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5 Myths That Pass For Facts About Social Security

JoeTheEconomist

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In the discussion of Social Security, the meaning of the same word changes from sentence to sentence. This is how you find that SS is a driver of our long-term deficits, and yet does not add a penny to our deficit. You need to know what the word "deficit" means. Most of these myths come from people who think that the words have the same meaning as in the English language.


1. Social Security has not added one penny to the deficit.


You tell me which "deficit" you are talking about, and I can tell you how much SS adds to it.

2. Social Security can pay every penny of benefit to every eligible American for 17 years.

The Trustees say that SS has a coin flips chance of paying scheduled benefits in 2034. People are generally converting a wild-ass guess into some kind of promise.

3. Social Security is going/is not going bankrupt.

When someone uses the word bankrupt in a discussion about Social Security, it is click bait. Whether it is pro or con, the writer is trying to get shares.

4. Social Security is a driver of our long term debt.

The problem in Social Security is the amount of money that it will not spend. Not spending money is not the cause or really even a contributor to our debt.

5. The government has raided the Trust Funds to pay for other programs.

The program has not generated a penny of free cashflow to "raid" in 7 years.

If you wish to find source material or a longer description,
5 Myths About Social Security Often Accepted as Facts
 
Everything in politics is contextual

Correct me if I am wrong, but as I understand it the deficit is how much the government overspends? How much more the government is spending than it is taking in.
 
I fully expect the Government to start means testing Social Security at some point.
it will start small, like if someone has any type of income above $6000 a month,
then their SSI payment will drop to zero, with a sliding scale above $3000 a month.
 
Everything in politics is contextual

Correct me if I am wrong, but as I understand it the deficit is how much the government overspends? How much more the government is spending than it is taking in.

It isn't that you are wrong, but you have to be careful about what is 'taking in' means. Historically, Social Security was moved off-budget in 1990 under the 1983 Social Security Reform Act. The reason for doing so was so that future Congresses would not be tempted to use surpluses in Social Security to offset spending elsewhere in the budget. If you follow the law, the revenue collected for Social Security should not be included in 'taking in'. The expense is separate from the government's budget as well. Social Security is its own beast (if you follow current law).

While Social Security is supposed to be 'off-budget', CBO produces a budget called the Unified Budget that includes Social Security. That is the budget that you normally see cited in the newspaper. In that budget analysis Social Security is simply a Profit Loss Center for the government. It treats payroll taxes as general revenue, which is absurd and encourages people like CBO's director to say that SS is driving the budget deficits. When someone tells you that Social Security doesn't add to the deficit, it is built on the false assumption that SS is 100% funded by payroll taxes without any general fund subsidies.

The reality is that Social Security collects about $30 billion in annual subsidies from the government (mostly from the taxation of benefits). From an accounting point of view and current law, that is dollar for dollar deficit spending.
 
I fully expect the Government to start means testing Social Security at some point.
it will start small, like if someone has any type of income above $6000 a month,
then their SSI payment will drop to zero, with a sliding scale above $3000 a month.

It may.

In 1983 when Social Security enacted the taxation of benefits, the threshold was approximately $5,000/mo (inflation adjusted). That change does not help Social Security much because these people are already losing a substantial portion of their benefits.
 
In the discussion of Social Security, the meaning of the same word changes from sentence to sentence. This is how you find that SS is a driver of our long-term deficits, and yet does not add a penny to our deficit. You need to know what the word "deficit" means. Most of these myths come from people who think that the words have the same meaning as in the English language.


1. Social Security has not added one penny to the deficit.


You tell me which "deficit" you are talking about, and I can tell you how much SS adds to it.

The reason is that social security is not counted in government deficit reports.

2. Social Security can pay every penny of benefit to every eligible American for 17 years.

The Trustees say that SS has a coin flips chance of paying scheduled benefits in 2034. People are generally converting a wild-ass guess into some kind of promise.

Depends on the economy and revenue collection.

3. Social Security is going/is not going bankrupt.

When someone uses the word bankrupt in a discussion about Social Security, it is click bait. Whether it is pro or con, the writer is trying to get shares.

If government had a legal requirement to pay SS benefits from FICA taxes collected, it would have been bankrupt long ago. Bankruptcy doesn't apply to government. It can reduce or cancel payments without bankruptcy.

4. Social Security is a driver of our long term debt.

The problem in Social Security is the amount of money that it will not spend. Not spending money is not the cause or really even a contributor to our debt.

It doesn't spend anything. SS payments are made from the general fund. Government spending including SS drives our long term debt.



5. The government has raided the Trust Funds to pay for other programs.

The program has not generated a penny of free cashflow to "raid" in 7 years.

Revenue from FICA taxes goes into the general fund and goes out of the general fund. You can't separate out SS except as an accounting entry.
 
It may.

