The Social Security Trustees released their annual report last week, and immediately the papers panicked -- those "doomsday" years of 2018 (when the trustees said we'll start using the trust fund) and 2042 (when they said we'll have used up the trust fund) have moved one year, to 2017 and 2041. Gasp! A sinking ship!

Of course, that's not quite the case. In fact, oddly enough, the long-term projections actually improved slightly, although they didn't mention it at the press conference/Bush rally with John Snow.

MYTH: 2005 report shows Social Security in worse shape

Last week, the trustees issued their 2005 report, which detailed how Social Security's finances changed during the preceding election year. Even though inflation increased by only 2.7 percent in 2004, the program's 75-year unfunded obligation increased by more than 8 percent, rising to a net present value of $4 trillion (measured in 2004 dollars). Over the infinite horizon, in 2004 Social Security's unfunded obligation increased by $700 billion, or nearly 7 percent, rising to $11.1 trillion (measured in 2004 dollars).

In other words, Social Security's long-term finances deteriorated during the election year, contrary to the Democrats' pre-election and post-election assertions. Moreover, while Democrats downplay the consequences of the size of the 75-year shortage, they completely ignore what happens beyond that period. The fact that the $11.1 trillion unfunded obligation over the infinite horizon substantially exceeds the $4 trillion unfunded-obligation estimate over the next 75 years (2005-2079) "reflects a significant financing gap in [Social Security] after 2079," the trustees asserted in their report. (Editorial, "Social Security's funding gap," Washington Times, 3/28/05)

REALITY

When the Trustees released their annual projections, much hay was made about how things were supposedly worse -- but in fact, almost nothing changed. This should be expected, since we haven't learned any more about 2075 than we knew last year. (I.e., zip.)

So what is new in the report? Look carefully at this table -- you can see the pessimistic 75-year shortfall went from -1.89% (of taxable payroll) to -1.92%, a change of four hundredths of a percent (-0.04%) for the worse. But the "valuation period" -- the fact that we're looking at 2005-2079 instead of 2004-2078, i.e. one more "bad" year than before -- makes the projection seven hundredths percent (-0.07%) worse. If you remove that factor, which is entirely due to the projection being released a year later, then the rest of the projection is actually better than last year! (+0.03%) Take a look at this chart from the Trustees' report -- the projection of future annual balances actually improved since last year.

What of the claim that the 75-year shortfall went from $3.7 trillion to $4 trillion? Almost entirely due to inflation and adding on the "bad" year 2079. The Trustees: "The open group unfunded obligation over the 75-year projection period, has increased from $3.7 trillion (present discounted value as of January 1, 2004) to $4.0 trillion (present discounted value as of January 1, 2005). Thus, the negative impact of advancing the valuation date by 1 year and including the additional year 2079 in the new valuation period, was the predominant effect for this measure." (Yes, "Moonie Times," you got the inflation wrong!)

The same goes for the "infinite horizon" projection, a mystical number (imagine Social Security 10,000 years into the future! with life-expectancy rising indefinitely, we will be supporting our 500-year-old ancestors) which the American Academy of Actuaries (not an organization known for wild rhetoric) has denounced as almost meaningless. From 2004 through infinity!, in 2004 dollars, the shortfall was said to be $10.4 trillion, or 1.2% of GDP. From 2005 through infinity!, in 2005 dollars, the shortfall is said to be $11.1 trillion, or 1.2% of GDP. The same amount, relative to the imaginary economy of the infinite future.

The date when the Trust Fund is projected to be depleted moved from 2042 to 2041 not because the future looks worse -- it looks better -- but because 2004 wages didn't keep up with inflation in Bush's top-heavy recovery. And that points us to the real solution to the solvency problem. The "intermediate" projection from the Trustees report, which Democrats, Republicans, and press alike treat as gospel, is exceptionally pessimistic about our future economic outlook. Economic growth has averaged 3.5% per year since 1950, but according to the dour Trustees, this will drop dramatically beginning this year and soon freeze at 1.8% forever -- around the rate experienced by Greenland and Paraguay. In addition to lower birth rates (less of a concern after the Baby Boomers pass on) the Trustees blame this on low productivity and low immigration.

