustainable solvency requires bigger changes.
After "infinite horizons", beware the phrase "sustainable solvency", which is something no one can achieve without significantly higher tax rates or cuts in benefits, cracking into fiscal bedrock. Demonstrating once again that conservative groups can manipulative numbers, factcheck.org lays into Progress for America:
In a new TV ad, Progress for America exaggerates the true state of Social Security's finances by comparing it to the Titanic. The ad claims the system will go "bankrupt" if nothing is done and that we must rescue the program "before it hits the iceberg." Actually, neutral experts predict the system can pay between 70 and 80 percent of currently scheduled benefits even if the Trust Fund is exhausted, which isn't predicted to happen for another 37 years, at least.
The ad also touts Bush's plan for "voluntary personal retirement accounts" as though that would improve the system's finances. But even the White House now acknowledges that individual accounts alone do nothing to fix the system's long-term financial shortfall.
C'mon, guys. We don't have to fudge to sell reform (mmm, fudge). Later, AARP continued its ongoing disservice in misinforming the public:
AARP's latest TV ad shows a suburban home being flattened to repair a clogged kitchen sink, and claims that the creation of individual accounts would "dismantle Social Security" and "lead to huge benefit cuts."
The ad is intended to be humorous but presents a distorted picture. It both understates Social Security's financial problems and misrepresents the effect that individual accounts would have.
Social Security's problems are more serious than a stopped-up drain. And the system isn't about to sink like the Titanic, either, as an earlier ad by Bush supporters says. Social Security is more like a home being eaten slowly by termites.
I can only hope their series of distortions reduces their member rolls and revenues. Finally, Harry Reid has gotten into the game using a rigged calculator:
Democrats have been using a web-based "calculator" to generate individualized answers to the question, "How much will you lose under Bush privatization plan?" For young, low-wage workers it projects cuts of up to 50% in benefits. And a $1-million TV advertising campaign is amplifying the claim, saying, "Look below the surface (of Bush's plan) and you'll find benefit checks cut almost in half."
In fact, the calculator is rigged. We find it is based on a number of false assumptions and deceptive comparisons. For one thing, it assumes that stocks will yield average returns of only 3 percent per year above inflation. The historical average is close to 7 percent.
The calculator's authors claim that they use the same assumption used by the Congressional Budget Office. Actually, CBO projects a 6.8 percent gain.
The Bush-hating, Soros-funded Media Fund has a similar trick calculator. Anyhow, it's been helpful reading through the entries because it does help separate the wheat from the chaff. Social Security isn't on the legislative front burner right now, but there's no reason it shouldn't be. The situation isn't urgent, but it remains still important. Outflows will exceed inflows in 13 years and the fund will go into deficit in 37 years. A lot can happen between now and then, but the fact remains that fewer workers will be paying more beneficiaries more money over time. Seems reasonable to handle it sooner rather than later.
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A Hat Tip to Factcheck.org on Social Security 26 Comments (0 topical, 26 editorial, 0 hidden) Post a comment »
If a company could only pay 70% of the bills and had no plan to balance that budget in the future, it would be bankrupt.
So what is the governments plan to pay SSA trust fund bonds when they come due? All I hear from the President is Private accounts and "there is no trust fund". Believe me there is a trust fund just no apparent willingness in this administration to prepare the nation and the economy to pay the money back. Where I come from that's called taking without the intent to pay, or stealing in common parlance.
On the one hand they excoriate Bush and Cheney for using the "infinite horizon" in looking at the problem rather than the 75-year horizon.
Then they turn around and criticize the AARP for proposing the fix it only for the next 75 years as not being "sustainable" enough because it doesn't fix the problem beyond the 75-year timeline.
Are Bush/Cheney wrong for wanting to look at the problem via the infinite horizon rather than the 75-year horizon or is the AARP wrong for wanting to fix the problem only for the next 75-years rather than fixing it beyond that horizon (e.g. infinite horizon)?
