The Dueling Myths of Social Security

By on June 6, 2016 in Current Events with 88 Comments

I love Social Security.  I hate reading myths about it.

Everyone has a fact that is someone else’s myth. The arguments for and against quickly devolve into academic waterboarding in which how we count the beans becomes more important than the actual number of beans.

Last month, the Committee for a Responsible Federal Budget released a list of 9 myths. Weeks later, Alicia H. Munnell rebutted that list in a MarketWatch piece. While these sources may seem to contradict each other, the reality is that each is really framing the question that they wish to answer with data that they wish to use.

In her column, Ms. Munnell largely suggests that CRFB is technically correct, but wrong in reality. She doesn’t like how CRFB counts the beans. This is what she means by “inside baseball.”

The entire debate is inside baseball. Opponents give new meanings to words, and collect data from Bizarro-Social Security, all in an effort to allow the reader to come to the wrong conclusion.

For example, whether Social Security contributes to the deficit depends upon which measure of deficit you are considering.

According to the Social Security Administration, the program by law adds to every version of the deficit with general fund subsidies. That simple answer only pushes the myth seekers to qualify what counts as a subsidy.

Committee for a Responsible Federal Budget – 9 Social Security Myths You Shouldn’t Believe
Myth #1 We don’t need to worry about Social Security for many years.
Myth #2 Social Security faces only a small funding shortfall.
Myth #3 Social Security solvency can be achieved solely by making the rich pay the same as everyone else.
Myth #4 Today’s workers will not receive Social Security benefits.
Myth #5 Social Security would be fine if we hadn’t “raided the trust fund.”
Myth #6 Social Security cannot run a deficit.
Myth #7 Social Security has nothing to do with the rest of the budget.
Myth #8 Social Security can be saved by ending waste, fraud, and abuse.
Myth #9 Raising the retirement age hits low-income seniors the hardest.

I think CRFB did a very good job on Myth 3. Myth 4 is conjecture. What voters today think of Social Security is irrelevant to the voters of the future. Myths 5 and 8 are self-evident. The rest is inside baseball.

Myth #1: We don’t need to worry about Social Security for many years.

CRFB says that this statement is a myth. Ms. Munnell says that is not so. Of course, her rationale applies a different definition of solvency, and assumes that time value of money is non-existent. These assumptions form the basis for the economic equivalent of the Flat Earth Society.

According to the Trustees of Social Security’s Trust Funds, the cost to fix the financing gap of the program grew by $900 billion in 2014 because we did nothing.  These measures are expressed in present-value, which by definition grow over time.

Myth #2: Social Security faces only a small funding shortfall.

CRFB says that this statement is a myth. Ms. Munnell says less so without actually denying the myth. CRFB’s commentary is based on data from the Congressional Budget Office.  I suspect that Ms. Munnell based her opinion on data from the Social Security Administration which is more optimistic than other forecasts.

The real argument is which source of data is better. The real answer is no one knows. To show the problem more clearly, Wharton Professor Olivia Mitchell argues that the funding shortfall is actually $15 trillion worse than either believes. She uses a different time frame, one that serves for all Americans rather than just current voters. I tend to agree with Ms. Mitchell.

Myth #6: Social Security cannot run a deficit

CRFB admits that Social Security cannot run a deficit overall, which is relevant to the myth. Its report continues based on whether the program can run a deficit in any given year, which really doesn’t matter.

Myth #7: Social Security has nothing to do with the rest of the budget.

As with the previous myth, CRFB acknowledges that there are multiple versions of the budget. Its commentary subsequently picks the version which turns fact into myth.

This myth is entirely about how you count the beans. According to the Trustees of the Social Security Trust Funds, the unified budget measure is not sound because it does not accurately reflect current law.

Myth #9: Raising the retirement age hits low-income seniors the hardest

CRFB examines benefit reductions as a percentage of total Social Security benefits. On that basis, the reduction is proportionately larger for wealthier seniors.

If you look at the benefit reductions as a percentage of total income, the lower income retiree gets destroyed compared to wealthier seniors who have outside resource to cover the gaps created by the benefit cut.

Today the debate about Social Security isn’t about the financial future of the system.  It is about controlling the meaning of words. Victory in this environment is measured in repetition rather than reason. So the process reduces a sensible discussion to an emotional trigger of 140 characters or less.

© 2016 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.

Tags:

About the Author

Brenton Smith (A.K.A. Joe The Economist) is the founder of “Fix Social Security Now” which provides information on all alternatives in the public debate on Social Security through its site www.FixSSNow.Org.

Top