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The Secret Language Of The Social Security Debate

JoeTheEconomist

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The Social Security debate has its own private lexicon wherein words take on new meanings, which at times even contradict the meaning those words have in the English language. The consequence of the Social Security pseudo-code is a stalemate, because it is virtually impossible to build any consensus in a world where up means down and right means left.

There are simple translations. For example, when someone says "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things.

At other times, you need a decoder ring to understand what is really being saidFor example, the standard rebuttal to any call for reform is, "Social Security has funds in a worst-case scenario to pay full benefits for more than 20 years, and minor changes could easily fix the long-term funding problem."

The most abused word in the debate about Social Security is "fixed." Writers use the word "fixed" and "solvent" interchangeably, even though the concepts are 14 trillion dollars apart according to the Social Security Administration. "Fixed" means that we have no problem. "Solvent" means that we have made our problem a problem for our kids. These are not the same thing.

For millennials, "solvent" means that the nation will divert roughly $10 trillion away from deficit control so that in 35 years millennials can be in the exact same situation Boomers are today. As millennials approach retirement, the system would have massive solvency shortfalls. The working generation would be complaining about the cost of the system, doubting that they will collect anything. The nation will be right back where it was in 2013 and 1983 with millennials trying to convince their children that Social Security will provide them a safe retirement provided that they pay more and get less.

This problem comes in part because the word "funds," in a Social Security context, does not mean funds in the traditional sense of the word. Social Security is financed, not funded. Social Security collects payroll revenue in exchange for the promise of future benefits. This is no different from going to a bank to borrow money in exchange for the promise of future interest and principal payments. Social Security pays every dollar of benefits with borrowed money, where the next generation serves as a new bank.

Yes, the system holds $2.7 trillion in borrowed money in the trust funds. In building that reserve, the system issued more than $25 trillion of promises for which there are no funds in any true sense of the word.

Words of certainty in the Social Security debate also have no meaning. "Will" means "might," or at best "should." The Trustees of Social Security say that in a good economy Social Security might be able to pay full benefits until 2033. 2033 is not a prediction. It is a likely outcome. The projection is provided as a warning, not as a guarantee.

Even so, what would the word "guarantee" mean? On Dec. 20, 1977, President Carter said, "This legislation will guarantee that from 1980 to the year 2030, the social security funds will be sound." "Guarantee" meant that six years later the system was completely insolvent, requiring massive tax increases, benefit cuts, and the inclusion of millions of more workers.

Not only is 2033 not a guarantee, it is not even a "worst-case" scenario. The Trustees provide projections based on three different scenarios, ranging from low-cost to high-cost. On page 58 of the Trustees Report, the Trustees provide outcomes based on less favorable economic assumptions where the system pays degraded benefits in 2027. And while these assumptions are called "high-cost," they are far from a worst-case scenario.

Words of magnitude in the Social Security debate have no meaning. The opponents in the debate change the wording of $10 trillion so that it has no meaning. Ten trillion is expressed as a percentage of GPD. It is expressed as a percentage of wages. For example, Gail Buckner on Fox Business referred to the $10 trillion as "small" increase in the payroll tax rate of 1.3%. Another way to express her ideas is, "Raising Payroll Taxes to Save Social Security will Cost the Average Worker $73,000." Expressing the problem in fewer digits does not make the problem smaller —$10 trillion is still $10 trillion.

In a debate where words have no meaning, it is possible to say that Social Security's financing gap is easy to fix — whatever "easy" means.
 
The Social Security debate has its own private lexicon wherein words take on new meanings, which at times even contradict the meaning those words have in the English language. The consequence of the Social Security pseudo-code is a stalemate, because it is virtually impossible to build any consensus in a world where up means down and right means left.

There are simple translations. For example, when someone says "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things.

At other times, you need a decoder ring to understand what is really being saidFor example, the standard rebuttal to any call for reform is, "Social Security has funds in a worst-case scenario to pay full benefits for more than 20 years, and minor changes could easily fix the long-term funding problem."

The most abused word in the debate about Social Security is "fixed." Writers use the word "fixed" and "solvent" interchangeably, even though the concepts are 14 trillion dollars apart according to the Social Security Administration. "Fixed" means that we have no problem. "Solvent" means that we have made our problem a problem for our kids. These are not the same thing.