It's a pretty depressing forecast, and Social Security looks to be the least of our futuristic woes. Unlike the rest of the government, Social Security will continue to run surpluses for at least another 12 years, and even the Trustees predict the system, if unchanged, will pay out higher real benefits than it does today forever. (Since it is designed as a pay-as-you-go system, it can never go "bankrupt.") And if those dire forecasts are correct, we're sure going to need the guaranteed security of SS more than ever -- with growth so low, not even the stock market magic can save us.

But don't fear -- even a few years of mediocre growth will set us on our feet and make the Trust Fund full indefinitely. The solution: fix the economy! And with massive trade and budget deficits under this administration, and a debt outgrowing our GDP, we know where we would start.

MYTH: Social Security surplus "spent"; Dems responsible

Earlier this month [House Minority Leader Nancy Pelosi] told Chris Wallace on Fox News Sunday: "The [Democratic] plan for solvency is to stop robbing Social Security of its [surplus] money for other purposes. The plan is to return the money back to the trust fund." In offering the minority party's budget blueprint two weeks ago, House Democrats got their opportunity to present their plan. And they failed miserably to act on Mrs. Pelosi's words. In fact, over 10 years, the Democrats' budget falls short of Mrs. Pelosi's "plan for solvency" by a whopping $3.6 trillion.

...Compared to a total 2006 budget deficit of $376 billion projected by House Budget Committee Chairman Jim Nussle, Iowa Republican, the Democratic budget alternative shows a deficit of $365 billion. Generating a $365 billion total deficit, however, requires the Democrats to use the $189 billion Social Security surplus to finance other government programs. (Editorial, "Dems + 2006 budget = $3.6 shortfall," Washington Times, 3/27/05)

REALITY

In order to understand how disingenuous this claim is, it is important to know where these numbers are coming from. Since Social Security is a stand-alone program, with a separate payroll tax and a separate balance, it indeed runs a real surplus and puts it in a trust fund. By law, this trust fund is invested in Treasury bonds, creating a savings asset for Social Security and a new debt for the federal government's general account, which then uses the taxes as it would any other new debt. That's how the system works, and that's how it was designed to work.

The (Republican) Congressional budget reports a deficit of $376 billion, but that's only using a flawed technique called "unified budgeting," a practice begun in the Nixon era in which the off-balance surplus (i.e. Social Security) is combined with the genuine revenue and expense streams. It's misleading (and since 1989, it's also illegal for the president to use) -- but simply showing different numbers on the front page doesn't change the actual debt balance on the books. The longer-term situation is no secret. We all know about this "intra-governmental" debt (it's right on the Treasury Department web site) and we also know exactly what will happen when Social Security cashes in its bonds -- the bonds will be sold to the public (i.e. foreign banks), moving the debt from "intragovernmental" to the "publicly-held" column, but not changing the national debt (the sum of the two) at all. This is basic accounting. As long as the government is running these large deficits, it makes no difference who holds the bonds at the moment.

The only time one can realistically complain that the government is "spending" the surplus is when the government itself has a balanced budget, and this mandatory bond-issuing for Social Security is unintentionally used. Too much money! Such a scenario seems like a laughably implausible fantasy today, but back in 2000, Al Gore built his campaign around this very "problem." Thus, the "lockbox": apply the Social Security surplus directly to outstanding national debt. Not only would this have "protected" us from a larger government, it would've saved us money in interest payments to those foreign banks. A smart but "boring" plan.

Of course, Al Gore wasn't elected, and instead of a balanced budget we got massive top-heavy tax cuts. And as such, a deficit is a deficit, whether the debt is to China or Social Security. It's confusing when someone like Pelosi says we need to stop "spending" the SS surplus, but in effect, she means bringing the budget in balance.

So it certainly seems strange to criticize the Democrats, who have no influence at all in Tom DeLay's House, when the Republican Congress and the Republican White House are increasing spending and cutting taxes. How can the Democrats "fail to act" when the GOP simply doesn't connect spending policy with tax policy, even defeating the (Democratic) "pay-as-you-go" rule two weeks ago. We couldn't find the Democratic "blueprint" mentioned by the editors of the "Moonie Times," but we did find a report criticizing the Republican budget (pdf), and Democratic plans for fiscal discipline are well known -- for example, take it easy on the upper-bracket tax cuts and allow for negotiating prices with drug companies in the Medicare prescription benefit. But as long as the GOP is running the show, there isn't anything Democrats can do about it.