Seems to me that FactCheck.org is trying to have it both ways so long as they can criticize pretty much everyone in the debate.
You already know the answer to all of these questions. You pose them to distract, not to assist in the dialogue. But for others who are reading, I'll answer.
We can only pay 70% (starting in 2041) after we pay back the whole Trust Fund. If we write-off the Trust Fund, then SS goes bankrupt in 2018. I always presume we will pay back the Fund when making predictions and reporting statistics including the one you quote.
As for the stealing, it has been done by every politician with a chance to do it: Reagan, Bush, Clinton, Bush, Democratic Senates and Houses, and Republican Senates and Houses. Everyone. One of the main reasons I support PRAs is because it takes money away from the politicians and puts it into a privately owned account they can't raid. The reason the whole Trust Fund debate doesn't register with most people is because no one believes Kerry or Bush or Republicans or Democrats will actually put money in a "lockbox." The very short-run surplus we had was during a bi-partisan era with a huge stockmarket bubble. Those conditions are not likely to repeat themselves.
So how do you propose we get the money out of the hands of politicians? I propose PRAs while we still have a surplus to put into them. You're up.
Ok, I guess the point is...what? That both sides exaggerate their positions in the political arena.
Well, duh.
But that is still a non sequitor: Politician X's position is not wrong simply because he uses inflated political rhetoric.
What are the "facts" here? No one knows. Really. Do we really think we have the capacity to project economic activity 20 years into the future? What nonesense.
We should be pursuing national policies that maximize economic growth and technological innovation TODAY. If we get that right, then future generations will be just fine. If we get it wrong, then no amount of fiddling with SS will make a whit of difference.
And never yet countered.
How do we keep the money out of politicians hands?
Simple, give the SSA trust fund marketable bonds when government takes the FICA tax surplus, just like we give the Chinese and whoever else buys our bonds.
If you are predicting a 30% benifit shortfall 30+ years from now then it's a relatively simple matter to tinker with retirement age, benifit levels, indexing or whatever to make up the shortfall and we have plenty of time to get it done. What's the rush? A return to the boom years will probably push the date out even further.
And the dirty little secret? using the economic numbers the administration uses to show a greater return on private accounts over SS, if applied to the current forecast of SS 'insolvency', would perpetuate SS in balance ad infinitum with no tweaking necessary.
Asked and answered, your serve.
One of FactCheck's articles is debunking your Dem talking point:
Can the current Social Security system -- without individual accounts -- be fixed with only "a few moderate changes," as AARP suggests in a recent newspaper ad? A look at some of proposals that have been verified by neutral experts shows that they rely more on tax increases than benefit cuts. Whether the required changes are "moderate" or not will be a matter of opinion, but readers can judge for themselves by looking at the details we present here.
We note here that some proposals turn out to be only temporary fixes. They put the system in balance for a 75-year period immediately following enactment but leave it with a large and growing gap between benefits and taxes at the end. Worse, such "75-year fixes" actually come undone within a few years, just like the 1983 package of tax increases and benefit cuts that was supposed to solve the system's financing problems, but didn't. Achieving sustainable solvency requires bigger changes.
According to the SSA, it will take a 27% benefit cut or a 25% increase in payroll taxes (to over 15% from 12.4%) to cover the difference in 2041.
The "good times will save us" meme also falls flat. We're growing at over 3% a year right now and the doomsday date was moved up 1 year in this year's report from 2042 to 2041. That may fluctuate, but the underlying movement toward fewer workers per retiree isn't changing.
It's time to take the money out of politicians hands and put it into our own personal "lockboxes."
Because when it comes right down to it, the government can pay its "creditors" the amounts it chooses to.
The point was to separate from wheat from chaff based on best available facts. Your "solution" is basically to press head firmly into sand. Noted.
What are the "facts" here? No one knows. Really.
OK, then try and sell that to semi-responsible pension fund manager, pal.
