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If the health care debate whetted your appetite for more ways to poke holes in the talking points of the Limbaugh Right, economist Dean Baker has one for you. Social Security is not going broke.

The Congressional Budget Office projects that the program can pay all scheduled benefits through the year 2044 with no changes whatsoever. Even after this date it could still pay more than 75 percent of projected benefits long into the future (a level far higher than current benefits) even if no changes were ever made.

In fact, these projections show that Social Security is on a sounder financial footing today than it has been through most of its history since it can go 34 years with no changes being made at all. This was not true at any point in the first 40 years of the program’s existence.

 

8 Comments

  1. Allen W. Smith, Ph.D.

    March 24, 2010 at 12:46 pm

    I share Dean Baker’s desire to defend and protect Social Security, but false assurances do more harm than good. The following statement is meaningless.

    “The Congressional Budget Office projects that THE PROGRAM can pay all scheduled benefits through the year 2044 with no changes.”

    On paper, the statement is true. The books show that Social Security has $2.5 trillion in assets in the form of “trust fund bonds.” But this is a BIG LIE.

    Consider the following statements:

    “There are no stocks or bonds or real estate in the trust fund. It has nothing of value to draw down.”–David Walker, Comptroller General of the GAO–Speech in Washington on January 21, 2005. I know that some people are trying to diminish Walker’s credibility because he now works for the Pete Peterson Foundation. But the above statement was made in his capacity as Comptroller General of the GAO.

    If you don’t accept the word of the Comptroller General, then what about the Social Security Trustees” The following statement is a direct quote from the 2009 Social Security Trustee’s Report:

    .“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

    This statement by the Trustees makes it crystal clear that the Treasury does not receive any net interest income from the “trust fund” bonds. It also makes it clear that the Treasury does not receive any new net income by redeeming the “bonds.” It explicity states that in order to pay interest to Social Security, and in order to redeem the bonds, the government will have to raise taxes, reduce other government spending, or borrow more from the public.

    It should be absolutely clear to everyone, including Dean Baker, that the government will not be able to repay the $2.5 trillion it “borrowed” from Social Security without raising taxes or cutting government spending. There is no way that we can borrow that much additional money from the public during these economic times.

    It doesn’t matter that due, to fraudulent boookkeeping, the Social Security Administration can show that, on paper, it can pay the benefits. The key question is whether the government can and will find a way to repay the money.

    Allen W. Smith, Ph.D.
    Professor of Economics Emeritus
    Eastern Illinois University
    Website: http://www.thebiglie.net.

  2. Mike

    March 24, 2010 at 4:56 pm

    Dr. Smith is correct, but just to add a little fuel to the fire – there is no real trust fund either.

    A real trust fund:
    Despite the term “trust,” the Social Security system contains nothing that remotely resembles the common law trust. There is no segregation of assets, no equitable property rights, no private right of enforcement (all characteristics
    of the common law trust). It is merely a system of taxation and appropriation sprinkled with trust terms to hide its true nature. (Professor Charles E. Rounds, Jr., “Will the Institution of the Trust Survive the Clinton Presidency?” The Advocate
    25 (Spring 1995)

    A government trust fund:-
    “In the federal budget the meaning of the term “trust” differs significantly from its private sector usage.” (01/01/2001 – GAO-01-199SP)

    Well, is it a trust fund?

    Is it insurance?

    The brief before the Supreme Court by the Executive branch of Government via the Attorney General said -

    The OASI [Old-Age and Survivors Insurance] program is in no sense a federally-administered
    “insurance program” under which each worker pays premiums over the years and acquires at
    retirement an indefeasible right to receive for life a fixed monthly benefit, irrespective of the conditions which Congress has chosen to impose from time to time. While the Act uses the term
    “insurance,” the true nature of the program is to be determined from its actual incidents.

    U.S. Supreme Court, Records and Briefs, October Term, 1959, No. 54, Flemming v. Nestor, Brief for the Appellant p. 10.

    But…years latter Wilbur Cohen reminisced about the decision –

    I recall walking down the steps of the Supreme Court building in a glow of ecstasy with Mr Winant and Mr. Altmeyer. We had hoped and prayed for this day….When I got back to the office, I obtained Mr. Altmeyer’s approval to send out a memo to the staff stating that because of the decision we could now call the old age benefits program “old age insurance” and we could now call the unemployment compensation program “unemployment insurance.” The American public was and still is insurance-minded and opposed to welfare, “the dole” and “handouts.”

    U.S. Congress, Senate, Senator Edward Kennedy, 94th Cong., 1st sess., September 16, 1975, Congressional Record, 121:28872

    Tricky little xxxxxxx’s

  3. Allen W. Smith, Ph.D.

    March 24, 2010 at 5:35 pm

    You are certainly correct. One of the least known facts about Social Security is that, although the government does have a moral obligation to pay Social Security benefits to those who have earned them, the government does not have a legal obligation to do so. In a 1960 ruling by the United States Supreme Court, the court ruled that nobody has a “contractual earned right“ to Social Security benefits. Section 1104 of the 1935 Social Security Act specifically states, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” According to the above strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security. In the case of Fleming v. Nestor, the Supreme Court upheld the denial of benefits to Nestor, even though he had contributed to the program for 19 years and was already receiving benefits In its ruling, the Supreme Court established the principle that entitlement to Social Security benefits “is not a contractual right.” As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.

  4. Jeff

    March 24, 2010 at 5:59 pm

    Hey Doc, Does that mean I don’t get my money when I drop out of being productive? Right now they’re only in to me for about 50K and the same for those who have hired me over the years.

    Can I get a buy out or something?

