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January 12, 2005

Rex Nutting on Social Security

Angry Bear and Max Sawicky both point out that Rex Nutting of CBS Marketwatch is doing a very good job on telling the Social Security story straight:

Bush exaggerates a few facts about Social Security - Financial - Financial Services - Personal Finance - Markets/Exchanges - Economy - Market News: WASHINGTON (CBS.MW) - President Bush made several factual errors Tuesday about Social Security's long-term financing problems at a photo op event designed to educate the public about the retirement system. Bush is expected to offer a plan in the next few weeks to cut future benefits and to divert about one-third of Social Security's tax revenues into individual private savings accounts in order to "save Social Security." See full story. Before a specific plan is unveiled, the White House is holding a series of events to convince the public that the system must be radically altered to prevent a crisis.

According to the Social Security Administration and the Congressional Budget Office, the retirement system faces long-term funding problems, amounting to about 0.7 percent of gross domestic product over the next 75 years, or $3.7 trillion. The SSA says the system's trust fund, financed by payroll taxes and interest payments, will probably be exhausted in 2042, requiring the government to reduce benefits by about a fourth or a third. The CBO says the fund will be exhausted by 2052.

Bush vs. facts

Bush: "As a matter of fact, by the time today's workers who are in their mid-20s begin to retire, the system will be bankrupt. So if you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now." The facts: The Social Security system cannot go "bankrupt," for it has no creditors. By law, the trustees will continue to pay reduced benefits even if the trust fund is exhausted. Payroll taxes will continue to come in and benefits will continue to be paid. According to the trustees' intermediate economic forecast (neither doom nor boom), the trust fund will be able to pay about 73 percent of scheduled benefits in 2042 and about 68 percent of scheduled benefits in 2078. Future presidents and Congresses could also choose to fully fund scheduled retirement benefits from general tax revenue.

Bush: "Most younger people in America think they'll never see a dime." The facts: Social Security says younger people will see a lot more than a dime. Their retirement benefits - even under a "flat-bust" system -- will be significantly higher than today's benefits in real terms. For low-income Americans, currently scheduled benefits for those who retire in 2080 are $19,906 per year in 2004 dollars. If Social Security can pay only 68 percent of those benefits, that would be $13,536 per year, compared with benefits of $8,804 for low-income retirees who retired last year. For the highest earners, Social Security is currently promising $53,411 per year for those who retire in 2080 (or $36,319 per year if Social Security can pay only 68 percent). Current maximum benefits are $21,891 per year for those who retired last year.

Bush: "In the year 2018, in order to take care of baby boomers like me and -- (laughter) -- some others I see out there -- (laughter) -- the money going out is going to exceed the money coming in." The facts: According to the SSA, costs are projected to exceed income, including tax revenues and interest income from the trust funds' bonds, starting in 2028, not 2018. The 2018 date is when tax revenues alone no longer meet costs; workers have been paying extra taxes since 1983 to build up the trust funds' assets for just this eventuality.

Bush: "The problem is, is that times have changed since 1935. Then, most women did not work outside the house, and the average life expectancy was about 60 years old -- which for a guy 58 years old, must have been a little discouraging. Today, Americans, fortunately, are living longer and longer. I mean, we're living way beyond 60 years old, and most women are working outside the house. Things have shifted." The facts: According to the SSA, the life expectancy for a 65-year-old man in 1940 was 76.9 years. Today, a man aged 65 can be expected to live to 81. Most of the increase in life expectancy in the past half century has been for infants, not for the elderly. The increase in the percentage of women working outside the home has boosted Social Security's resources, rather than depleted them. Today, many women who worked receive a widow's pension rather than their own earned benefits. All the payroll taxes they paid are funding someone else's retirement.

Posted by DeLong at January 12, 2005 10:01 AM

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» The White House on Social Security from Vox Baby
Okay, so what do we learn from this? If Nutting stripped out all of the "gotcha" language, it would be a pretty good article, like the ones I often read from FactCheck.org. It would fill in some of the gaps in what the President said and help clarify... [Read More]

Tracked on January 12, 2005 03:00 PM

» FICA not in extremis from Linkmeister
I'm nowhere near as focused on Social Security as others are, but it's important to continue to point out that the Bush Administration is lying through its teeth. Brad DeLong finds a report from CBS MarketWatch which does an excellent... [Read More]

Tracked on January 13, 2005 01:40 PM


So is Alex Wayne of Congressional Quarterly, thank God...

