Over at Market Watch, in a piece published on August 29, Devin Carroll aims to tackle American misconceptions about Social Security.  “These 7 Social Security myths aren’t true, no matter how often you hear them,” he asserts in the title.

“With a system as complex as Social Security,” he writes, “it’s inevitable that misinformation (or simply a misunderstanding of the facts) will spread.  It’s hard to understand what’s true and what’s not, and often, our brains prefer the version of events that feel intuitively more simple [sic] to understand.”  

Therefore, “it’s time we cleared these muddy waters,” he says.  Apparently, his plan to do that is to make some specious, and some downright false, claims of his own to keep Americans from questioning the sustainability and functionality of America’s most relied upon collectivist touchstone, fundamentally broken though it quite obviously is.

Among the first “myths” he hopes to bust is:

Myth No. 2: The government raided the [Social Security] trust fund. 

It is true that the government never “raided” the trust fund, in the sense that there is no money stashed away in a “trust fund” for politicians to pilfer in the same way a child would swipe sweets from a cookie jar.  But it takes some serious mental gymnastics to suggest that the revenues were not epically abused and mismanaged by the Treasury over the years, which is what most people mean when they invoke the phrase.

“Here’s the truth: There has never been any change in the way that Social Security payroll taxes are used by the federal government,” Carroll writes.  Sure, he concedes, there isn’t a “trust fund sitting around with trillions of dollars from all the money we working taxpayers put into the system.” 

You see, for most of Social Security’s history, the program took in much more revenue than it has paid out to beneficiaries in any given year.  And that additional revenue was used by the Treasury, year over year, to “meet its current obligations before it borrows money,” i.e., giving Congress leeway to increase spending and meet its other budgetary obligations, even though these funds were ostensibly “earmarked for Social Security.”

But that’s just not a problem, Carroll argues.  When the Social Security Administration gave all this excess revenue to the Treasury to spend for all those years, “special-issue Treasury bonds” took that excess revenue’s place in the convenient bookkeeping anomaly that we know as Social Security’s “trust fund.” 

“These bonds earn interest – which is a good thing,” Carroll suggests.

Today, these bonds (called intragovernmental debt) have “generated $1.9 trillion in interest,” while the total trust fund balance is just $2.9 trillion.  “Had these dollars been left in cash” in a warehouse or something, the “trust fund would be worth about two-thirds less and would have run dry much earlier than currently projected.” 

Except, there’s a problem with this assertion.  The Treasury spent all of that money long ago, and is now running at a perpetually increasing budget deficit, and its sole source of income is revenue that is sluiced from taxpayers.  So, it’s a surprisingly simple question that follows.  How does the Treasury pay this “interest” to Social Security today?

In 2017, according to the Social Security Administration’s website, benefits were financed by $873 billion in payroll taxes, and $85 billion in “interest” paid by the Treasury.  Yet in 2017, the Treasury ended with a $666 billion budget deficit.

How the Treasury paid this “interest” to Social Security in 2017 shouldn’t be a mystery, because it certainly didn’t pay it with a revenue windfall from that year.  As Carroll explains, the federal government lawfully uses all its revenue sources to pay all its liabilities, even if other revenue was supposedly sequestered for other purposes, before taking on new debt.

So, this “interest” paid to Social Security amounts to new taxpayer debt. 

Now, I realize that Devin Carroll thinks we’re all just too stupid to understand how “complex” these bookkeeping shenanigans are.  But, riddle me this.  There is, indeed, a $2.9 trillion trust fund “balance” which is owed by the Treasury to the Social Security trust fund – but where will the Treasury come up with all that money?  The most brilliant accountant in the world could not explain how a Treasury which has no money beyond its receipts can pay back the principal and interest owed to the Social Security trust fund without either serious budgetary course-correction or taking on new taxpayer debt.

If Vegas were setting odds on which of those things will happen, I suspect that the former would enjoy odds of a million-or more-to-one.

And that’s a problem for taxpayers.  After all, the taxpayers supplying Social Security with its yearly revenue and financing this new debt are not necessarily different people.  Social Security is funded by taxpayers, and the program is rapidly depleting its “trust fund” that is supplied its value only via new Treasury debt, the issuance of which also requires that taxpayers be the creditors on the new debt.

Carroll suggests that what Social Security does with its money is like you investing in a bank.  To put it mildly, if Social Security were a bank or an insurance company, I wouldn’t invest my money there, and neither would you.  And despite his suggestion that all of this isn’t some huge cause for concern, I suspect that he wouldn’t invest there, either, if he were given a choice.

