ZOT! The real facts of social security, courtesy of FactCheck

In his State of the Union Address, President Bush said again that the Social Security system is headed for "bankruptcy," a term that could give the wrong idea. Actually, even if it goes "bankrupt" a few decades from now, the system would still be able to pay about three-quarters of the benefits now promised.

Bush also made his proposed private Social Security accounts sound like a sure thing, which they are not. He said they "will" grow fast enough to provide a better return than the present system. History suggests that will be so, but nobody can predict what stock and bond markets will do in the future.

Bush left out any mention of what workers would have to give up to get those private acounts -- a proportional reduction or offset in guaranteed Social Security retirement benefits. He also glossed over the fact that money in private accounts would be "owned" by workers only in a very limited sense -- under strict conditions which the President referred to as "guidelines." Many retirees, and possibly the vast majority, wouldn't be able to touch their Social Security nest egg directly, even after retirement, because the government would take some or all of it back and convert it to a stream of payments guaranteed for life. Analysis

Bush made Social Security the centerpiece of his Feb. 3 State of the Union address. He gave more details of how he proposes to change the system -- but left out facts that don't help his case.

Bush: The system, however, on its current path, is headed toward bankruptcy . And so we must join together to strengthen and save Social Security.

"Bankruptcy" is a scary term that Democrats have used too, when it suited them, but it could easily give the wrong idea. Nobody is predicting that Social Security will go out of business the way a bankrupt business does. It would continue to pay benefits -- just not as many.

The President was a little more specific about that later in his address, while repeating the word "bankrupt":

Bush: By the year 2042, the entire system would be exhausted and bankrupt . If steps are not taken to avert that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.

But how severe would those benefit cuts be? In fact there are two official projections -- one by the Social Security Administration (SSA) and a somewhat less pessimistic projection by the Congressional Budget Office (CBO). The President referred to the SSA projection, which calculates that the system's trust fund will be depleted in 2042. After that, the system would have legal authority to pay only 73 percent of currently promised benefits -- and that figure would decline each year after, reaching 68 percent in the year 2075.

The CBO doesn't project trust-fund depletion until a decade later, in 2052, and figures that the benefits cuts wouldn't be so severe, a reduction to 78% of promised benefits. But either way, even a "bankrupt" system would continue to provide most of what's promised currently.

Furthermore, the President did not specify what he would do to fix the problem. He again urged creation of private Social Security accounts. But those would be of no help whatsoever in shoring up the system's finances, as acknowledged earlier in the day by a senior Bush administration official who briefed reporters on condition of anonymity:

"Senior Administration Official:" So in a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government.

And that "net neutral effect" is just over the long term, 75 years or more. In the shorter term, creation of private accounts would require heavy federal borrowing to finance the payment of benefits to current retirees while some portion of payroll taxes is being diverted to workers' private accounts. The administration projects it will borrow $754 billion (including interest) through 2015 to finance the initial phase-in of the accounts, and much more thereafter. The liberal Center on Budget and Policy Priorities -- which opposes Bush's proposal -- projected that $4.5 trillion (with a "t") would be required to finance the first 20 years of the accounts after they start to be phased in in 2009.

The President made those private accounts -- which he now prefers to call "personal" accounts -- sound like a sure bet:

Bush: Here's why the personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver -- and your account will provide money for retirement over and above the check you will receive from Social Security.

History suggests that the President is correct -- the stock market has averaged a 6.8 percent "real" rate of return (adjusted for inflation) over the past two centuries, according to Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School. The administration says a conservative mix of stocks, corporate bonds and government bonds would return 4.6 percent, even after inflation and administrative costs. And the administration also figures that private accounts would need to generate only a 3 percent rate of return to beat what Social Security provides.

But there's no guarantee that history will repeat itself. Markets are inherently unpredictable and volatile. At present, for example, all major stock-market indexes are still well below where they were five years ago.

The President made no mention of one crucial aspect of the proposed accounts -- anyone choosing one would also have to give up an offsetting portion of their future guaranteed retirement benefits. If their investments in private accounts returned more than 3 percent annually over the years, they would end up better off than under the current formula. But if those investments did worse, they wouldn't make up for the portion of benefits that were given up, and the owner of an account would end up worse off. The President didn't explain that trade-off.

The President also glossed over some severely restrictive aspects of the accounts he is proposing, saying flatly "the money is yours."

Bush: In addition, you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children and -- or grandchildren. And best of all, the money in the account is yours, and the government can never take it away .

As described by the "senior administration official," the owners of personal accounts wouldn't be able to touch the money while they are working, not even to borrow. The money would remain in the hands of the federal government, which would administer the personal accounts for a fee which the official said would be about 30 cents per year for every $100 invested.