For millennials, "solvent" means that the nation will divert roughly $10 trillion away from deficit control so that in 35 years millennials can be in the exact same situation Boomers are today. As millennials approach retirement, the system would have massive solvency shortfalls. The working generation would be complaining about the cost of the system, doubting that they will collect anything. The nation will be right back where it was in 2013 and 1983 with millennials trying to convince their children that Social Security will provide them a safe retirement provided that they pay more and get less.

This problem comes in part because the word "funds," in a Social Security context, does not mean funds in the traditional sense of the word. Social Security is financed, not funded. Social Security collects payroll revenue in exchange for the promise of future benefits. This is no different from going to a bank to borrow money in exchange for the promise of future interest and principal payments. Social Security pays every dollar of benefits with borrowed money, where the next generation serves as a new bank.

Yes, the system holds $2.7 trillion in borrowed money in the trust funds. In building that reserve, the system issued more than $25 trillion of promises for which there are no funds in any true sense of the word.

Words of certainty in the Social Security debate also have no meaning. "Will" means "might," or at best "should." The Trustees of Social Security say that in a good economy Social Security might be able to pay full benefits until 2033. 2033 is not a prediction. It is a likely outcome. The projection is provided as a warning, not as a guarantee.

Even so, what would the word "guarantee" mean? On Dec. 20, 1977, President Carter said, "This legislation will guarantee that from 1980 to the year 2030, the social security funds will be sound." "Guarantee" meant that six years later the system was completely insolvent, requiring massive tax increases, benefit cuts, and the inclusion of millions of more workers.

Not only is 2033 not a guarantee, it is not even a "worst-case" scenario. The Trustees provide projections based on three different scenarios, ranging from low-cost to high-cost. On page 58 of the Trustees Report, the Trustees provide outcomes based on less favorable economic assumptions where the system pays degraded benefits in 2027. And while these assumptions are called "high-cost," they are far from a worst-case scenario.

Words of magnitude in the Social Security debate have no meaning. The opponents in the debate change the wording of $10 trillion so that it has no meaning. Ten trillion is expressed as a percentage of GPD. It is expressed as a percentage of wages. For example, Gail Buckner on Fox Business referred to the $10 trillion as "small" increase in the payroll tax rate of 1.3%. Another way to express her ideas is, "Raising Payroll Taxes to Save Social Security will Cost the Average Worker $73,000." Expressing the problem in fewer digits does not make the problem smaller —$10 trillion is still $10 trillion.

In a debate where words have no meaning, it is possible to say that Social Security's financing gap is easy to fix — whatever "easy" means.

just to point out.. Social security is funded not financed. that's why it was able to run a surplus for decades, up until 2010 or so (depending on how you calculate interest). That surplus is why SS is technically solvent until 2033.

The problem is that the surplus that the baby boomer generation paid in.. was used to finance the spending for our national debt. During that time.. when it was running a surplus... Democrat and republican alike was perfectly happy with social security.. and more importantly to spend that money on all sorts of other things.

Now that the bill is due, suddenly social security has "become broken" and an "entitlement" regardless of how much surplus was FUNDED.
 
just to point out.. Social security is funded not financed. that's why it was able to run a surplus for decades, up until 2010 or so (depending on how you calculate interest). That surplus is why SS is technically solvent until 2033.

The problem is that the surplus that the baby boomer generation paid in.. was used to finance the spending for our national debt. During that time.. when it was running a surplus... Democrat and republican alike was perfectly happy with social security.. and more importantly to spend that money on all sorts of other things.

Now that the bill is due, suddenly social security has "become broken" and an "entitlement" regardless of how much surplus was FUNDED.

As I point out in the article that every dollar of 'funding' comes with the promise of future benefits. Funded means that you own the money outright. Here 'funded' means that you owe someone future benefits. That is why they call it paygo financing. If I borrow $100,000 from the bank and put it in my bank account. It is financed money. If I work and save $100,000, it is funded money.

You seem to believe that the Social Security Trust Fund is large. The unfunded liabilities are roughly 23 trillion. That is after the Trust Fund is redeemed and distributed.
 
As I point out in the article that every dollar of 'funding' comes with the promise of future benefits. Funded means that you own the money outright. Here 'funded' means that you owe someone future benefits. That is why they call it paygo financing. If I borrow $100,000 from the bank and put it in my bank account. It is financed money. If I work and save $100,000, it is funded money.

You seem to believe that the Social Security Trust Fund is large. The unfunded liabilities are roughly 23 trillion. That is after the Trust Fund is redeemed and distributed.