And that leads us to:

Myth No. 3: Social Security is going bankrupt.

“In every campaign,” Carroll asserts, someone “leverages this myth” to persuade the populace that “they’re the only candidate who can and will fix [Social Security] and make everything okay again.”

Well, that’s just a lie.  No politicians seem to enjoy broaching the fact that Social Security is fundamentally broken on the campaign trail.  Rarely does “reform” of Social Security make its way into political campaigns, because its unpopular for those who’ll have to pay more to make it sustainable, and certainly unpopular for those who may have to receive less to make it sustainable.  One or both of those things must be presented to “fix” Social Security, and there is absolutely no way around that.

“By 2020,” Carroll writes, “we’ll reach a point where there is not enough money coming into the system to pay out the people claiming benefits.”

He’s counting the “interest” owed to the trust fund in that rosy outlook, which is, again, “interest” paid by a government Treasury which doesn’t have this nearly $3 trillion in principal and “interest” to pay. 

But in a more factual account of our immediate circumstances, as the Social Security Trustees Report from June of 2018 explicitly shows, for the first time since 1982, Social Security’s expenditures outpaced both the “earmarked” payroll tax revenue and the “interest” earned by the trust fund (which, as we’ve already established, is being paid by a Treasury which is running at deep deficits and doesn’t have any means to pay this “interest” without taking on new debt) back in 2017.  And it will continue to run at a deficit for a projected 75 years. 

But Carroll seems to take issue with the word “bankrupt.”  Social Security is not going “bankrupt,” he says.  By 2035, the “trust fund” is expected to have drained the “balance” of the trust fund, so Social Security revenues (payroll taxes and taxation of benefits) alone are projected to only pay 76% of benefits to Americans.  And that unhealthy picture still requires some luck for Americans, including our having no recessionary environments between now and then that would curtail revenues and drain the “trust fund” more quickly, or, God forbid, another “payroll tax cut,” as President Trump seemed to be mulling a couple of weeks ago, giving me déjà vu visions of the fiscal follies of the Obama era.

A precarious situation for this federal program?  Yes.  Would everyone in their right mind question the solvency of that program’s outlook?  Certainly.  But that’s not a system that’s going “bankrupt,” says Carroll.  “If your boss told you today that you were only to get paid 76% of your normal salary,” he writes, “would you be bankrupt?  No.”

That’s meant to be a soothing alternative to the prospect of “bankruptcy,” I suppose. 

Carroll does get a few things right, to be fair.  He endeavors to bust the myth that:

Myth No. 4: Congress doesn’t pay into Social Security.

Sure, they do.  They just don’t care about it.  Congress does pay into Social Security, but the prospect of Social Security falling into a looming 75-year deficit doesn’t worry them, with their ample Congressional pensions, to the same extent that millions upon millions of Americans in the private sector might worry about it.

And:

Myth No. 5: You’ll never get back what you paid in.

Most people will, and will get back far more, given today’s demographics around individuals’ longevity.  The program is highly progressive in the payouts, make no mistake.  Lower-income retirees not only collect more relative to contributions, but pay less in taxes upon Social Security benefits. 

But where Carroll really strikes the mark is:

Myth No. 6: Social Security benefits are an earned right.

Any benefit that a government can give away, at the cost of others, is most certainly a benefit that a government, with such presumed power, can take away on a whim. Every Social Security statement includes the reminder that your “estimated benefits are based on current law.  Congress has made changes to the law in the past and can do so at any time.”

“[C]riteria for eligibility could change with the whims of politics,” Carroll writes, including the “means-testing conversations” which are currently taking place.  I’m not certain that we needed any further evidence that the government will try to solve Social Security as if it were just another redistributive social welfare program, but in case we did, Carrol provides it.

The lesson we should learn from the history and current predicament of Social Security is not that anyone enumerating the problems with the program are right-wing fearmongers, and we should certainly not assume that all the problems that most people can easily recognize are just the misunderstandings of an ill-educated populace. 

Making sure that Social Security is available for future Americans requires that we take its very clear and present problems seriously, and that we make some necessary changes, which are as agreeable as possible for both contributors and beneficiaries, to make this fundamentally broken program more sustainable.  Because the prospect of 76% of benefits being available to retirees in 2035 (or sooner) may not be “bankruptcy” for Social Security, but it could very well be doomsday for millions of Americans that may be relying upon it.