"fewer workers per retiree" meme and so are they.
Ask yourself how come SS isn't in deficit right now given the dramatic reduction in the worker/retiree ratio since the programs inception. And no the answer obviously isn't the 1983 FICA tax fix, the answer is increased productivity.
There are push/pull forces working on both sides of the equation and productivity increases work to discount the declining worker/retiree ratio.
Are you assuming zero productivity growth for the foreseeable future?
A time horizon for SS insolvency of 75 years tells me we ought to sit back and see what happens and do the minimum tinkering necessary to keep SS solvent. And pay back the debt owed to the SSA trust fund and those FICA tax payers of course.
The only problem the 1983 FICA tax hike didn't solve (and I suspect, given its authors, was specificaly not intended to solve) was the problem of keeping the politicians hands off the trust fund. As I have said, marketable bonds as surety for the surplus borrowed by government would solve that problem.
SS will be 75 years old in 2010 that little nugget should alter your perspective somewhat and Factcheck should change their name to something more relevant to what they are peddling.
You aren't offering a solution to the problems of SS with private accounts, you are trying to mitigate a general fund indebtedness problem.
Is there such a thing as Truth? A realist believes in the impossible, and that means the water was deceptively shallow; does that say there is much depth or none?
Part of the problem with the Bush Chenny economic growth models is that the numbers change depending on the issue that is being discussed. When discussing spending the administration postulates substantial growth, but when the administration discuss Social Security, the numbers are much more conservative.
Social Security is not the only segment of the Government that is in crises. One could just as easily say that the military, the subsides for RnD, the health care system, or any other government program is in trouble. Growth is something citizens should discuss, but while Social Security is effected by growth, it is not about growth. A congress historically spending the surplus on programs other than Social Security does not prove that social security is flawed, or something much more significant is at issue?
Who will benefit from a depreciating dollar?
many of Factcheck's facts are indeed facts or the best available.
But given they state they believe SS faces a crisis on a 75 year time horizon I am comforted by the fact that SS will turn 75 years old in 2010.
I wish the President would move on and 'fix' something more current, like the mounting deficit or the soon to be crisis of medicare/prescription drug benefit/exploding healthcare costs. Then I would be assured of his commitment to the country's fiscal problems and not his political legacy.
wheat from chaff...Your "solution" is basically to press head firmly into sand.
As long as we are engaging in "argument by metaphor", I suppose one could say that SS "reformers" are "whistling past the graveyard" or "tripping over dollars to pick up penny's" or (themselves) "burying their heads in the sand", or (my favorite from Poland) "pissing in the soup". (I hope that does not run afoul of the profanity prohibition).
You see, I don't think we have a social security problem. I think that one is entirely artificial, manufactured by those with an ideological disposition to break up the current system.
But that does not mean we don't have a problem with future retirement costs. It means that the real problem extends far beyond SS. Which is to say, the real problem would still exist even if the solvency of SS was not in doubt.
The only problem the 1983 FICA tax hike didn't solve (and I suspect, given its authors, was specificaly not intended to solve) was the problem of keeping the politicians hands off the trust fund.
I'm not sure what it would mean to keep the politicians' hands off of the trust fund, but in any case, I expect it was a deliberate choice.
The operational effect of the trust fund is to migrate SS funding away from the payroll tax and push it onto the general fund. I do not see anything wrong with that.
Social Security is not the only segment of the Government that is in crises. One could just as easily say that the military, the subsides for RnD, the health care system, or any other government program is in trouble
Indeed.
Here's how you manufacture a crisis: Project future government spending, declare it "unfunded", and voilla! Instant crisis. For example:
The government is going to spend BILLIONS over the next 100 years on road construction. As of today, that entire liability is UNFUNDED!!! Eghad! What are we to do!?!?
I know! Lets start borrowing money like crazy and invest it in the stock market. That'll take care of it.
