Surely paying off the national debt, which this year has reached the astronomical figure of over $14 trillion, and is growing at a rate of $4.13 billion per day, will be a critical issue for many decades ahead. But contrary to what David Brooks states in his February 11 New York Times op-ed piece, The Freedom Alliance, Social Security does not contribute to our national debt. Much the opposite. It has reduced national debt and will continue to do so until the $2.6 trillion Trust Fund is depleted.
How can Social Security, which pays out billions to recipients each year, possibly reduce debt? That sounds counter intuitive and too good to be true. But in this case it is true.
Social security is a pay-as-you-go program. It is funded by a dedicated payroll tax paid by individual workers and employers. Since the inception of Social Security, revenues have exceeded payouts to retirees. When initiated in 1935 (first recipients started receiving monthly payments in 1940) there were more than forty workers for each retiree. Because of that ratio, up-until 2010 Social Security revenues from the Social security payroll tax have far exceeded payouts. For example, even as recently as 2009 when we were down to less than four workers per retiree, $507.6 billion was paid out to Social Security recipients versus Social Security Income of $753.4 billion.
The surplus funds went into the Social Security Trust Fund. But our growing elderly population along with the current high unemployment rate has resulted in an estimated $29 billion to $41 billion shortfall this past year. A shortfall wasn't supposed to happen until 2017. However, the shortfall will not add to our national debt. It will be covered by the Trust Fund. If shortfalls continue (which could change if unemployment is reduced), the Congressional Budget Office estimates that the Trust Fund will continue to cover shortfalls until about the year 2037-- and will not add anything to the national debt. According to Pulizer Prize-winning financial journalist Michael Hiltzik writing in the Los Angeles Times, the alleged current shortfall is bogus, based on creative accounting: "... this supposed $41-billion 'shortfall'... exists only if you decide not to count interest due of about $118 billion." But even after the Trust Fund runs out, the Social Security payroll tax will cover seventy-five percent of promised payments to recipients.
Okay, so Social Security isn't increasing our national debt. But how is it reducing it?
The government has borrowed the Trust Fund assets ($2.6 trillion) to run government operations at an artificially set low interest rate, which in effect has reduced the national debt and will continue to do so until the Trust Fund runs out. If the government had to borrow $2.6 trillion by entering the competitive financial marketplace interest rates would be forced up, thereby increasing the national debt.
Finally, to put to rest the notion that current shortfalls would add to the national debt, here's another way of understanding why they would not. Let's say that you lend a million dollars to a friend with the understanding that when you need the money he will give it back. Then due to misfortune you suddenly need a hundred thousand dollars. You ask your friend for it--your money. He says he doesn't have it and, therefore, will have to borrow from someone else to pay you back--perhaps at a high interest rate depending on market conditions. To say that his need to borrow to give back to you what is yours is your liability is exactly what David Brooks is saying about the government and a shortfall. The government has spent the money it has borrowed from the Social Security Trust Fund and can't cover the shortfall without borrowing from the marketplace or by raising taxes--- prompting Brooks to blame the old "geezers" for taking, taking taking. And taking what? Their own money that they paid into the Social Security system over a lifetime of working. Unfortunately, the money (Trust Fund) now only exists as U. S. treasury promissory notes--not cash in the lockbox that Al Gore pleaded for when he ran for President.
Mr. Brooks's finger pointing at Social Security for increasing national debt is nothing short of senior bashing. It has no factual foundation and is, in these hard times, part of "rounding up the usual suspects" rather than acknowledging the real culprits: Our war follies and other reckless actions in giveaways to corporations and the rich.