And even at retirement, the government would control what becomes of the money. First, the government would automatically take back a portion of the money at retirement and convert it to a guaranteed stream of payments for life -- an annuity. The amount taken back would depend on the amount of money the retiree requires to remain above the official poverty guideline. That's currently $12,490 for a couple or $9,310 for a single person. Only after the combination of traditional Social Security benefits and the mandatory annuity payments from the private account equal the poverty level would any remaining portion in the account be "yours."

"Senior Administration Official:" They would be permitted to leave those (leftover) funds in the account to continue to appreciate; they could withdraw those amounts as lump sums to deal with a pressing financial need -- and, obviously, any additional accumulations in the accounts could be left as an inheritance. But the main restriction, again, to repeat, is that people would not be permitted to withdraw money from the accounts to such a degree that by doing so they would spend themselves below the poverty line.

The President didn't mention the mandatory nature of these restrictions, calling them only "guidelines" and describing them only in positive terms:

Bush: (W)e will set careful guidelines for personal accounts. We'll make sure the money can only go into a conservative mix of bonds and stock funds. We'll make sure that your earnings are not eaten up by hidden Wall Street fees. We'll make sure there are good options to protect your investments from sudden market swings on the eve of your retirement. We'll make sure a personal account cannot be emptied out all at once, but rather paid out over time, as an addition to traditional Social Security benefits. And we'll make sure this plan is fiscally responsible, by starting personal retirement accounts gradually, and raising the yearly limits on contributions over time, eventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts.

Feb. 4 Clarification: We originally used the term "clawback" to describe the sum of money that the government would require workers to use to purchase an annuity upon retirement. The White House does not use that term and specifically denies that the mandatory annuity purchase requirement constitutes a "clawback." We have removed our references to that term to characterize the mandatory annuity purchase. Sources

"The Short- and Long-Term Outlook for Stocks," Knowledge@Wharton website, The Wharton School, University of Pennsylvania: 2 June 2004. (Free subscription required.)

White House Office of the Press Secretary, "Background Press Briefing on Social Security," press release, 2 Feb 2005.

US Department of Health and Human Services, "Annual Update of the HHS Poverty Guidelines," Federal Register 13 Feb 2004: 7336.

Democrats Don't Believe Their Own Rhetoric About Social Security
by David Limbaugh
Posted Jan 25, 2005

Two major changes have occurred since those long-forgotten days when Democrats were identifying Social Security as a crisis that had to be fixed immediately: The problem has gotten worse, and Democrats have proven they weren't sincere in the first place.

Bill Clinton pretended to be adamant about fixing the problem. Al Gore lectured his presidential opponent George W. Bush for not approaching the problem with sufficient urgency. Allusions to the ephemeral "lock box" were Al Gore's favorite sound bites.

One would think, then, that President Bush would be entitled to some credit for his willingness to tackle the notorious third rail of politics. He has little to gain politically from pursuing a solution.

Think again. In response to President Bush's plan to add a private accounts option, Democrats insist that two rights make a wrong. That is, even if the president's reform would enhance the average American's retirement security, it must not be permitted if it would also help big business, which Democrats openly despise. You see, it's not just the whack jobs on the Left, but the entire Democratic leadership apparatus that is saying the president is doing this as a sop to Wall Street.

But, alas, Democrats are not limiting their objections to their familiar class warfare tactics. Just like their about-face on assessing Saddam Hussein as a threat that had to be removed, they are now shamelessly, brazenly denying there is a serious problem with Social Security that needs serious attention.

Like little kids they are arguing over the semantics of whether we are currently facing a "crisis" in Social Security or just a major "problem."

Who cares what you call it? This system is guaranteed to be deep in the red in less than 15 years mostly because of demographic shifts that will result in insufficient numbers of workers to support increasing numbers of retirees. In addition, because of a "well-meaning" adjustment introduced by the Carter Administration in 1977, initial benefits are indexed to wages so that each generation of retirees receives higher real benefits -- more than the cost of living -- than the previous generation.

Beginning in 2018, absent major reform, the federal government will have to tap general revenues to subsidize its Social Security benefit payments, eventually in staggering amounts approaching $10 trillion. A compounding factor is that the Social Trustees report estimates that we will lose $600 billion for every year we ignore the problem. Yet this isn't a serious enough issue to demand our immediate attention?

How many times have we heard Democrats -- latter-day deficit hawks that they are -- rail against President Bush's deficit spending? How many times have they feigned apoplexy over the spiraling national debt?

