Age-Old Myths

Richard Quinn

DESPITE RHETORIC TO the contrary, Social Security isn’t going anywhere. Today’s workers will eventually collect benefits. Today’s seniors will continue to receive the benefits they’re entitled to.

But that doesn’t alter the fact that the program faces fiscal problems, is misunderstood, and is used as a political tool to mislead and scare people, especially seniors who depend heavily on Social Security benefits. I regularly scan social media to better understand how everyday Americans view Social Security. Here are five of the many myths I see repeated:

1. “I paid for my benefits and nobody should mess with them.” In truth, you paid for the benefits of earlier generations with your payroll taxes—and today’s workers are now covering your monthly check with the taxes they’re paying.

But what about the money “saved” in the Social Security trust funds? Yes, that also partly pays the benefits of today’s retirees.

Until 2010, payroll taxes exceeded the amount necessary to pay benefits. The excess was placed in a trust fund earmarked for Social Security retirement benefits and used to purchase Treasury bonds. Today, there are three main sources of money to pay benefits: the payroll tax, income taxes paid by retirees on their Social Security benefits, and the interest collected on the bonds held by the trust.

2. “If Congress hadn’t stolen from the Social Security trust fund, there would be plenty of money.” Nobody stole the trust money. The trust fund balance held in special U.S. Treasury bonds is currently about $2.9 trillion. The basic problem facing Social Security isn’t malfeasance, but demographics.

Here’s what the Census Bureau says: “With this swelling number of older adults, the country could see greater demands for healthcare, in-home caregiving and assisted living facilities. It could also affect Social Security. We project three-and-a-half working-age adults for every older person eligible for Social Security in 2020. By 2060, that number is expected to fall to two-and-a-half working-age adults for every older person.”

Put simply, more Americans will be collecting benefits in future—even as there are (relatively speaking) fewer workers paying taxes to fund those benefits.

3. “If the Social Security trust fund was paid interest, there would be no fiscal problem.” The Treasury bonds pay the trust interest on a regular basis—the effective interest rate is more than 3% a year—just as all government debt pays interest. In 2016, the trust earned $87 billion in interest. Without that interest, there would be a shortfall—meaning either benefits couldn’t be paid in full or the federal government would need to find the money elsewhere.

4. “Social Security has a surplus, so there’s no reason benefits can’t be increased.” Proponents of expanding Social Security often claim it’s easily done, because the program is running a surplus. That is not true. There is no surplus. Today, 100% of the payroll taxes collected are used to pay the benefits of current beneficiaries. In 2016, payroll taxes equaled $678.8 billion, while the benefits paid, along with other expenses, came to $776.4 billion.

The resulting deficit was covered by the $31.6 billion in income taxes paid on Social Security benefits and, even more important, by the $87 billion in interest collected on the trust’s bonds. Without that bond interest, the program would have been running a deficit since 2010.

I’m in favor of expanding Social Security benefits, but let’s talk about that after we figure out how to make current benefits sustainable. People talk about the Social Security trust fund—singular. But in fact, there are two trust funds. The disability insurance trust fund’s reserves are projected to run out in 2028, while the trust fund for retirement benefits is expected to be depleted in 2035.

5. If it wasn’t for the president and Congress, we’d have got a larger annual increase.” Not true. The law contains a formula that determines each year’s cost-of-living increase for Social Security benefits. Congress and the president neither determine the amount each year nor vote on it.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles were For Your Own Good and Choosing Badly. Follow Dick on Twitter @QuinnsComments.

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