Unless the General fund denies the liability whilst taking full advantage of the asset for purposes unrelated to the original intent.
Unless the original intent was a nefarious scheme from the git go?
It's the best reason I can think of as to why you would write something like this: "I think that one is entirely artificial, manufactured by those with an ideological disposition to break up the current system." While in the meantime ignoring what the best experts are saying as to what is most probable to occur.
is that the "trust fund" has the practical effect of spreading the burden of SS payments across a broader cross section of the economy. The payroll tax is the most regressive one we have.
The FICA cap has already been lifted. Once SS expenditures exceed (current period) receipts, and the government is forced to redeem the SS "trust fund" bonds, we will have (for the first time ever) a situation where non-payroll tax receipts are flowing to SS beneficiaries. That is what I described as "good".
I have to think that those that put the system in place realized this. It was a very clever way of raising the payroll tax without raising it.
Of course, the one thing that my analysis assumes is net deficit spending. If the government runs a surplus, then excess SS receipts could be used to actually pay down external debt. That would just defer the situation, of course, since the money would just get re-borrowed in the future when SS payments exceed receipts.
What is "the problem" with Social Security as you see it?
Most people express the problem as the fact that at some date in the future, we expect that SS payments will exceed SS receipts.
Is that what you think is "the problem"?
Why? What do you think will happen when that occurs? I keep reading articles that imply that once payments exceed receipts, something bad will happen. What will happen that will be bad?
As near as I can tell, what will happen is that the government will fund the "shortfall" through other revenue. So what? What is so bad about that.
What is the projected shortfall in 2050? $250 billion? $500 billion? Who cares. We run deficits like that today. I wish we didn't, but the fact is we do. And we can. And we will continue to be able to do so. And if it ever comes to pass that we can not, then SS will be the least of our concerns.
So, really, why do you think there is a problem?
If people make more money, we owe them more money when they retire. And the models SSA uses incorporate expected productivity growth. This isn't hard to understand. There are less of us working supporting those who have retired. That gets worse very quickly as the baby boomers retire. It continues to worsen after that as the baby boomers live forever and more people retire. 16 of us could afford to fund 1 retiree's lifestyle. 2 of us can't. Not at 12.4%. If you want to hike it to 15.5% go ahead and propose it. I would prefer to take politician's hands off of the surplus by creating PRAs.
Productivity compounds.
Your comment assumes that the payroll tax is the only input into the system. Clearly, the operation of the trust fund invalidates that assumption.
But if I am more productive, I make more, I put more into the system. I also get more from the system when I retire. Then I live longer and my SS payout grows with wages which is faster than interest. So even though productivity gains (over what is projected) might add money to the system, they also add liabilities.
- Your benefits will hit a cap. Its not like Bill Gates is going to get $10,000,000 monthly checks.
- Even under the cap, there is a lag between the time of the productivity increase and the time of the increased benfits. That time lag has economic value. This is what I mean when I say that productivity compounds.
Benefits only cap becuase payments are capped. You could raise one without raising the other but that would be a major change in the SS system. It would make it into a welfare program.
Your second point is valid.
It is true that both benefits and contributions hit limits, but there is more to it than that.
I do not look at this as a question that has to be solved "inside" of the SS system. We need to look outside of the system.
As productivity increases, the relative amount of burden from non-productive retirees that society can endure increases.
In the end, plain math tells us we will have to increase the amount of money going into the system. We can either do this by raising the payroll tax (not likely), or by subsidizing SS from general revenue.
My bet is on the latter.
FactCheck is an essential tool for serious politicos. It is even-handed and fair to the extreme. I have only one quibble in all of their above analysis. They seem to take issue with the term "bankrupt." If a company could only pay 70% of the bills and had no plan to balance that budget in the future, it would be bankrupt. The analogy is apt. It can be avoided (as can most bankruptcies), but without any change, the system is headed toward bankruptcy right when my age cohort is retiring.