Well, folks, they must not mean what they say, because this looming Social Security problem is purely and simply about an inevitable explosion of the national debt. It's only avoidable if we reduce benefits, reduce other federal spending and/or raise taxes -- which at some point will be counterproductive on the revenue side.

Whether you call it a problem or a crisis, it is getting worse, and it's nothing short of immoral to put off working on solutions. The only conceivable reasons Democrats are in denial about it is that they either don't want to allow reform under a Republican president or don't want to fix it at all because they might lose one of the main weapons in their fear-mongering arsenal.

If they join Republicans in solving the problem, they won't be able to scare seniors away from the GOP with this issue any longer. It's no different from their approach to school choice. If they join Republican reformers in freeing inner-city children, largely minorities, from their failed public schools, they'll no longer be able to paint Republicans as ogres on education. And, they'll risk losing the indispensable political support of the education establishment.

The Social Security "crisis" was the subject of my first syndicated column six years ago. We've done nothing to fix it in the meantime, and it's getting worse.

President Bush is the first leader in a long time with the courage to do the right things even when they aren't popular and even when they lend themselves to the worst kind of vicious demagogic opposition. But he's also a guy who won't be intimidated by his opponents' tactics.

His opponents, including some on the Republican side, need to become part of the solution or get out of the way of those who are.

Remember When Democrats Advocated Protecting Social Security?
by Chris Field
Posted Feb 13, 2005

Did you know there once was a time when Democrats admitted they believed Social Security needed protection and reform? Of course, it's quite significant that, of the occasions they took to trumpet the need to fix the program, they were the loudest when they used Social Security reform to justify their strident opposition to President Bush's first tax relief package in the first few months of 2001.

Juxtaposing the Democratic Party's lackadaisical position on Social Security reform today (remember, they actually booed the President of the United States on this issue during the State of the Union) with what they were saying during the budget fights of 2001, when President Bush's tax relief package was being debated, reveals quite a contrast.

Here, then, are a few excerpts from Democrats during the debates, speeches, and tirades on the Senate floor in 2001. I pulled all quotes from the Congressional Record (CR).

WARNING: This list of quotes is awfully long, but they're all worth having in your arsenal.

SEN. ROBERT BYRD (W.V.):

What about Social Security and Medicare reform? When the baby-boom generation begins to retire over the next ten years, financial pressure on the Social Security and Medicare trust funds will rise rapidly as payroll tax income falls short of what is needed to pay benefits. Both programs are expected to have expenditures in excess of receipts in 2016. Where will the federal government find the money to finance these benefits? In the absence of budget surpluses for the rest of the government's operations, policymakers would have three options: raise other taxes, curtail other spending, or borrow money from the financial markets. If we go along with these massive tax cuts, how will we honor our pledge to protect Social Security and Medicare? [Congressional Record s3674, April 6, 2001]

SEN. JOE LIEBERMAN (CONN.):

Because of the excessive Republican tax cut and the inadequate size of this contingency fund, Congress may be forced to raid the Social Security and Medicare trust funds or face the prospect of a return to budget deficits. The GOP budget imposes deep cuts on important programs. The Budget Resolution would cut non-defense discretionary spending by about $8 to $9 billion or two percent below the level needed to keep pace with what was provided last year, adjusted for inflation. Funding for environmental protection, disaster assistance, veterans' medical care, Community Oriented Policing (COPS) and the Army Corps of Engineers would be particularly hard hit.

[. . .]If we are successful in building on our prosperity, we will be able to guarantee the future of Social Security and Medicare. Everyone knows that strengthening Medicare will require more resources, not less. Yet the President's tax cut reaches into the Medicare surplus, leaving scant hope for modernization, or a new, meaningful prescription drug benefit, as the President promised. While today's workers will rely more and more on personal savings for retirement, for millions of Americans, Social Security is still the foundation of their old-age support. We must meet our obligations to our retirees, but we must also seek reforms that will make their retirements more secure. [Congressional Record s3675-3677, April 6, 2001]

SEN. PAT LEAHY (VT.):

Mr. President, I must oppose this budget because it is an irresponsible gamble with our economic future.

This resolution sets aside trillions of projected budget surpluses for tax cuts proposed by President Bush that are steeply tilted to the wealthy. It pays for the Bush tax plan at the expense of needed investments in Social Security, Medicare, education, law enforcement and the environment.

