Sunday, April 17, 2005

Rock the Vote Loves Social Security

Rock The Vote has a new "I Love Social Security" campaign. Unfortunately, this campaign seems to rely on inaccurate descriptions of the present social security program. Consider, for example, their answer to the question "What Is Social Security?"
"It's a giant fund that pays benefits to 30 million retirees as well as 15 million members of families where a parent has died or become disabled due to injury. The benefits are different from the kind that you get in an investment program because they are guaranteed -- they don't depend on your skills or luck. They are also adjusted to provide a safety net for the middle class and to lift lower income Americans out of poverty. Your employer sets aside 6.2% of your income, matches that same amount, and sends the whole thing to Social Security. You get a benefit when your time comes. Through that mechanism, Social Security is basically a promise from your government that when you get old, after a lifetime of hard work, you won't end up in poverty."
Calling social security a "giant fund" seems just a bit inaccurate to me. There is certainly a "trust fund" related to a pile of paper called Treasury securities. But there is no pile of money stashed somewhere to pay off those securities. At the present time, the social security tax takes more money from current workers than is paid out as benefit checks to those currently retired. The extra is used to "purchase" Treasury securities. The extra which is now revenue from the sale of Treasury securities is then spent by Congress. What is purchased by the extra social security tax revenue is the promise by Congress to pay off the securities at some future date when the Social Security Administration asks. When the promise to pay becomes due where will Congress get the money? It might borrow the money by selling other people new Treasury securities, it might increase the income tax, it might reduce spending on other government programs (perhaps education, or transportation, or national defense), or it might do some combination of all three. In other words, this "giant fund" spoken of by Rock the Vote is actually a promise by Congress to, starting around the year 2017, increase borrowing, increase taxes, or decrease spending, or all of the above. Some fund, eh?

And perhaps something should be said about the idea that "your employer sets aside" a pile of money for you and sends it to social security. What your employer does is withhold from your salary a TAX payment. That tax payment is then used by government in the way I've described just above. It is spent on paying benefits to those currently retired and it is spent by Congress.


Tateum Bowers said...

Rock the Vote, as usual, has not done their homework and instead are promoting a common misconception about Social Security. That misconception is that the government is taking the contributions made by you and your employer on behalf of you and putting it in some account with your name on it to be given back to you when you retire. Thanks for setting the record straight.

But hey, if we have to pay into Social Security anyways, wouldn’t that be a great idea? That is sort of what President Bush’s plan does. It gives individuals the option to invest part of their social security taxes into a private account to be drawn from at retirement. This would certainly be preferable to the higher taxes or decreased national defense I might experience in a little over ten years.

One thing is for sure, if we don’t deal with Social Security reform now, it will not be available in the future. This point is reaffirmed by the American public as, according to gerontologist Harry Moody, more people “believe in the existence of UFOs than the likelihood of receiving Social Security at retirement age.”

Anonymous said...

All that's been said about Social Security is true and needs addressed.
But the bigger problem, coming up sooner is Medicare funding. It has fewer dollars, rising costs, and new programs added on to start in 2006. Where is the attention to it, or why is it not being addressed along with Social Security?

Larry Eubanks said...

Indeed. Do you suppose if our trusted representatives cannot deal with the "smaller" problem of social security that they can deal with the "larger" problem of medicare? Maybe they would find it easier to deal with both at the same time?

By the way, is the nature of the problem with Medicare the same as with Social Security?

Anonymous said...

I'm not sure our trusted representatives can deal with either the smaller or larger problem. Or even take the initiative to start the process of trying to think about dealing with those issues.

Medicare is a health insurance system, with a defined population (individuals >65 years of age and those disabled individuals on SSI for >2years), universal coverage (if one meets the "Soc. Sec. quarters worked" rule, and pay the premium for Part B), specified approved procedures, and a single payor for the administrative side. There is more than one "intermediary"--the insurance provider that actually does the fiscal piece, and multiple providers. Medicare doesn't deny entry into its system, but physicians can choose not to participate, which limits access for many elders.
Because of its size, much of the rest of the insured world revolves around Medicare decisions about what is covered.
Medicare is political in that the Congress makes decisions about coverage, rates, reimbursement, and special features.
It also is funded from taxes taken out of paychecks, so has much in common with Social Security, besides its political nature. It too is close to running out of funds to cover the existing population, much less the baby boomers. Those are at least two ways it's similar to Social Security.