CQ 1/11/05 - ...

Appearing at a “town hall” event of carefully assembled individuals who support his proposal to add personal retirement accounts to the government program, Bush declared: “The longer you wait, the more severe the pain’s going to be to secure the promise for a younger generation of workers coming up.”

The six people joining Bush on the stage ranged in ages from 27 to 80; one was African American and two were women. One, Andrew Biggs, is the associate commissioner for retirement policy at the Social Security Administration. The rest were private citizens from around the country; all said they supported Bush’s proposal to divert a portion of young workers’ Social Security payroll taxes into personal accounts that would be invested in the financial markets.

But Bush made no mention of the cost of such a diversion — estimated at $1 trillion or more in the program’s first 10 years, and many more trillions thereafter. Nor did Bush or anyone else mention the cuts in guaranteed benefits for future retirees that the White House has said will accompany personal accounts. And there was no talk of how the government would pay for the overhaul.

Bush made a public appeal for citizens to pressure Congress to support his proposal. Many Democrats and some Republicans have expressed reservations about an overhaul, particularly the benefit cuts that the White House says would be required. And Bush continued to depict Social Security’s financial condition as a crisis that must be tackled now.

“I happen to believe that people who are elected to office who ignore problems will face the price at the ballot box,” he said.

“I plan on talking about it a lot,” he said. “This isn’t the first time I’ve talked about it since the campaign is over, and it’s certainly not going to be the last, because I believe it is a vital issue.”
Inaccurate Assertions

Bush made two misleading claims in his remarks.

First, he said that the Social Security system will be “flat bust, bankrupt” by the time workers now in their 20s retire “unless the United States Congress has got the willingness to act now.” The comment, which Bush repeated, implied that no money would be available to pay young workers any Social Security benefits in the future.

Social Security’s trustees project the system’s trust funds will be exhausted by 2042, a circumstance that is described as insolvency. But Social Security would still be able to pay benefits equal to the amount of revenue it collects in payroll taxes even after that point.

Bush also said that in 2018, when payments for Social Security benefits begin to outpace the system’s revenues, “it means that you’re either going to have to raise the taxes of people or reduce the benefits.”

Tax increases or benefit reductions will not necessarily be required in 2018 because Social Security’s trust funds will still be extant. That means that short of the government defaulting on its public debt, the system will be able to redeem Treasury bonds held in the trust funds to pay full benefits.

Posted by: Ninguna Persona at January 12, 2005 10:21 AM

The "fact" on life expectancy seems a bit dodgy. The SSA numbers (http://www.ssa.gov/history/lifeexpect.html) show both the life expectancy after 65 *and the chance someone will get to 65 from 21*.

Just looking at men, since 1940 the percentage surviving to 65 has increased ~34% (from just over 50% to almost 75%), on top of a 2.6 year increase in life expectancy at 65.

The life expectancy bit is legitimate. Just looking at Table 2 shows that the number of over 65 has increased almost 4x since 1940. This demographic fact is the *whole reason* people are talking about a SSA crisis in the first place, and it has a great deal to do with the fact that people don't die as often as they did when the program was dreamt up. Keep the life expectancy the same and we're not having this discussion today, everything else being equal.

Posted by: Brian W. Doss at January 12, 2005 01:23 PM

The life expectancy bit is legitimate.

About as legitimate as would be a statement that Al Qaeda razed entire New York City to the ground.

Magnitudes sometimes do matter.

Posted by: enfant terrible at January 12, 2005 01:51 PM

"According to the SSA, the life expectancy for a 65-year-old man in 1940 was 76.9 years. Today, a man aged 65 can be expected to live to 81. Most of the increase in life expectancy in the past half century has been for infants, not for the elderly."

Oh... uh... huh... that so?... well that is interesting. I have only one question.

Why does Rex Nutting hate America?

Posted by: Paul Callahan at January 12, 2005 02:19 PM

Whenever Bush and the facts tussle, the facts always lose.

Posted by: Unstable Isotope at January 12, 2005 06:15 PM

Bush: "Most younger people in America think they'll never see a dime."

Nothing wrong with this statement. It's a statement about the OPINION of young people...not whether those young people are right or wrong in this thinking.