[. . .] After years of hard choices, we have balanced the budget and started building surpluses. Now we must make responsible choices for the future. Our top four priorities should be paying off the national debt, passing a fair and responsible tax cut, saving Social Security, and creating a real Medicare prescription drug benefit. [Congressional Record s3681-3682, April 6, 2001]

SEN. CARL LEVIN (MICH.):

In approaching our Federal budget, I believe we should divide the projected surplus among four budget goals: giving the American people fair and fiscally responsible tax relief, paying down the debt, protecting Social Security and Medicare, and responsibly investing in key priorities such as education, prescription drug coverage for seniors, environmental protection and national defense.

[. . .] Understanding that these projections are uncertain, here's what I think should be done with surplus dollars that actually materialize:

First, I would protect the Social Security and Medicare trust funds. We have to take prudent steps today to ensure that as 77 million baby boomers retire over the next 30 years, the costs of their Social Security and Medicare won't explode the Federal budget. In just 15 years, the Social Security and Medicare programs will require transfers from the "non-Social Security and non-Medicare" side of the Federal budget in order to pay benefits. Without reform, these transfers will get larger and larger, placing enormous pressure on the federal budget--pressure that would be compounded if President Bush's proposed tax cuts were enacted. Thus I think it is imperative to set aside the surpluses that are currently accumulating in these trust funds and not use them for new spending or tax cuts--as the President's budget proposes to do.

[. . .] As budget debate continues in the weeks ahead, Congress will be making some important decisions regarding our country's future. We have the ability to provide targeted tax relief, fund some important national priorities and protect Social Security and Medicare for future generations, while dedicating significant resources to paying down the national debt. To achieve all of these goals, we need to act wisely today so that we strengthen our economy in the long run, not weaken it once again by risking a large Federal deficit with an excessive tax cut benefiting mostly those who need it least. [Congressional Record s3683-3684, April 6, 2001]

SEN. TED KENNEDY (MASS.):

Mr. President, at the heart of the budget dispute between Republicans and Democrats is the size of President Bush's proposed tax cut. Republicans claim the surplus is so large that we can have it all, that their massive tax cut will not interfere with efforts to address the country's most serious concerns.

[. . .] The impact of the Republican tax cut on the Federal Government's ability to address the most pressing concerns of the American people would be devastating. It is too large to fit into any responsible budget. The available surplus over the next ten years is, at most, $2.7 trillion. Whatever we do over the next decade to address this country's unmet needs must be paid for from that amount. Whatever we want to do to financially strengthen Social Security and Medicare for future retirees must be funded from that amount.

[. . .] The Democratic budget plan stands in stark contrast to the Republican plan. Budgets are a reflection of our real values, and these two budgets clearly demonstrate how different the values of the two parties are. In political speeches, it is easy to be all things to all people. But the budget we vote for shows who we really are and what we really stand for. Our budget is geared to the needs of working families. It will provide them with tax relief, but it will also address their education and health care needs. And it will protect Social Security and Medicare, on which they depend for secure retirement.

There are four criteria by which we should evaluate a budget plan: 1. is it a fiscally responsible, balanced program? 2. does it protect Social Security and Medicare for future generations?, 3. does it adequately address America's urgent national needs?, and 4. does it distribute the benefits of the surplus fairly amongst all Americans? By each yardstick, the Republican budget fails to measure up. The Democratic budget is a far sounder blueprint for building America's future.

[. . .] By consuming $2.5 trillion of the $2.7 trillion available surplus on tax cuts, the Republican budget would leave virtually nothing over the next ten years: to strengthen Social Security and Medicare before the baby boomers retire. . . .

[. . .] The Social Security and Medicare surpluses are comprised of payroll taxes that workers deposit with the Government to pay for their future Social Security and Medicare benefits. Just because the Government does not pay all those dollars out this year does not make us free to spend them. Over the next ten years, Social Security will take in $2.5 trillion more dollars than it will pay out and Medicare will take in $400 billion more dollars than it will pay out. But every penny of this will be needed to provide Social Security and Medicare benefits when the baby boomers retire. [Congressional Record s3687 - 3689, April 6, 2001]

SEN. PAUL SARBANES (MD.):

The Democrats have proposed a responsible budget alternative which balances the need for debt reduction, targeted tax cuts, and investment in critical national needs. The Democratic alternative fully protects the Social Security and Medicare surpluses to ensure that we will be able to meet our obligations to America's seniors, now and in the future. [Congressional Record s3691, April 6, 2001]

SEN. HARRY REID (NEV.):

We need to be fiscally responsible and protect social security, provide a prescription drug benefit, fund education, ensure a strong and stable military, continue to pay down the debt, and to ensure the funding is available for our Nation's veterans. [Congressional Record s3695, April 6, 2001]

SEN. DICK DURBIN (ILL.):

I also want to make certain we protect Social Security and Medicare. If as an outcome of this debate we end up jeopardizing Social Security or Medicare, then we have not met our moral and social obligation to the millions of Americans who have paid into these systems and depend on them to survive.

