James Roosevelt, FDR's grandson, spoke at the National Press Club today about Social Security, past, present and future. He had some pretty serious things to say about those who think attacking Social Security in the name of deficit reduction is wise. In fact, he spent a good deal of his 30-minute speech speaking to the attacks on Social Security coming from the Deficit Commission.
Roosevelt wasted no time coming to the heart of the matter. In his view, the only crisis Social Security faces is one manufactured by its opponents, who have created a "mythology of fear" around the single most successful and valuable social program ever created.
Now let's take a true measure of where we are. Social Security has been the most effective government program; it has been the most responsible government program. Social Security costs are funded out of its own dedicated revenue stream. It does not and cannot borrow money to finance its operations.
There is no deficit financing. Social Security is the epitome of Yankee frugality. It could not be better managed. Social Security returns more than 99 cents to beneficiaries on every dollar collected. I dare you to find a private investment plan that can claim that.
By the end of calendar year 2009, the Social Security trust fund had a positive balance of $2.54 trillion dollars. Let me repeat -- a two point five four trillion dollar surplus. It is estimated that Social Security revenues, including interest on the trust fund, will continue to exceed expenditures through 2024. As a result of interest earned on the trust fund balances, the trust fund surplus will continue to expand to approximately $4.3 trillion dollars in 2003 [sic] (ed. note: correct reference is 2030).
After that year the balances in the Social Security trust fund will begin to decline. Still, reserves will be sufficient to pay full benefits through the year 2037. After the year 2037, Social Security would still be able to pay 76% of benefits.
Now since when is it news that a program is completely solvent for 27 years? If it's not bad news, it's not news at all in the way news is typically reported.
Even in year 2038 and thereafter, it could still pay three quarters of anticipated benefits. This is decidedly not a program that is going broke.
It's not a program that is broke and it's not a program that won't be there when current contributors retire.
In fact, what this is is quite a remarkable achievement. I think if Americans really understood its true financial picture, those poll numbers suggesting people are not counting on Social Security would be reversed.
Doubt would give way to confidence; fear to security.
Roosevelt then carefully enumerated the various myths and knocked them down with facts, admonishing the audience to do the same, via op-ed, speeches, writing and other means to communicate the truth to Americans. He also had some words for the Deficit Commission; specifically, Alan Simpson and other purveyors of the myths.
The United States does not have a social security crisis. It never did. What we do have is fear of a crisis. It is fear that has been fed by the propagation and accumulation of myths about the program. If we let our fears rule our judgment we will undo the greatest government program in our history, one that has eliminated poverty for millions of Americans and supported millions of families in time of need.
This brings us to the current National Commission on Fiscal Responsibility and Reform. While I am deeply supportive of President Obama's efforts to control the burgeoning federal deficit, I am deeply concerned that he has instructed that everything has to be on the table, including Social Security. It's not that I think Social Security is sacred compared to other worthy government programs, although I have a rather personal stake in its continuance.
It doesn't belong on the table because it's different than other programs. By law, the receipts and disbursements of social security trust funds are excluded from the President's budget and the budget resolution passed by Congress. Social Security has its own revenue source, it's prohibited from borrowing funds or going into debt and it can only pay benefits from its own funds.
Social Security should be out of the reach of the Budget Deficit Commission because it is not part of the Federal budget. Since Social Security has not contributed in any way to the deficit, it makes no sense to consider it as part of the solution.
I'm afraid that by placing Social Security under the purview of the Deficit Commission we are contributing to the mythology of fear around Social Security. That mythology says the program is heading for bankruptcy and is unsustainable. That mythology says the program will not be there for our children and our children's children.
I am concerned that although Social Security contributes nothing to the deficit it will be targeted by its enemies on the commission. Its enemies have failed on their frontal assault on Social Security but now they have been given cover by a Deficit Commission.
The opponents of Social Security have been biding their time waiting for an opportunity to attack Social Security without being seen as attacking it. The Deficit Commission could be that opportunity. Quote: (and this one I'm making up) "We love Social Security but we can't afford it." will be their battle cry.
The recent tirade by Deficit Commission co-chair Alan Simpson only confirms my suspicions. Lest anyone think I'm being overly alarmist, facts have not gotten in the way of his determination to target Social Security. Let's examine some of his statements.
Alan Simpson says "Social Security will go broke in 2037." That's a quote. The reality is that Social Security will be able to pay 76% of benefits after 2037, even if we do nothing to adjust it.
Alan Simpson says "There's no surplus in there; it's just a bunch of IOUs." The reality is those IOUs are US Treasury bonds, which have the backing of the full faith and credit of the United States government. Investors all over the world continue to invest in US Treasury bonds. There is simply no more secure asset on the face of the planet.
But Mr. Simpson would have individuals invest their hard-earned money in the stock market. In the long run the stock market may be a good investment but in the short run the value of an individual's private retirement account can change dramatically. I for one am glad that I'm not retiring any time soon, given the battering my 401k has taken in the last few years.
Further evidence of the prudence of the Social Security system is found in the legal requirement that the Treasury pay interest on bonds held by the Social Security trust fund that is equal to the highest rate that it pays on any bonds at the time of their issue.
Mr. Simpson would also have us believe that there is more going out than is coming in to the Social Security trust fund. Again, the reality is that the trust fund has a surplus of $2.4 trillion. That surplus is projected to grow for the next 13 years despite all those baby boomers starting to receive monthly checks.
As Paul Krugman recently pointed out on his blog, the deficit hawks want to have it both ways when it comes to Social Security. They want to treat Social Security as just another program in the federal budget so they don't need to credit it for the quarter century and billions of dollars worth of surpluses it has accumulated. Surpluses which of course, are denominated in those worthless IOUs anyway.
But they want to view Social Security as a program unto itself when the times come that its payments exceed its annual revenues, which we said before is projected to occur in 2017 so they can claim it is going broke.
It is completely nonsensical and deceitful to try to have it both ways.
As a retirement plan professional, I have assisted countless employees and small employers in the planning and administration of their retirement plans. I have always factored in Social Security, and when someone would claim Social Security wouldn't be there for them, I would insist otherwise, using similar facts. These ARE facts. They are not inventions, nor are they prettily dressed statistics made to support one argument or the other.
But people don't hear the truth because no one is reporting it. Social Security does not create or contribute to the deficit. It is solvent. It is reliable. It is not driving the United States into bankruptcy, and it is time to stop using it as a scapegoat and budget wedge.
Let doubt give way to confidence; fear to security.