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writing for godot

Does Social Security Contribute to the Deficit?

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Written by Gregory Heires   
Thursday, 17 January 2013 13:25

Conservatives are using the looming showdown over the debt ceiling and deficit as an opportunity to gut Social Security.

But progressives are fighting back by arguing that Americans’ most popular program technically doesn’t contribute to the federal debt or deficit and is securely funded for decades.

“Well, we've got to make the president and Republicans and any Democrats that want to cut Social Security an offer they can`t refuse, and that is tens of millions of people have got to make it very clear to Congress -- Social Security has nothing to do with the deficit,” Sen. Bernie Sanders (I-Vt.) said Jan. 4 in an interview with MSNBC's Ed Schultz.

Sanders’ comment reflected the position of some Democrats during the fiscal cliff negotiations late last year when they feared Social Security cuts would be a part of the deal to ensure that scheduled tax cuts and deep budget reductions didn’t go into effect.

“Social Security does not add one penny to the deficit,” Sen. Dick Durbin (D-Ill.) said in an appearance on ABC’S This Week on Nov. 25. “Not a penny. It's a separate funded operation, and we can do things that I believe we should now, smaller things, played out over the long term that gives it solvency."

“Over 77 years and now through 13 recessions, Social Security has not added one penny to our deficit or our debt,” Rep. Xavier Becerra (D-CA) said during a fall meeting of the House Ways and Means Social Security subcommittee.

As it ended up, the entitlement programs were spared the ax in the fiscal cliff deal. But deficit hawks are hoping that Social Security will be part of a grand bargain on the federal debt and deficit in the coming months that will be linked to the discussion over the debt ceiling. Durbin proposes that Social Security be removed from these negotiations and instead be assigned to a commission.

Recently, defenders of Social Security have enjoyed backing their position by looking back a few decades to cite the Republicans’ favorite president of modern times, Ronald Reagan--surely much to the horror of many conservative ideologues.

In 1984, Reagan said, “Social Security, let’s lay it to rest once in for all…Social Security has nothing to do with the deficit. Social Security is totally funded by the payroll tax levied on employer and employee. If you reduce the outgo of Social Security, that money would not go into the general fund to reduce the deficit. It would go into the Social Security trust fund. So Social Security has nothing to do with balancing the budget or erasing or lowering the deficit.”

Social Security is a pay-as-you-go program that relies on its own funding stream—not federal income taxes—from the payroll tax. It has its own trust fund, which is separate from the government’s budget for discretionary and military spending. The U.S. Congress, however, borrows from the Social Security trust fund to pay for government programs.

As a pay-as-you go-program, the Social Security system is not allowed to borrow to pay out benefits. Making that point, Dean Baker, co-director of the Center for Budget and Policy Priorities, explains that, “Social Security is prohibited from spending any money beyond what it has in its trust fund. This means that it cannot lawfully contribute to the federal budget deficit, since every penny that it pays out must have come from taxes raised through the program or the interest garnered from the bonds held by the trust fund.”

What is actually going on here is that conservative groups like corporate-funded Fix the Debt are using deficit hysteria as a bogus justification for reducing Social Security benefits and undermining the program, which right-wingers have hated ever since its was created in 1935. Groups like the libertarian Reason Foundation for decades have described Social Security as a Ponzi scheme as they call for privatization. As privatization effort of President George W. Bush failed, the fallback plan of conservatives seems to be to try to chip away at the program.

Yet for all the alarm over Social Security and its supposed contribution to the federal debt and funding problems, the program is on solid ground for the foreseeable future.

Social Security will become exhausted—unable to pay fully for benefits through the payroll tax--in 2033, according to the 2012 report of the Social Security trustees. But even without any tinkering, the program will still be able to cover 75 percent of its benefits if the current payroll tax remains the same.

Economic projections beyond five years are notoriously uncertain. So the trustees’ projections could prove to be wrong if, say, the U.S. economy (in an admittedly unlikely scenario) enters a long period of high growth, which would boost the funding from the payroll tax. The projected shortfall could be addressed substantially by raising the income cap—$113,700 in 2013—on the payroll tax. In any event, claims of Social Security’s pending doom and contribution to the deficit and debt go against the facts.
“Social Security is not part of the problem. That's one of the myths the Republicans have tried to create,” Senate Majority Leader Harry Reid (D-Nev.) said.

By GREGORY N. HEIRES

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