I believe the good news about the surplus should be realistic news. We should understand that surpluses are not guaranteed. We ought to make certain that any tax cut we are talking about is not at the expense of Social Security and Medicare. We should focus the tax cuts on working families to make sure they are the beneficiaries so that they have the funds they need to make their lives easier. That should be the bottom line in this debate.

As I said at the outset, Democrats and Republicans alike believe these tax cuts are going to happen. I believe it is a good thing to do. Let us pay down this national debt. Let us provide a tax cut for the families who need it. Let's make sure we protect Social Security and Medicare in the process. [Congressional Record s839, January 31, 2001]

SEN. DEBBIE STABENOW (MICH.):

We believe fiscal responsibility, keeping the budget balanced, paying down the debt, protecting Social Security and Medicare are critical and should not be compromised for any other actions no matter how well intended. We have a train going down the track. My fear is there will be no budget trigger to stop the train before it goes off the track. That is common sense.

[. . .] I believe common sense would dictate we pay down the debt, we protect Medicare and Social Security , we give a major tax cut focused on our middle-income families and small businesses and family farmers, and that we can do that and also be able to continue investments to keep the economy going. [Congressional Record s5684, May 25, 2001]

SEN. KENT CONRAD (N.D.):

We are offering an alternative that we think is more cautious, more conservative, and more balanced. We take the forecast surplus of $5.6 trillion, and then we reserve every penny of the Social Security and Medicare trust funds for the purposes intended. That leaves us with $2.7 trillion remaining.

We separate that amount into equal thirds: A third for a tax cut; a third for the high-priority domestic needs of a prescription drug benefit, strengthening our national defense, improving education, and funding agriculture; and, with the final third, we set that money aside for strengthening Social Security and dealing with our long-term debt because just as we have surpluses now in this 10-year period, we know that when the baby boomers start to retire these surpluses turn to massive deficits.

[. . .] We also say we ought to reduce the size of his tax cut to set aside money to strengthen Social Security for the long term. [Congressional Record s3264-3269, April 2, 2001]

SEN. BARBARA MIKULSKI (MD.):

The democratic plan is balanced, fiscally prudent, and leaves resources so we can continue to pay down our debt, and make the balloon payments coming due on Social Security and Medicare. [Congressional Record s5502, May 23, 2001]

SEN. JAY ROCKEFELLER (W.V.):

The facts are stark: Social Security payments will exceed income in 2015, and Medicare payments exceed income in 2010. We will be forced to tap into the Social Security Trust Fund principal in 2025 and the Medicare Trust Fund principal in 2017. In 2037, the Social Security Trust Fund will be exhausted, and the Medicare Trust fund will be exhausted even earlier, in 2025. I believe this tax bill jeopardizes the long-term solvency of Social Security and Medicare. These programs are fundamental for our seniors, and we have an obligation to ensure that both the Social Security and Medicare Trust Funds are protected before enacting massive tax cuts. [Congressional Record s5505, May 23, 2001]

SEN. JOHN KERRY (MASS.):

We are about to enact a $1.35 trillion tax cut and at the same time, we have done nothing to deal with fundamental issues resulting from mandatory spending and the retirement of the Baby Boom generation.

[. . .] Social Security's trustees reported in March that Social Security's tax income will fall short of Social Security's benefit payments beginning in 2016. Medicare's tax income will fall short of Medicare spending the same year. Social Security and Medicare's problems are related to the aging of the labor force. In the not-to-distant future, there will be too few workers in the workforce to maintain Social Security and Medicare as pay-as-you-go programs. These are not small problems.

In the case of Social Security, Congress will have to either reduce Social Security benefits, raise Social Security taxes, or find a third alternative.

[. . .] The same issues apply to Medicare. The Congressional budget resolution sets aside $300 billion in a Medicare Reserve Fund. However, that $300 billion is needed just to finance a decent prescription drug benefit. In addition, there will be substantial costs associated with reforming Medicare. This year's Trustees' Report showed that health care costs per capita will rise. But as I have demonstrated, the tax cut would place Medicare surpluses in jeopardy.

Dealing with Social Security and Medicare's financial problems sooner rather than later minimizes the pain for beneficiaries and workers by allowing the government to address transitional costs before the problem reaches the breaking point.

Congress should be acting in a fiscally responsible way by addressing Social Security and Medicare's long-term problems while we have the opportunity, while the Federal government is operating under surpluses and not deficits. [Congressional Record s5508-5509, May 23, 2001]

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