As Obama's Fiscal Commission prepares for its June 30 hearing, the Roosevelt Institute's New Deal 2.0 blog invited me to participate in its Social Security's Fiscal Fitness series, which examines the soundness of the program, its relationship to the federal deficit, and the vital role it plays in America's economic future.
Deficit hawks plotting to cut Social Security to reduce the deficit are seriously misguided. The truth is that Social Security contributes not a single penny to the deficit. Indeed, it is the poster child for fiscal responsibility.
Social Security has administrative costs strikingly lower than those of private sector retirement plans. Unlike 401(k) plans, for example, whose administrative fees are routinely 15 or 20 percent of plan contributions, Social Security's administrative costs are less than one percent. It returns in benefits more than 99 cents of every dollar collected.
Moreover, Congress has been scrupulous about paying for every Social Security benefit it has ever enacted. To meet the anticipated higher retirement costs of the baby boom, workers and their employers have contributed more over the past few decades than has been needed to meet current costs. These higher contributions have, as intended, resulted in an accumulated surplus in 2009 of $2.6 trillion, a surplus which is projected to grow to $4.3 trillion by 2023.
To ensure that all benefits will always be paid in full and on time, Social Security's Board of Trustees annually reports to Congress on how the program is projected to do over the next three-quarters of a century. Obviously, projections extending so far out in the future will sometimes show deficits or, for that matter, unintended surpluses. The simple, mundane truth is that the actuaries refined some of their assumptions and methodologies in the 1990s and began, as a consequence, forecasting a manageable deficit over the 75-year valuation period. These constantly-evolving long-run projections, part of the program's prudent, conservative management, demonstrate that Social Security is closely monitored, a fact which could and should reassure the American people about Social Security's reliability. Instead, the fact of a projected manageable shortfall, still decades away, has been used in exactly the opposite way, to convince the American people, against all evidence, that Social Security will not be there in the future.
The shaken confidence produced by hyperbolic rhetoric surrounding every release of quite ordinary trustees reports has been exacerbated by the cavalier tone of today's deficit hawks toward the legal requirement that Social Security's revenue be used exclusively for paying benefits and related expenses. Today, there is talk about cutting Social Security to reassure the bond market. Indeed, Federal Reserve Board Chairman Ben Bernanke, among others, has explicitly invoked the name of the notorious bank robber, Willie Sutton, to assert that Social Security should be cut "because that's where the money is."
These arguments are stunning. Reassure bond holders by defaulting on government obligations purchased with funds deducted from the pay of workers and backed by the full faith and credit of the United States? Act like a bank robber and take money that is paid by, and is held in trust for, hardworking Americans and their families?
Today's effort by policy elites in Washington to raid Social Security will simply result in greater anger by the electorate against Washington - as well it should. Poll after poll has made clear that a large majority of Americans -- Democrats, Republicans, Independents, young, old, tea partiers, and union members alike -- are united in support of Social Security. The American people overwhelmingly want the deficit hawks to keep their hands off Social Security. They want policymakers who value Social Security to restore it to actuarial balance without benefit cuts and without raising the retirement age, as a number of policy experts have advocated. The deficit hawks should listen to the people they have been elected to serve. On the subject of Social Security, they just might discover that it is the people, not the politicians, who know best.
Cross-posted from New Deal 2.0.