MYTH: Privatization is growing more popular

President Bush is writing a longer, more complicated narrative: The Social Security program is sick, needs an injection of change and requires bipartisan medicine. Rank-and-file Americans increasingly agree with his story line, getting more comfortable with the White House's plot as it develops — all positive signs despite chronic pessimism among many pundits. (Gary J. Andres, "Americans agreeing with President Bush," Washington Times, 3/24/05)

REALITY

Bush's seemingly endless Bamboozlepalooza tour has managed to convince people, through sheer repetition, that there is a problem, or even a "crisis," with Social Security's finances. But the more Americans learn about privatization, the less they are interested. For example, a Time poll asked whether people favored "changing the Social Security system to allow people to invest part of their Social Security payroll tax in stocks and bonds." Two months ago, it was 44 percent in favor, 47 against. This month, a majority of 52% opposed the idea. More people oppose than favor Bush's plan in all age groups.

We don't believe Social Security is a sinking ship -- but the Bush plan certainly is.

Special section: "Keeping it real" with Star Parker

The combined unfunded liability, the shortfall of projected funds available to meet projected obligations, of [Social Security and Medicare] is around $75 trillion. For perspective, the Gross National Product is $10 trillion.

[...] One good first step for doing things differently is to acknowledge that Social Security and Medicare are welfare programs. They transfer tax dollars from one set of citizens to another with the objective of achieving some social end. Once we realize that these programs are welfare programs, we'll understand that they have the same inherent flaws that characterize all programs that we explicitly call welfare. It's a fact that people change their behavior when government takes over aspects of their lives for which they had once been responsible. Most people wouldn't go to work if they felt the government was going to pay their bills.

[...] Just as in the case of inner-city welfare recipients, the government takeover of private lives in health care has displaced reality with political illusions. ...This is one place where we all can actually learn something from rap culture. The theme of rappers is "keeping it real." (Star Parker, "Let's get real about Social Security and Medicare," 3/29/05)

REALITY

You remember Star Parker -- the commentator who keeps comparing Social Security to slavery. For "perspective" on her mathematics, let us remind you that she is comparing a mystical infinite projection with a number from one year. Let's "keep it real": the trustees pegged the GDP over the "infinite horizon" at $921 trillion in today's dollars. What does that mean? Practically nothing! After all, that doesn't include the productivity gains from flying robots, and the projected cost of Medicare in ten billion years doesn't factor in the health effects of the sun imploding into a black hole. How could the trustees forget that one?!

Ms. Parker earned her conservative merit badge from her book "Pimps, Whores and Welfare Brats," which accused Democrats buying off black leaders to support welfare, a program which she claimed caused her to be lazy and dishonest. She also headed an effort to convert black pastors to the gospel of Bush.

So here's a question: do senior citizens "change their behavior" because "government pays their bills"? Your humble author's grandfather, in his 80s, was out working on the farm until a few years ago, when his knee and shoulder were replaced and he had heart surgery. He can't lift fifty-pound feed bags anymore, and not because he's lazy. So let's "get real." When people are old and retired, do they stop working because of Social Security and Medicare? Or do they stop working because they're old and retired?

Welfare has turned into a dirty word, despite its presence in the preamble to our Constitution. But both Social Security and Medicare are kinds of insurance -- we all pay in to eliminate the risk of poverty and hardship in our later years, when we can no longer work. And, though some are fortunate enough not to need this bedrock retirement support, we all receive it. We explained more about the insurance meaning of Social Security last week -- and the same goes for Medicare, despite many people confusing it with its more welfarey sister, Medicaid.

The cost of Medicare is indeed rising dangerously, which is why the Republican obsession over the surplus-ridden Social Security program is rather misplaced. But the cost of private health insurance is also becoming unmanageable for every American, and at an even greater rate. The solution is certainly not to pull the plug on the elderly, who need health care the most and have the least capacity for earning more money.