You left one out:

"unfunded liability" = money you don't owe and may never owe but which some people think you should have on hand anyway
 
You left one out:

"unfunded liability" = money you don't owe and may never owe but which some people think you should have on hand anyway

I am not sure what you mean my "don't owe". Social Security has no beneficial interest you are correct. Legally workers have no recourse if the government says that Social Security doesn't owe you anything. I think that is an extreme way to look at the system.

These are theoretical projections based on a probable economy. The unfunded liability measures the promises for which the system would not generate any cash. The shortfall is not a guarantee, it is a likely outcome.
 
I am not sure what you mean my "don't owe". Social Security has no beneficial interest you are correct. Legally workers have no recourse if the government says that Social Security doesn't owe you anything. I think that is an extreme way to look at the system.

These are theoretical projections based on a probable economy. The unfunded liability measures the promises for which the system would not generate any cash. The shortfall is not a guarantee, it is a likely outcome.

Yes, there are theoretical projections of liability. I accept their theoretical basis

There are also theoretical projections of revenue. I accept those too. Unfortunately, those are rarely mentioned by the "Unfunded mandates!" crowd. Nor is the most obvious (IMO) remedy - eliminating the FICA cap
 
Eliminating the cap does not remedy Social Security. It does not even make it solvent - according to the Social Security Administration. It does however divert 7 or 8 trillion dollars of revenue away from deficit control.
 
Eliminating the cap does not remedy Social Security. It does not even make it solvent - according to the Social Security Administration. It does however divert 7 or 8 trillion dollars of revenue away from deficit control.

That's not what I've read:

http://www.aging.senate.gov/crs/ss9.pdf

Raising or eliminating the cap on wages that are subject to taxes could reduce the long-range
deficit in the Social Security Trust Funds. For example, if the maximum taxable earnings amount
had been raised in 2005 from $90,000 to $150,000—roughly the level needed to cover 90% of all
earnings—it would have eliminated roughly 40% of the long-range shortfall in Social Security. If
all earnings were subject to the payroll tax, but the base was retained for benefit calculations, the
Social Security Trust Funds would remain solvent for the next 75 years.
 

That is a CBO study from 2010 using data from 2009 and assumptions from 2005. That is out of date by trillions of dollars of solvency. You also ought to look at the assumptions in that report which assume that there is no behavioral response to higher taxes.

If you look at page 66 of the Trustees Report 2013, you will find out why data from 2010 is not relevant. The solvency shortfall grew by roughly 1/2 trillion dollars soley by moving the reporting year from 2012 to 2013. "(1) the unfunded obligation is now discounted to January 1, 2013, rather than to January 1, 2012, which tends to increase the unfunded obligation by the annual nominal interest rate; and (2) the unfunded obligation now includes an additional year (2087)."

You can see the impact in SSA's forecasts. I think that SSA's 2010 forecast was similar to CBOs, creating a sufficient revenue to keep the system solvent for 75 years. Three years later, the SSA projects that same solution will not keep Social Security solvent for 50 years. Raising maximum benefits yields a 2061 solvency date.

Long Range Solvency Provisions
 
Eliminating the cap does not remedy Social Security. It does not even make it solvent - according to the Social Security Administration. It does however divert 7 or 8 trillion dollars of revenue away from deficit control.
 
You left one out:

"unfunded liability" = money you don't owe and may never owe but which some people think you should have on hand anyway

So to a liberal "unfunded liability" = "Spending". Got it.
 
That is a CBO study from 2010 using data from 2009 and assumptions from 2005. That is out of date by trillions of dollars of solvency. You also ought to look at the assumptions in that report which assume that there is no behavioral response to higher taxes.

If you look at page 66 of the Trustees Report 2013, you will find out why data from 2010 is not relevant. The solvency shortfall grew by roughly 1/2 trillion dollars soley by moving the reporting year from 2012 to 2013. "(1) the unfunded obligation is now discounted to January 1, 2013, rather than to January 1, 2012, which tends to increase the unfunded obligation by the annual nominal interest rate; and (2) the unfunded obligation now includes an additional year (2087)."

You can see the impact in SSA's forecasts. I think that SSA's 2010 forecast was similar to CBOs, creating a sufficient revenue to keep the system solvent for 75 years. Three years later, the SSA projects that same solution will not keep Social Security solvent for 50 years. Raising maximum benefits yields a 2061 solvency date.

