The Fake Social Security Solvency Crisis Is Congress’s Fault!

By Joe Firestone

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability)

Ah…. my fellow Americans, be very, very, afraid of the terrible Social Security crisis that will sink us as a nation. According to Government projections, we won’t be able to pay full Social Security benefits, in 2037 and beyond, unless we cut benefits now, because the Social Security “Trust Fund” will be short of money.

So, say Paul Ryan, Peter Peterson and his minions, Mike Pence, Alice Rivlin, Erskine Bowles and Alan Simpson, and also many other deficit hawks. In reply, the most liberal of the deficit doves say that even though there will be a solvency crisis in 2037; it’s really nothing to worry about because all we have to do to end it is to lift “the cap” on FICA contributions entirely, so that wealthier income earners are paying the same rate on their total earnings, as workers whose wages or salaries are below $106,800 per year.

So, both the hawks and the doves agree that there is “a solvency crisis;” they only disagree about what to do about it. However, the SS solvency crisis is a big fake, like so many of the issues that arise in Washington. It is a fake because the crisis is not due to powerful economic forces that no one can do anything about, and that no one has control over; but rather is due to a choice Congress made when they wrote the original Social Security Act; namely that it would be paid for by raising revenues to fund it through FICA contributions and placing those in a “trust fund,” rather than by paying for it from general revenues. All that Congress has to do to end the crisis is to decide sometime between now and 2037, to pay for SS benefits automatically, out of general revenues, in the same way it pays for that part of the Social Security program called Supplementary Medical Insurance (SMI). End of problem. End of story.

Here’s a link to a post by selise featuring a youtube clip of Stephanie Kelton at last year’s Fiscal Sustainability Teach-In Counter-Conference explaining why this simple move by Congress solves the problem. Audios, Videos, presentations, and transcripts from the Conference which provides the definitive counter-narrative to the deficit hysteria currently rending our nation is here. Professor Kelton summarizes her argument here.

“Funding Social Security is always and everywhere a political choice. The strongest evidence of this comes directly from the 2009 Annual Report of the Trustees. In that report, they predict gloom and doom for Social Security because “there is no provision in current law that would enable full payment of benefits, once the Trust Funds are exhausted”.


In contrast, the Supplementary Medical Insurance (SMI) Trust Funds are “both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs.”


It is that simple. The former is in ‘trouble’ because the government isn’t committed to making the payments, and the latter gets a clean bill of health because the government will always make the payments.”

I think this really underlines how arbitrary the projections of financial doom from the Peterson crowd, CBO, and other Government agencies are. Apart from the silly and unreliable projections as far out as 25-65 years from now, the predictions of doom are really based on provisions in law that Congress can change at any time. Which means that just like the fake national debt crisis, the fake Social Security solvency crisis is Congress’s fault.

It is more Washington kabuki politics at its finest.

Selise has this to say in her post on why this is kabuki:

Q: Why is there even a debate about “fixing” Social Security when it’s not broken?

A: Because the focus of the debate is on problems that are unreal.

Focusing on unreal problems makes no sense. Unreal problems are NOT REAL!

Let me explain what I mean here by real as opposed to unreal problems with an example of each:

  • Unreal = “We can’t afford to Social Security because the Trustee’s report says that costs will exceed payroll tax receipts”
  • Real = “We can’t produce the goods and services needed by our nation’s seniors to keep them fed and housed.”

The unreal problem is about the availability of dollars. Our federal government is the monopoly issuer of the nation’s currency. We’ve been off the gold standard for almost 40 years and we have floating exchange rates. Therefore, the availability of dollars is a political issue. Tax revenue is not required, borrowing is not required — unless Congress chooses to impose those constraints.

A main reason why this particular instance of kabuki politics still exists is because so-called “progressives,” are unwilling to give up the idea that to keep Social Security safe it is essential that people “pay into it,” so that the opponents of Social Security won’t dare say that it’s a welfare program paying benefits to people that they are not entitled to. Guess what? The problem with this theory is that the opponents do dare say it, and have been saying it for many years through “propaganda” that has made “entitlement” a dirty word.