In 1983 when Social Security enacted the taxation of benefits, the threshold was approximately $5,000/mo (inflation adjusted). That change does not help Social Security much because these people are already losing a substantial portion of their benefits.

I had not considered the income tax aspect side. A person making $6000 a month will have a considerable tax liability.
The roughly $2000 a month in SSI payments could move them from the 15% bracket to the 25% bracket,
sending much of their $2000 a month back to the Governemnt.
 
I had not considered the income tax aspect side. A person making $6000 a month will have a considerable tax liability.
The roughly $2000 a month in SSI payments could move them from the 15% bracket to the 25% bracket,
sending much of their $2000 a month back to the Governemnt.

The guy who makes $6,000 a month will have 85% of his benefits subject to tax. At that threshold you are typically looking at 25 percent tax rates because the tax is applied at the marginal tax rate. The average benefit is $1,300 per month, so the system will clawback about $4,000 in total. It is a hefty tax. At $2,000/mo it is about $6,000 going back.
 
In the discussion of Social Security, the meaning of the same word changes from sentence to sentence. This is how you find that SS is a driver of our long-term deficits, and yet does not add a penny to our deficit. You need to know what the word "deficit" means. Most of these myths come from people who think that the words have the same meaning as in the English language.



The reason is that social security is not counted in government deficit reports.



Depends on the economy and revenue collection.



If government had a legal requirement to pay SS benefits from FICA taxes collected, it would have been bankrupt long ago. Bankruptcy doesn't apply to government. It can reduce or cancel payments without bankruptcy.



It doesn't spend anything. SS payments are made from the general fund. Government spending including SS drives our long term debt.





Revenue from FICA taxes goes into the general fund and goes out of the general fund. You can't separate out SS except as an accounting entry.

You would be surprised. SS is supposed to be uncounted in the govt's budget. The unified budget includes SS, and people cite the figures. This is why there is a disagreement about the impact on the deficit. Pundits are talking about two different measures of the deficit.

2 and 3 are essentially the points that I made in the article. 4 and 5 benefit checks are paid by the Treasury from payroll taxes which by law can only be spent on Social Security benefits or expenses. Given the law, you have to separate out SS - it is the law. At this point, no FICA taxes go into the general fund because there is nothing left over to put anywhere. Every penny is used to pay benefits. If benefits were paid by the general fund we would not be talking about automatic benefit cuts.
 
Doesn't the OP post this same thread wvery few months? I swear I've read this B4.
 
Doesn't the OP post this same thread wvery few months? I swear I've read this B4.

I haven't posted it here or anywhere. I generally avoid the # myth/facts articles because they tend to be filters of ideology. That said, you will find probably 7 of them in the past month because everyone else loves them.
 
I fully expect the Government to start means testing Social Security at some point.
it will start small, like if someone has any type of income above $6000 a month,
then their SSI payment will drop to zero, with a sliding scale above $3000 a month.

Oh, you mean, 'from each according to their abilities, to each according to their needs'?
 
I haven't posted it here or anywhere. I generally avoid the # myth/facts articles because they tend to be filters of ideology. That said, you will find probably 7 of them in the past month because everyone else loves them.
Ok, I just seem to remember you having a fixation with SSA.
 
Oh, you mean, 'from each according to their abilities, to each according to their needs'?
I strongly suspect, they will not sell it that way!
 
Social Security doesn't concern me that much. In the worst case scenario the government will just reduce benefits.

The real problem is Medicare. You can't just reduce benefits with it because healthcare needs are going to be completely unrelated to benefit levels or economic performance for seniors (how the economy is doing, what Medicare benefit levels are and so on have nothing to do with the number of seniors with heart disease, cancer, diabetes, dementia and so on). Moreover, you can't privatize it because insurers run into the same problem the government is running into - seniors are very, very, very expensive to insure because they are very, very, very high risk. The only solution to the Medicare problem is to significantly reduce provider costs and get them more in line with our peer nations, but no one in either party is talking about that one. They treat health care costs as a problem with insurance premiums and ignore the fact that insurance premiums are high because many providers are billing exorbitant rates for their services. The closest anyone in either party gets to talking about actual healthcare costs are drug prices, but that is only about 10 to 15% over all health care spending.

Another big looming problem is that the shift from pensions to 401Ks for most people has not really panned out. Most people in their 50s don't have nearly enough money in their 401Ks to fund their future retirement. There is a variety of reasons for that, some related to poor planing by many individuals, but also a lot of things outside of their control.
 
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Social Security doesn't concern me that much. In the worst case scenario the government will just reduce benefits.