  5. Allen W. Smith, Ph.D.

    March 24, 2010 at 8:37 pm

    I believe that it would be politically impossible for Congress to not honor its moral obligation to pay benefits to those who have contributed. to Social Security, despite the fact that it is not legally require to do so. Hopefully it will make provisions to repay the “borrowed” money once the American people discover what has happened. As of now, the fact remains that the government has, “borrowed,” “embezzled,” or “stolen” $2.5 trillion of Social Security contributions made by American workers over the past 25 years. When I first learned about this, more than ten years ago, I was outraged. I wanted to tell the whole world about it so everyone would be outraged. But nobody wanted to listen. During the past decade, I have published four books on the subject, discussed the issue on national TV three times and done more than 170 radio interviews on it. Still most Americans don’t know about the great Social Security scam because people like Dean Baker, the AARP, and the NCPSSM continue to claim that Social Security is just fine and able to pay benefits for decades without any action. That is just not true.

    I urge everyone who is concerned about the future of Social Security to visit my website at http://www.thebiglie.net and read excerpts from my latest book, “THE BIG LIE.

    The Social Security surplus revenue should have been saved and invested in public-issue, marketable Treasury bonds. These bonds are as good as gold and default-proof. They are the kind of U.S. Treasury bonds that are owned by China and Japan, Bill Gates, pension funds, and every other serious investor that owns Treasuries. Barbara Kennelly, president of NCPSSM, who asserts that the Social Security holdings are “as solid as what we owe China and Japan,” would be correct, if the Social Security surplus had been invested in public-issue marketable Treasury bonds, as it could have been, and should have been. Unfortunately, however, not a single dollar of the surplus Social Security revenue was saved or invested in anything. It was all spent. And, once money is spent, there is nothing left to invest.

    The government cannot and will not default on any of its public issue, marketable Treasury bonds because of the panic it would create in world markets and the damage it would do to the nation’s worldwide credibility. But Congress has the legal authority to default on its debt to Social Security, and, if it should do so, the outside world would probably view it primarily as an internal matter between the United States Government and its citizens.

    The American people must demand that provisions be made to repay the looted money.

    http://www.thebiglie.net

  6. Bruce Krasting

    March 25, 2010 at 12:24 am

    The Trust Fund will put out its annual report soon. It will confirm what I and others have been observing for the past year. The Fund is running out of gas and it is doing it years earlier than has been predicted.

    The comment on the top of this that SS is doing just fine and can pay scheduled benefits to 2044 is just flat out wrong. In 2009 the trustees revised the drop dead date to 3037. This year they will have to revise it again. My guess is it close to 2020 by now. and that folks, is a problem.

  7. north state politics

    March 25, 2010 at 8:33 am

    The fix to Social Security is just so simple. Currently taxpayers only pay Social Security taxes on the first $97,000 (or so – I forget the exact number) of wages, then they pay nothing. A moderate increase to the income subject to Social Security taxes – say to $150,000 would add another generation or two to the solvency of the system.

    Some things are simple.

  8. Allen W. Smith, Ph.D.

    March 28, 2010 at 5:54 pm

    In the hope that this public message might somehow get to Barbara Kennelly, I want to address her directly through this public forum.

    Dear Barbara Kennelly:

    Please look at budget receipts and outlays for every year since 1985 when Social Security surpluses first appeared. Look at the total revenue, including Social Security revenue, for each year and then compare that number with the government’s total expenditures. If you do so, you will find that in each year, except for 1999 and 2000, total government expenditures exceeded the total revenue of the federal government, including Social Security revenue. In other words, the government spent all of its general fund revenue, plus all of the Social Security revenue, and still ran deficits in all years except 1999 and 2000. It is clear that all of the Social Security surplus revenue was spent for general government. If it was all spent, then there was nothing to invest.
    The Social Security trust fund contains no real assets—only IOUs.

    When you say that Social Security has enough money to pay full benefits until at least 2037, you are mistaken. Social Security does not even have the $29 billion that it will need to pay full benefits for 2010. The Treasury will have to borrow that money to replace some of the Social Security money that it has previously spent on other things.

    When you say that the trust fund IOUs are just as solid as the debt that we owe to China and Japan, you are wrong. China and Japan own public-issue, marketable Treasury bonds that are as good as gold. They can sell them at any time in the open market. The government cannot and will not default on any of its public issue, marketable Treasury bonds because of the panic it would create in world markets and the damage it would do to the nation’s worldwide credibility. But Congress has the legal authority to default on its debt to Social Security, and, if it should do so, the outside world would probably view it primarily as an internal matter between the United States Government and its citizens.

    Section 1104 of the 1935 Social Security Act specifically states, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” This provision was upheld in the 1960 ruling by the United State Supreme Court, in the case of Fleming v. Nestor. In its ruling, the Supreme Court established the principle that entitlement to Social Security benefits “is not a contractual right.” As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.

    You may not like to hear any of these facts, but they are indeed facts. Instead of pretending that Social Security is fine and does not need to be fixed, I believe the NCPSSM has an obligation to its members to seize the moment and push for legislation that will truly fix Social Security. As of now, we have a Social Security friendly President and Congress. We need to push through reform legislation that will guarantee that Social Security will be solvent in the future.

    Ms. Kennelly, please abandon your efforts to convince the public that Social Security is in good shape just as it is. The great Social Security scam of the past 25 years must be exposed, and you have the power to do that. Please acknowledge the truth and then let us push for Social Security legislation that will strengthen Social Security. (P.S. I would still like to meet with you to discuss this issue.)

    Sincerely,

    Allen W. Smith, Ph.D.
    Professor of Economics Emeritus
    Eastern Illinois University
    Website: http://www.thebiglie.net
    Email: ironwoodas@aol.com
    Phone: 800-840-6812

    Note: If anyone who reads this has access to Barbara Kennelly, please see that she gets this message. THANK YOU!