They don’t care whether people have made FICA contributions or not. For them the only issue is whether the Government “can afford” to pay for SS retirement benefits, not whether people have earned and paid for them, and so “deserve their benefits.” And they say the Government can’t afford it because they’re both busily cutting away at Government tax revenues and also falsely claiming that Government money is limited by a non-existent solvency risk.

Giving up the argument that people have paid into Social Security and so are entitled to it, is what progressives fear. But, nevertheless, since that argument is clearly not working, and also because that argument is bought only at the price of maintaining a very regressive tax on working people, they badly need to give it up in favor of an argument that all Americans, whatever their station, contribute something to the development of American society over time, often in ways that can’t easily be measured by the money they’ve made, or the visible things they’ve accomplished; and that because of these contributions and their American citizenship, each is owed a decent and dignified old age by the nation in the form of Social Security and affordable health insurance (now provided by Medicare).

This is especially true, since the money needed to pay them isn’t directly funded by taxes but only needs to be issued by the Government according to its constitutional authority. It is not money that is taken from anyone, or that is re-distributed. It is not some quantity from a limited supply of gold that is coming out of other people’s pockets. This money gets its value ultimately from the real wealth American society produces, which, in turn, comes from the past and present productive efforts of everyone, and the productive capacity that all of us together have created over the years and still create.

There is no right to share in this wealth equally, and there is no right for the elderly to cause younger people to go without, or to sacrifice opportunity. But American society is wealthy enough to make choices like these unnecessary. It is wealthy enough to provide an old age for its citizens that is free from want and fear.

Roosevelt knew that and it’s part of what he included in his second bill of rights. But Roosevelt’s old enemies, the Hooverians, have come back. They go by different names now. Sometimes, they’re called neo-liberals, sometimes austerians, sometimes Petersons, sometimes deficit hawks or doves. But whatever they’re called, the message is always the same, and that message is that money is limited, and that when it is given to some, it must be taken from others.

If the Government wants to spend money, it must be taxed away from some, or borrowed away from others. And finally, because money is limited, there are always hard choices to make, choices that sometimes put money ahead of people, and that make it necessary for “courageous people,” like the wealthy neo-liberals who talk and write this way, to choose who will prosper and who will suffer, who will be eating caviar, and who will be subsisting on catfood or worse. That’s unfortunate, but it’s just the way of the world and we all must adjust to it.

The Austerity Doctrine is not, in the end, part of the American, or the progressive outlook. We are an optimistic people. We know that money isn’t really limited and that our constitution allows us to provide enough of it to make the economy we want. We also know that even though certain real resources are limited, resource limitations can be overcome using new human knowledge, by redefining the practical meaning and use of existing resources. We also know that real wealth, the stock of valuable goods and services, is increasing all the time as the mix of different kinds of capital, human knowledge, and human effort changes in accordance with the development of human society.

So, the truth is not Hooverian, it’s Rooseveltian, we know that Federal money isn’t limited, and we also know that real wealth can be increased through effort that in turn can be mobilized by nominal wealth (Federal money). We aren’t playing a zero-sum game in which some must win and some must lose. We are playing one in which everyone can win.

So, in the nature of things we don’t need to take anything away from retirees, because of some imaginary fiscal crisis. We can easily do what’s right and not only maintain Social Security and other entitlements, but even increase their benefits. All we need to do is to revise a few laws to say that all entitlements will be automatically paid for by the Government in perpetuity out of general funds, and that all entitlement trust funds are abolished. Let’s make Congress get off its high horse, show some real courage, and do it!