Long Range Solvency Provisions

I'm not sure I understand the chart at the link. It seems to be based on raising the benefits, no?
 
I'm not sure I understand the chart at the link. It seems to be based on raising the benefits, no?

The charts are part of the Secret Language, but there are limits on space. It looks like jargon, but the key column is the Trust Fund ratio. The Trust Fund Ratio tell you how many years of benefits the Trust Fund could pay without any payroll taxes. When that figure hits zero, the Trust Fund is exhausted. When that happens, benefits are limited to payroll taxes collected.

This chart shows the changes that would occur if we "eliminate the taxable maximum in years 2013 and later". The cost ratio is increasing because more and more boomers are retiring...
 
Just pointing out, this is an article from a blog site: Why Social Security is Falling Apart, Explained in Language You Can Understand

About the author:

I admire your throughness. It is my article. I hope that my profile contains the same information.

Originally, we started out interested in talking about solutions. That changed over time as we found that people do not agree with what Social Security should be. Over time, we found that myth dominates the debate. Over time, we found that opponents can literally say anything and it will go unchallenged. In the net, we reached the conclusion that what the reform looks like isn't important so long as the voters understand what they are actually voting for.
 
The charts are part of the Secret Language, but there are limits on space. It looks like jargon, but the key column is the Trust Fund ratio. The Trust Fund Ratio tell you how many years of benefits the Trust Fund could pay without any payroll taxes. When that figure hits zero, the Trust Fund is exhausted. When that happens, benefits are limited to payroll taxes collected.

This chart shows the changes that would occur if we "eliminate the taxable maximum in years 2013 and later". The cost ratio is increasing because more and more boomers are retiring...

Thanks for the explanation, but I guess I wasn't clear enough. My bad

RE: increasing benefits, I was referring to the line in the heading which reads " Provide benefit credit for earnings above the current-law taxable maximum."

My understanding is that "benefit credits" are used to determine how much an individuals SS payment is and this line suggests that by increasing their credits, we would also increase their SS payments.

Am I missing something?
 
Thanks for the explanation, but I guess I wasn't clear enough. My bad

RE: increasing benefits, I was referring to the line in the heading which reads " Provide benefit credit for earnings above the current-law taxable maximum."

My understanding is that "benefit credits" are used to determine how much an individuals SS payment is and this line suggests that by increasing their credits, we would also increase their SS payments.

Am I missing something?

Yes, Social Security pays benefits based on past contribution. If we increase the contributions of high-wage workers, they will collect more in the future. That is the nature of Social Security. While benefits increase, they increase at a slower and slower rate.

If you want to keep the cap on benefits, then the system is solvent until 2078. But technically that isn't just removing the cap, but removing the cap and capping benefits.
 
Thanks for the explanation, but I guess I wasn't clear enough. My bad

RE: increasing benefits, I was referring to the line in the heading which reads " Provide benefit credit for earnings above the current-law taxable maximum."

My understanding is that "benefit credits" are used to determine how much an individuals SS payment is and this line suggests that by increasing their credits, we would also increase their SS payments.

Am I missing something?

I haven't looked at the assumptions in that chart. It is likely that they maintain the same assumptions as CBO. CBO's says that behavioral responses to higher taxes are difficult to compute so they ignore them.

Higher taxes are a negative to jobs. In this case, we are dealing with some of the most profitable jobs in the system. High wage workers tend to not get back what they contribute. As a consequence, when higher taxes lead someone to retire it is very expensive for the system. Even at a modest response to higher taxes, the system collects nothing more in taxes.
 
As I point out in the article that every dollar of 'funding' comes with the promise of future benefits. Funded means that you own the money outright. Here 'funded' means that you owe someone future benefits. That is why they call it paygo financing. If I borrow $100,000 from the bank and put it in my bank account. It is financed money. If I work and save $100,000, it is funded money.

You seem to believe that the Social Security Trust Fund is large. The unfunded liabilities are roughly 23 trillion. That is after the Trust Fund is redeemed and distributed.

Sure it comes with the promise of future benefits. When I take out a life insurance policy and fund the premiums.. I would expect to get the benefits would I not? If I fund my IRA, isn't there a promise of future benefits? That's why its funded.

And note.. that your level of benefit depends on the level and amount of money you put in.

People didn't borrow that money that they put into their bank accounts... they earned it and put it in. Those were hard earned taxes.. not financed money.