Posted by: Aaron at January 12, 2005 08:52 PM

Also, I want to thank these middle aged folks for letting me know that SS will not be "bankrupt" or "flat bust." Instead they will simply pay out 25% less in benefits.

Why not start by reducing benefits RIGHT NOW by 25% to save social security?

Why wait until all you guys have died?

Posted by: Aaron at January 12, 2005 08:57 PM

Let's fact check the fact checkers. Nutting says:

"Bush: 'Most younger people in America think they'll never see a dime.' The facts: Social Security says younger people will see a lot more than a dime."

What Bush actually said (in a section explaining why he'd not been defeated in the election over his SS position):

"Most younger people in America think they'll never see a dime. That's probably an exaggeration to a certain extent, but a lot of people who are young, who understand how Social Security works, really do wonder whether they'll see anything."

Posted by: Patrick R. Sullivan at January 13, 2005 09:24 AM

What Bush actually said (in a section explaining why he'd not been defeated in the election over his SS position):

"Most younger people in America think they'll never see a dime. That's probably an exaggeration to a certain extent, but a lot of people who are young, who understand how Social Security works, really do wonder whether they'll see anything."

Geez, Patrick gives us the context. Too bad it makes his boy out to be even more of a liar. If this "lot of young people" wonder whether they'll see anything, then they don't understand how SS works. But they do have good reason to worry: Republicans are calling the shots.

Posted by: SqueakyRat at January 13, 2005 01:56 PM

Bush: lips moving, he's lying.

Posted by: chrisanthemama at January 13, 2005 08:22 PM

What I haven't heard in Bush plan is what happens to the 6.2% that the employer contributes to the Social Security account of every employeee ?? Is this plan also a way to save employer's money so that they no longer have to match the employer's contribution of 6.2% of FICA ?? Where else can you take your $1000 and have it doubled by the employer matching it by $1000 ? If you think you can do this by putting your $1000 in the stock market (esp. after paying the broker) then good luck ! I'll stick with Soc Sec. At least it will cover me after 401K's are spent. The real solution is to 1) Put Soc sec in a LOCK BOX - Don't let Congress borrow against it so they can give big tax cuts to the wealthy - they can keep my $600. and 2) Raise the minimum wage, and invest in real job plan such as the Apollo plan for energy independence and good jobs (SEE apolloalliance.com) so that we have better wages and pay more in to Soc Sec to keep it solvent and 3) The raise in Soc Sec in the 90's was to put more in than needed in the TRUST FUND to cover the Baby Boomers. When it runs out in 2042 or 2050 most will be dead and we go back to pay as you go - current workers can support the retirees. Should work with small adjustments if we can focus on raising Real Wages and encouraging savings. SOC is the FLOOR of retirment -everyone should still save to be more confortable.


Posted by: aline at January 16, 2005 09:47 PM


Actually, President Bush was correct when he said that taxes would have to be raised starting in aprox. 2018.

[Well, actually taxes have to be raised *now*: the general fund is in absolutely horrible shape, in large part due to George W. Bush...]

Those of you who claim that his statement is not factually correct due to the fact that there is a Social Security trust fund, and the SSA will start drawing that trust fund down in 2018, and will not draw it empty until 2042, forget that the trust fund is in government bonds (IOU's that the government promises to pay back out of revenues . . . revenues basically being taxes).

In other words, the government will have to pay off those bonds out of taxes coming in. In yet other words, the SSA will not have to raise SS taxes, but the Federal Government will be faced with one of three choices:

1) Default on those bonds. This won't happen.

2) Decrease general spending by the value of
redeemed bonds . . . anybody want to bet
on how likely the Feds are to do that?

3) Raise taxes to pay those bonds. This last
is the most likely outcome.

While President Bush could have done a Kerryesque thirty minute answer and unpacked all of this in excruciating detail, none the less his answer was factually correct, though it lefts things unsaid, and makes assumptions (assumptions that have a high probability of being fulfilled!)

Posted by: John Stevens at January 17, 2005 07:05 PM


Bush vs. the facts? Sorry, but Bush wins on this one. Any reasonable person would call criticism of this nit-picking.

By the time a twenty year old retires, some 47 years from now at minimum, the trust fund will most likely be exhausted. "Bankrupt", by any reasonable interpretation of the word, in this context, especially as SS does in deed have creditors . . . one of which is the twenty year old worker being talked about.

Posted by: John Stevens at January 17, 2005 07:10 PM

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