9 Responses to The Fake Social Security Solvency Crisis Is Congress’s Fault!

  1. Let's call it like it is. It is a reallocation of resources to the elite and to the military-industrial complex by reducing progressive taxation and slashing social expenditure. This is in the name of "fiscal responsibility" by balancing the budget, but it will result in an eventual depression as shown by projecting sectoral balances. Tax cuts will mostly be saved, since that is what being "rich" means, and the middle will have to save more to prepare for medical expenses and retirement. With a balanced budget that means economic contraction due to insufficient demand to purchase output. Of course, the rich know this and expect the demand leakage to be offset by net exports, so that US workers are laboring for the ROW instead of themselves. This means a significant drop in the US standard of living, if it works, which it won't. All countries cannot be net exporters, and it is highly unlikely that the US can net export to the required degree.This is class warfare lead by the elite against the rest of the country.

  2. This would solve any Social Security crisis (though not a government debt crisis). The same could be done for the Medicare crisis.However, it would make it much more explicit that Social Security isn't any sort of retirement fund. I'm not sure of the reaction if retirees all had to recognize that they're living on "welfare" rather than a retirement they paid for.

  3. Yes, Tom Hickey, it's rather gross class warfare.Thomas W. No Government spending is paid for by taxes or borrowing. That's out of paradigm for MMT. Spending is done through the Constitutional authority of the Government to create/spend money. Taxes and borrowing withdraw money from the non-Government sector and destroy that money. So SS is no more "welfare" than any other Government spending for any other public purpose.

  4. Help me understand more about MMT. I understand in principle that the US government can spend without borrowing and that spending on the social safety nets that we would try to improve rather than tear down is a political choice. But MMTers continually say that money is not limited with no caveats. Occasionally one will admit that too much spending may lead to inflation through devaluation. That implies a near-term limit that is very often not acknowledged.To ignore the caveat makes MMT sound like a liberal scheme to spend recklessly with no regard for consequences. Presently, with high unemployment and excess capacity, inflation is not an immediate threat. Even that is a caveat that should be stated. Or, I'm missing something.

  5. Hi Dan,See: http://www.newdeal20.org/2010/07/20/deficits-do-matter-but-not-the-way-you-think-15355/?author=83http://bilbo.economicoutlook.net/blog/?cat=24andhttp://www.correntewire.com/paul_takes_another_swipe_mmtMT doesn't ignore demand-pull inflation. But a lot of blogging about it now would be purely academic since we're so far from the conditions under shich it would occur.Of course, supply-push inflation is probably out there already; but that has nothing to do with Government deficit spending.

  6. Thank you for the links. However, after reading these and some other material on Bill Mitchell's blog, I'm left very afraid of MMT. As you said, it's been discussed to death in the past so I won't get into the errors I see in it.The other problem, which is the reason I quit reading new posts to this blog a few days ago, is the frequent name calling. From "theoclassical" to "deficit terrorists", name calling invokes emotions or covers up weaknesses in a position. It has no place in a reasoned discussion.

  7. The solution to the projected solvency problem of Social Security is simply to eliminate the artificially imposed cap on income, $106,800.00. This simple reform, along with a benefit reduction for those who earn over $75,000.000/year during their eligible retirement years will allow Social Security to pay out 100% of benefits forever.Along these lines, if payroll taxes were expanded to include National Health Care and Public Education, and these expanded payroll tax obligations were offset by lower overall taxes, a majority of Americans would rejoice.This solution, which lowers taxes for individuals and corporations yet creates and fully funds National Health Care, solves Social Security's long term funding problem, and allows all academically qualified students the opportunity to attend college free of charge has been accomplished in the new tax reform plan called, Fishman's Framework for Tax Reform. It is available to read on the internet at: http://www.serioustaxreform.com

  8. Inflation, anyone?Printing money does not create wealth.

  9. I have read the Fishman's Framework for Tax Reform plan and all it is tax restructuring to increase our governement handouts. It does nothing to stimulate the business engine of our country. A flat tax is what is need for this country and it is truly a fair system for all becuase we pay bassed on our consumption. The eutopia the Fisherman's tax plan has sounds nice until you actualy read it and realize the true danger it is to our econimic system.