The real problem is Medicare. You can't just reduce benefits with it because healthcare needs are going to be completely unrelated to benefit levels or economic performance for seniors (how the economy is doing, what Medicare benefit levels are and so on have nothing to do with the number of seniors with heart disease, cancer, diabetes, dementia and so on). Moreover, you can't privatize it because insurers run into the same problem the government is running into - seniors are very, very, very expensive to insure because they are very, very, very high risk. The only solution to the Medicare problem is to significantly reduce provider costs and get them more in line with our peer nations, but no one in either party is talking about that one. They treat health care costs as a problem with insurance premiums and ignore the fact that insurance premiums are high because many providers are billing exorbitant rates for their services. The closest anyone in either party gets to talking about actual healthcare costs are drug prices, but that is only about 10 to 15% over all health care spending.

Another big looming problem is that the shift from pensions to 401Ks for most people has not really panned out. Most people in their 50s don't have nearly enough money in their 401Ks to fund their future retirement. There is a variety of reasons for that, some related to poor planing by many individuals, but also a lot of things outside of their control.

Here is the part that no one is talking about. As people get older, they become more dependent upon Social Security. The program does not look important today because the Boomers make the demographic of seniors fairly young, and most seniors have saved for at least a few years of retirement. Dependence on Social Security basically doubles between the age of 70 and 80. That means that Boomers who are now 70 will cause SS dependence to rise rapidly.
 
In the discussion of Social Security, the meaning of the same word changes from sentence to sentence. This is how you find that SS is a driver of our long-term deficits, and yet does not add a penny to our deficit. You need to know what the word "deficit" means. Most of these myths come from people who think that the words have the same meaning as in the English language.


1. Social Security has not added one penny to the deficit.


You tell me which "deficit" you are talking about, and I can tell you how much SS adds to it.

2. Social Security can pay every penny of benefit to every eligible American for 17 years.

The Trustees say that SS has a coin flips chance of paying scheduled benefits in 2034. People are generally converting a wild-ass guess into some kind of promise.

3. Social Security is going/is not going bankrupt.

When someone uses the word bankrupt in a discussion about Social Security, it is click bait. Whether it is pro or con, the writer is trying to get shares.

4. Social Security is a driver of our long term debt.

The problem in Social Security is the amount of money that it will not spend. Not spending money is not the cause or really even a contributor to our debt.

5. The government has raided the Trust Funds to pay for other programs.

The program has not generated a penny of free cashflow to "raid" in 7 years.

If you wish to find source material or a longer description,
5 Myths About Social Security Often Accepted as Facts
Let's see. #1 is a bold-faced lie. Total money out vs total money in, IOUs, etc., means it has been used to mask the real deficit.

re #7: Ooooh, 7 years. Convenient cut-off point. That's not very long ago. How about before that?
 
Social Security doesn't concern me that much. In the worst case scenario the government will just reduce benefits.

The real problem is Medicare. You can't just reduce benefits with it because healthcare needs are going to be completely unrelated to benefit levels or economic performance for seniors (how the economy is doing, what Medicare benefit levels are and so on have nothing to do with the number of seniors with heart disease, cancer, diabetes, dementia and so on). Moreover, you can't privatize it because insurers run into the same problem the government is running into - seniors are very, very, very expensive to insure because they are very, very, very high risk. The only solution to the Medicare problem is to significantly reduce provider costs and get them more in line with our peer nations, but no one in either party is talking about that one. They treat health care costs as a problem with insurance premiums and ignore the fact that insurance premiums are high because many providers are billing exorbitant rates for their services. The closest anyone in either party gets to talking about actual healthcare costs are drug prices, but that is only about 10 to 15% over all health care spending.

Another big looming problem is that the shift from pensions to 401Ks for most people has not really panned out. Most people in their 50s don't have nearly enough money in their 401Ks to fund their future retirement. There is a variety of reasons for that, some related to poor planing by many individuals, but also a lot of things outside of their control.
I think that will depend on the age demographics of the voting population.
 
I think that will depend on the age demographics of the voting population.

Right, but anyway you figure it, the looming problems meeting our obligations with Social Security are nothing compared to Medicare.
 
Let's see. #1 is a bold-faced lie. Total money out vs total money in, IOUs, etc., means it has been used to mask the real deficit.

re #7: Ooooh, 7 years. Convenient cut-off point. That's not very long ago. How about before that?

Do you realize that there is more than one "deficit"? So there isn't a real and a non-real deficit. If you want the real deficit, you would likely use the one required by law which excludes the revenue and expense of Social Security.
 
Right, but anyway you figure it, the looming problems meeting our obligations with Social Security are nothing compared to Medicare.

I would check your estimates. Medicare is today, and for the forseeable future is a smaller expense than Social Security. The reason for the size of the gaps isn't on the expense side. If you flip the financing of Social Security with that of Medicare you find that SS is the driver of our financial gaps.
 
.....

Revenue from FICA taxes goes into the general fund and goes out of the general fund. You can't separate out SS except as an accounting entry.
That's a myth...

"...The Social Security Trust Fund has never been "put into the general fund of the government."

Most likely this question comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no effect on the actual operations of the Trust Fund itself...."

https://www.ssa.gov/history/InternetMyths2.html
 
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