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2018: The Magic Number
Bush is using fuzzy math to claim that in 13 years Social Security will be
paying out more than it takes in.
By Mark Weisbrot
Sometimes a number can take on great significance as a symbol. The number on a
famous athlete's uniform, or the date of an historic event. Anniversaries, the
turn of a century, or fears associated with such events - remember the Y2K
scare?
"Thirteen years from now, in 2018, Social Security will be paying out
more than it takes in," declared President Bush in his State of the Union
speech.
President Bush, along with others who want to cut Social Security benefits
and partially privatize the program, wants Americans to believe that 2018 has
some significance for the Social Security system. But according to the numbers
that the president is using - from the Social Security Trustees - it doesn't.
What President Bush is saying is that in 2018, Social Security will have to
pay out more in benefits than it receives in payroll taxes. About $16 billion
more, according to his (Social Security Trustees) estimates. What he did not
say is that the Social Security Trust Fund in 2018 will have more than $3.6
trillion in assets, as well as $206 billion in interest income that year. (All
numbers are expressed in today's dollars.)
So even if Social Security cruises along on auto-pilot for the next 13
years, 2018 will arrive and depart quietly and without notice. In 2018 a small
fraction of Social Security's interest income will be used to pay benefits.
According to President Bush's numbers, the program can pay all promised
benefits until 2042, using its interest income and assets, as well as payroll
taxes. According to the non-partisan Congressional Budget Office, it's 2052.
This is exactly what was intended when our Congress raised the payroll tax in
1983. The idea was to accumulate a surplus (currently more than $1.6 trillion
and rising) in order to help finance the retirement of the baby boom
generation. By law, the Social Security Trust Fund can only invest in US
Treasury obligations.
But 2042 and 2052 are much too far away for those who want to create the
impression of a Social Security "crisis." Hence the tricks that have
been used to move the program's potential shortfall forward to 2018.
Over the years, I have confronted these tricks hundreds of times on talk
shows. They haven't changed at all. The bonds held by the Social Security Trust
Fund are dismissed as "I.O.U.'s" or "pieces of paper," as
if the credit of the US Treasury, which has never defaulted in the history of
this country, is something rather shaky.
"The Trust Fund money's been spent!" they exclaim, as if exposing
some kind of scam. Guess what: So has the $720 billion that Japan loaned to the US Treasury. The
Japanese government will be repaid, interest and principal. And so will Social
Security.
"But where will the money come from to repay the Trust Fund?" they
demand. But this is another subject altogether. Where will we get the money to
pay the Chinese and Japanese governments or other creditors as they collect
interest payments and redeem their Treasury bonds and notes? Mostly we will
borrow, but that's not their problem. To blame Social Security for any future
debt problems we may face as a country is like blaming your credit card company
for your oversized spending habits. If you want to blame the 2001 and 2003 tax
cuts or the war spending, that makes some sense; but Social Security is the
lender here, not the spender.
Of course 2018 is only one of several tricks that Social Security's
detractors have successfully deployed. These devices get plenty of unchallenged
play in the media - especially the broadcast media. No wonder most Americans
are so confused. The latest Zogby poll shows 61 percent believe the system
faces "serious problems" and 14 percent think it's "in
crisis." In fact it is financially stronger than it has been throughout
most of its history, according to the Trustees' (President Bush's) numbers.
Conspicuously absent from the Social Security portion of the President's
speech was the word "crisis," which has provoked a backlash as a
symbol of the administration's exaggeration. The year 2018 is every bit as
misleading as the word "crisis" in the debate over Social Security.
It's time to retire that number.
Mark Weisbrot is co-director of the Center for Economic and Policy Research
and co-author, with Dean Baker, of Social Security: the Phony Crisis (2000, University of Chicago Press).