The Social Security Trust Fund is HUGE.. that's fact.. that's why its solvent for decades. those unfunded liabilities are not funded because they are far in the future and they are based on money that folks will be putting in now.. AND that assumes that the amount being funded will remain static.. i.e. SS taxes will not need to go up, or future economic growth.

The fact is that Social security and Medicare are about the most financially successful programs ever. Name a few other programs that have run surpluses for decades.... name a few private companies that have run consistent surpluses for decades.

No the real issue is that its been widely successful financially, except that the folks that are decrying medicare and social security... had no problem borrowing against it so that they could pay for tax credits, or wars, or expanded welfare programs...
and now that the bills are coming due.. want to convince us all that its our own fault.
 
Eliminating the cap does not remedy Social Security. It does not even make it solvent - according to the Social Security Administration. It does however divert 7 or 8 trillion dollars of revenue away from deficit control.

Talk about doublespeak.!

For one.. certainly reducing the cap remedies social security. That's well established.

Second.. divert trillions of dollars from deficit reduction? Look at that doublespeak. First,,, aren't you claiming that social security adds to the deficit? So isn't using money to pay for those promises you made when you took peoples money.. paying down a debt you owe?

Of course you don't want to consider that...

What you want to do.. is count getting rid of social security benefits toward the deficit... so then... magically there is less deficit and less need to decrease non social security spending.
 
I haven't looked at the assumptions in that chart. It is likely that they maintain the same assumptions as CBO. CBO's says that behavioral responses to higher taxes are difficult to compute so they ignore them.

Higher taxes are a negative to jobs. In this case, we are dealing with some of the most profitable jobs in the system. High wage workers tend to not get back what they contribute. As a consequence, when higher taxes lead someone to retire it is very expensive for the system. Even at a modest response to higher taxes, the system collects nothing more in taxes.

Yeah.. that makes no sense... So you are saying that if I am making 120,000 a year... and my taxes go up by 1.5% on Fica.. that the better decision for me would be to retire and give up the whole 120,000? That's another example of perpetuating the lie.
 
Yes, Social Security pays benefits based on past contribution. If we increase the contributions of high-wage workers, they will collect more in the future. That is the nature of Social Security. While benefits increase, they increase at a slower and slower rate.

If you want to keep the cap on benefits, then the system is solvent until 2078. But technically that isn't just removing the cap, but removing the cap and capping benefits.

I guess that would depend on how the law is currently written, which is something I don't know. If the law specifically says that benefits are capped at a certain amount, or if it says only so much income (or FICA taxed income) counts, then it doesn't say or mean that " If we increase the contributions of high-wage workers, they will collect more in the future." Instead, it would require a change in the law in order for those people to collect more in benefits.

But even if it is worded as you suggest, it's not like that is a physical law of nature. It's just the law, and that can be changed. So maybe it does require two changes - one to raise the amount of income subject to FICA, and another change to prevent benefit increases.

All in all, it's not a radical change. And certainly not complex. I remain unconvinced by those who worry about the impending "disaster" that SS insolvency poses.
 
I haven't looked at the assumptions in that chart. It is likely that they maintain the same assumptions as CBO. CBO's says that behavioral responses to higher taxes are difficult to compute so they ignore them.

Higher taxes are a negative to jobs. In this case, we are dealing with some of the most profitable jobs in the system. High wage workers tend to not get back what they contribute. As a consequence, when higher taxes lead someone to retire it is very expensive for the system. Even at a modest response to higher taxes, the system collects nothing more in taxes.

I don't buy the "higher taxes leads to hob losses" argument. Sure, some people will retire earlier and there is a cost associated with that but someone leaving the work force opens up a job for someone else. In the end, jobs are determined primarily by demand and the economic environment. Of course, taxes is a part of that environment, but only one part.
 
The fact is that Social security and Medicare are about the most financially successful programs ever. Name a few other programs that have run surpluses for decades.... name a few private companies that have run consistent surpluses for decades.

I'd like to see someone name a corporation that can guarantee solvency for the next 50 years the way SS can.
 
As I point out in the article that every dollar of 'funding' comes with the promise of future benefits. .

This is false. Social Security is a guaranteed payment contingent upon survival to a certain age (or certain types of disability). If you don't survive to retirement age, you get nothing. Your spouse and minor children get certain benefits, but not all SS beneficiaries have a surviving spouse or minor children. Indeed many don't.

Of the population who pay SS taxes, some get no benefits (they die before qualifying and have no qualified survivors), some get less than they put in, and some get more.
 
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