July 29, 2012

LAT’s Hiltzik: Social Security ‘Contributes Not a Dime to the Federal Deficit’; Uh, Yes It Does (Lots of ‘Em)

SocSecBrokeCard0309In his column at the Los Angeles Times today (HT to a NewsBusters tipster), Michael Hiltzik engages in predictable whining about discussions on how to bring the federal deficit under control seem “increasingly to be driven by the wealthy.” In the instance he cites, one could substitute “big bank and big company CEOs,” who seem to have recently decided that President Obama’s Simpson Bowles debt commission had a good roadmap in late 2010 after being as far as I can recall pretty much AWOL on the matter when it was first presented.

That’s fine. Hiltzik entitled to his take. But he’s not entitled to his facts, particularly his assertions on Social Security (bold is mine):

The single program getting the bulk the Simpson-Bowles plan’s attention is Social Security, which in fact contributes not a dime to the federal deficit, and can’t by law. Something else is at work here other than deficit reduction: It’s a plan to cut benefits to seniors by ratcheting back on inflation protection and sharply cutting the benefit formula for everyone, starting with those whose average lifetime earnings are $9,000 a year.

Unfortunately for Hiltzik, Social Security contributes to the deficit on not one, but two levels. I’ll just concentrate on the more obvious one, using the system’s 2012 Trustee’s report covering calendar year 2011 activity:

SocSecTrusteesOperationsTable2012

As seen above, OASDI (the Social Security retirement program and the disability income program) paid out $725 billion in benefits while only taking in $588 billion in taxes (the sum of payroll tax “contributions” and the federal income taxation of benefits paid for those who had more income from other sources than legally defined thresholds).

That’s a difference of $137 billion. Most of that difference was caused by the late-2010 tax changes which lowered Social Security taxes withheld from wages. The government’s general fund reimbursed the Social Security system $102.7 billion for that legislated shortfall, thereby increasing the deficit by the same amount. Social Security’s existence is why this reimbursement was needed. Therefore, Social Security’s existence contributed to the deficit.

Another point to make is that even after the reimbursement, there was still a $34.3 billion difference between benefits and collections. Given that the “interest” entry is an accounting fiction every bit as mythical as the idea that Social Security has real trust funds as ordinarily understood, that amount ends up being a part of the cash-basis deficit as well.

Hiltzik’s only answer seems to lie in tax increases, as he seems to criticize most potential areas for spending reductions while acting as if there’s no waste, fraud, abuse, or misplaced priorities anywhere in the federal government. He never notes that what he seems to want — increases only on those with high incomes — will, even in static analysis, do very little to narrow deficits which will have averaged over $1.3 trillion annually during the past four years. Dynamic analysis, where taxpayers change their behavior in response to changes in the law (aka “the real world”) would show that the dent they make in out-of-control budget deficits would be even smaller.

But, as seen with Social Security, Hiltzik doesn’t want to be bothered with facts. He’s got his class warfare story and he’s sticking to it.

Longtime readers at NewsBusters may recall that Hiltzik was suspended by his employer in 2006 for, as Matt Sheffield noted at the time, “posting comments under various pseudonyms defending both himself and the newspaper.”

Cross-posted at NewsBusters.org.

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4 Comments

  1. Your response to Hiltzik’s article really understates the problem. You are stuck in the pay-go mind-set of cashflow accounting.

    First, Social Security has enjoyed a public subsidy in the form of the EITC since the mid-1970s. This subsidy pays lower-wage workers to offset the high cost of Social Security. Basicaly the federal government is paying for the contributions of low-wage workers.

    Second, your larger problem is that SS is a jobs tax. Hence it kills jobs. Those jobs create income taxes which help control the deficit.

    Third, there is an opportunity cost. The champion of this non-sense is Senator Bernie Sanders. He wants to raise the amount of wages subject to payroll taxes. These new taxes could have been raised in the form of income taxes to control the debt.

    Comment by Joe The Economist — July 29, 2012 @ 11:07 pm

  2. “Given that the “interest” entry is an accounting fiction every bit as mythical as the idea that Social Security has real trust funds as ordinarily understood, that amount ends up being a part of the cash-basis deficit as well.”

    The idea that the Trust Fund is mythical is based on the false idea that the government owes itself money. That isn’t the way the system works. The general fund has no obligation to Social Security beyond the bonds that it has borrowed. This is why benefits are automatically cut.

    Not all Americans partipate in SS. Even those that do, participate on very different terms. So you can’t say we owe it to ourselves.

    Comment by Joe The Economist — July 29, 2012 @ 11:10 pm

  3. Your points are valid, and I have expanded on them on numerous occasions. I wanted to concentrate on the payroll tax cut because it was the easiest and most obvious and avoided me having to write a term paper.

    Your EITC point in your other comment is an interesting (and valid) one. Thanks for raising it. For equivalence, EITC amounts should be assessed FICA and Medicare.

    Comment by Tom — July 29, 2012 @ 11:27 pm

  4. Tom,

    I work with Fix Social Security Now. You can visit our site at http://www.FixSSNow.Org. Our objective is to put honesty in the debate about Social Security. We welcome third-party commentary with legit sources.

    The system is a mess, and neither party is owning up to the problem.

    Comment by Joe The Economist — July 30, 2012 @ 10:47 am

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