The one argument about Social Security that draws in more conflict than any other is: does Social Security contribute to the deficit?
For all of the drama, the answer is pretty simple. Social Security contributes to the deficit that is specifically constructed to include the revenue and expense of Social Security. The system does not add to the deficit that is specifically constructed to exclude Social Security from the calculation.
Confused? The truth is, there is more than one definition of the word “deficit.” So the entire argument deals with the control of the meaning of this word.
When the Committee for a Responsible Federal Budget (CRFB) says, “Fact: Social Security is running a cash deficit today, and will keep running deficits until its trust funds run out,” it is talking about the Unified Budget Deficit.
Voters need to understand that each measure of the budget deficit reflects a distinct relationship between the government and Social Security. If you see the program as a profit loss center for the government, the Unified Budget Deficit would be the appropriate measure. That means Social Security is simply a pot of money that Congress collects for other purposes.
If you see Social Security as an isolated financial system independent of the government, then the on-budget deficit would be a better way to measure Social Security’s impact on the finances of the government. This measure is used by people who see Social Security as a financial system run by the government.
The financing laws of Social Security do not fit neatly into ideology.Brenton Smith, IVN Independent Author
PolitiFact has ruled regularly that Social Security adds to the deficit. This isn’t an economic assessment. Their assessment is an argument about what the word “deficit” should mean. In reality, the answer is neither. The financing laws of Social Security do not fit neatly into ideology.
The Unified Budget measure that is used by CRFB is flawed because this measure treats the excess cash of Social Security as general tax revenue. In fact, excess cash created by Social Security is exchanged for government bonds.
On the other hand, the Trustees of the Social Security Trust Funds said in their recent report: “Unified budget accounting assumes that full scheduled benefits will continue to be paid through transfers from the General Fund of the Treasury, thus representing … a draw that are not permissible under the law, no precedent exists for a change in the Social Security Act.”
Basically, the Unified Budget Measure does not reflect current law.
Sanders’ statement is not entirely true either. It is accurate to say that the revenue and expense of Social Security is not “counted” toward the on-budget deficit. That doesn’t mean that Social Security doesn’t “contribute” to the deficit (pick any meaning).
Social Security is not self-funded as claimed by many supporters. For example, P.L 98-21 authorizes the Treasury to transfer tens of billions in subsidizes from the general fund to Social Security — primarily the collection of taxation on Social Security benefits. Between 2011 and 2012, the general taxpayer paid nearly $250 billion in direct subsidies for the payroll tax holiday.
This is dollar for dollar “on-budget” deficit spending because money is coming out of the general fund. In terms of the on-budget measure, the dollar in and the dollar out are separate transactions.
The dollar leaving the general fund is considered an expense of the government. On the other hand, the dollar going into Social Security is not an offsetting dollar of revenue because the revenue of Social Security is not included in the on-budget deficit.
This argument is not about whether Social Security adds to the overall financial mess of our government. It is an argument about the meaning of words.