Social Security is the largest expense in the federal budget. Is it unreasonable for voters to expect candidates to know how the program works or the problems it faces?
Today, voters really don’t know.
Of the 35,000 words spoken in the recent GOP debate, the phase Social Security was used only 6 times. Chris Christie used four of those references to say that the system had ‘lied and stolen from us’. To him, a nameless thief crept into the vault and stole the money. Lilliputians are at fault.
Back to facts.
Social Security was a pay-as-you-go system until 1983. By definition, there was almost nothing to steal from the program. Almost every dollar collected in payroll taxes is distributed as benefits.
When LBJ arrived in office in 1964, the system had accumulated roughly $21 billion of reserves over 25 years. When he left there was less than $29 billion. No, $8 billion in surplus cash did not pay for Vietnam.
In 1983, the system faced imminent insolvency. The Trust Fund was nearly empty, and the system carried promises of benefits to nearly 40 years of workers.
The only way to keep those promises was to reform the system to increase taxes and reduce benefits. This change generated meaningful excess cash that was intended to create a buffer for retiring Baby Boomers.
That excess cash has been used to purchase government securities. Critics say that these investments are just worthless IOUs. The reality is Social Security gets better terms on its loans to the government than private pensions do.
The investment professionals who run these pensions do not say their money was stolen. They do not complain that the assets are IOUs. In fact, these people call the same investment a ‘cash-equivalent.’
What we call the reserves is semantics. The fact is the Trust Fund is the only reason that Social Security pays full benefits today. Without the buffer provided by the Trust Fund, benefits would have been reduced by roughly 12 percent in 2014.
So the IOUs, by definition, cannot be worthless.
In hindsight, the money could have been invested more profitably, but the assets of the Trust Fund is what separates us from a reduction in scheduled benefits.
Other critics will tell you that the money was syphoned off for the general fund without any credit going to Social Security. The Social Security Administration says that this claim is an urban myth (see Q1). For these critics to be right, the agency would have to play an active role in a multi-decade conspiracy to defraud workers of benefits.
That conspiracy would require liberals work with conservatives, Republicans work with Democrats, and not one employee of the SSA to break the ranks of indecency. It would require Obama to cover for Bush, Bush to cover for Clinton, and the trustees to cover for everyone. In terms of conspiracy, it is more likely that the second shooter on the grassy knoll was an alien who escaped from Roswell, NM.
An honest politician would tell you that every penny of the $2.8 trillion Trust Fund will be repaid with interest. That buffer is about a dime of solution for every dollar of problem. Instead of talking about what we call the dime, candidates should be talking about the $0.90 of problem.
The next time a politician says that the money was stolen, let’s make sure that he names individuals rather than imaginary hobgoblins.