Southern Senators

The Honorable Johnny Isakson
131 Russell Senate Office Building
United States House of Representatives
Washington, DC 20515

Dear Senator Isakson:

During a recent talk at the Athens Country Club, you called for reform of entitlements saying, “…the real debt culprits are Medicare and Social Security.” You went on to predict that Social Security would begin to see benefit reductions as early as 2025.

In reality, neither of these statements is true. Social Security was created with a dedicated source of funding, Social Security payroll taxes, and because of this dedicated revenue stream, Social Security, by law, cannot contribute to the national deficit since it can only spend money taken in through this tax or from the bonds government purchased with surplus tax revenues in prior years.

Concerning future benefits, the legislation adopted based on the recommendations of the National Commission on Social Security Reform in 1983 led to the growth of a large surplus in Social Security. This surplus was used to buy bonds and now Social Security holds more than $2.6 trillion in government bonds. As a result, the Congressional Budget Office’s projections show that the program will maintain full solvency through the year 2038, a full 13 years beyond your prediction. After 2039, even if Congress makes no changes to the program whatsoever, Social Security will still be able to pay a substantial benefit. For example, if your children, now in their 30s, do as well as you have in your working years and retire at the normal retirement age, they would receive benefits of over $33,000 (in 2011 dollars) each year for the rest of their lives.

The real “culprit” that a serious plan would address is the soaring cost of healthcare. We pay twice as much per person compared to other developed nations yet have no better outcomes and shorter life expectancies. If we were able to rein in health care costs then there would be little problem balancing the budget in future decades.

As you continue to discuss Social Security and the national debt, I hope you and your staff will have the opportunity to further review the design and finances of the program as well as the factors that actually contribute to national deficits. If you would like any additional background on these topics, I would be happy to assist you.

Best regards,
Dean Baker

Editor’s Note: This story originally published Monday, November 1, 2011 at DailyKos.com.

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Dean Baker

Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC.

He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. His blog, Beat the Press, features commentary on economic reporting.

He received his Ph.D in economics from the University of Michigan.

He has written numerous books and articles, including The United States Since 1980, Cambridge University Press, March 2007; The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, Center for Economic and Policy Research, 2006; Social Security: The Phony Crisis (with Mark Weisbrot), University of Chicago Press, 1999; "Asset Returns and Economic Growth," (with Brad DeLong and Paul Krugman), Brookings Papers on Economic Activity (2005); "Financing Drug Research: What Are the Issues," Center for Economic and Policy Research, 2004; "Medicare Choice Plus: The Solution to the Long-Term Deficit Problem," Center for Economic and Policy Research, 2004; The Benefits of Full Employment (with Jared Bernstein), Economic Policy Institute, 2004; "Professional Protectionists: The Gains From Free Trade in Highly Paid Professional Services," Center for Economic and Policy Research, 2003; "The Run-Up in Home Prices: Is It Real or Is It Another Bubble," Center for Economic and Policy Research, 2002. His book Getting Prices Right: The Battle Over the Consumer Price Index (M.E. Sharpe, 1997) was a winner of a Choice Book Award as one of the outstanding academic books of the year. He was also the author of the weekly online commentary on economic reporting, the Economic Reporting Review (ERR), from 1996 - 2006.

He has worked as a consultant for the World Bank, the Joint Economic Committee of the U.S. Congress, and the OECD's Trade Union Advisory Council.

His columns have appeared in many major media outlets including the Atlantic Monthly, the Washington Post, and the London Financial Times. He is frequently cited in economics reporting in major media outlets, including the New York Times, Washington Post, CNBC and National Public Radio.

9 Comments
  1. Thank you Mr Baker for setting this yahoo right. I did get a laugh out of your offer to educate him and his staff…I don’t think you should hold your breath. These guys peddle such falsehoods for political reasons to throw people off the track. They hardly have the best interests of the nation at heart. I see you at times on the News Hour and learn from you each time. Again, thank you.

  2. Billy Howard

    Thank you for this simple, easy to understand correction to one of the myths Congress is using to base decisions on. Or at least, part of Congress.

  3. Austin McMurria

    Suddenly, a child in the crowd, too young to understand the desirability of keeping up the pretense, blurts out that the Emperor is wearing nothing at all and the cry is taken up by others. The Emperor cringes, suspecting the assertion is true, but holds himself up proudly and continues the procession.

  4. The bond holder of the $2.6 trillion of the Social Security funds is having problems re-paying the money. If the bond holder can’t repay the funds then the investors take a hit. You fail the mention that the money put into the bonds has been spent and is being funded out of current contributions and the current contributions are going down because the ration of the number of retirees vs. the number of current workers is declining. The current workers (our children and grandchildren) are going to have to pay more and work longer to keep the funding to pay us (the retirees.) They may lack the inclination to do that.

    The bond holder (US Treasury), while not defaulting on it’s obligation, will most assuredly have to make adjustments, means testing, retirement age, or some other modification of benefits.

    1. Lee Leslie

      Social Security bonds have equal status with all others. The treasury has does not have authority to pay some bonds and default on others. The Federal debt has nothing to do with Social Security – all will have to be paid no matter what.

  5. If there is less money available than due, who does the Treasury pay, China or other bond holders that will quit borrowing if not paid or the SS Trust Fund. Or just print more money to pay with dollars that are worth less. I suspect the latter.

    1. Lee Leslie

      No reason to suspect the latter, it isn’t true. The Fed is an independent agency and not connected to the Treasury. While it is legal for the Fed to buy Treasury bonds when their board authorizes it, they cannot be ordered to do so. While the Treasury prints our currency, they do so at the direction of the Fed, not the other way around. Since our government has never defaulted, there is no precedent, nor any technical authority for determining any priority on payment of debt.

      1. I hope your confidence in our government is not misplaced. It’s like have lunch money in one pocket, gas money in the other. Don’t have enough to pay the gas bill, take the money from the lunch money pocket to pay it. At lunch, not enough to pay for lunch, borrow the money to pay for lunch. Now time to pay the credit card bill, oh, borrow some more. Finally not enough to pay for the gas bill or lunch. Oh well, charge it. Eventually, no credit, so inflation or deflation to pay the bill, or change how much is paid in and out, either by raising the payroll tax or the age to receive benefits.

        BTW and FYI, in 1790 and 1933 the US government defaulted and restructured the national debt owed for the Revolutionary War (1790) and WWI (1933) and the the payment to Panama for Panama Canal (1933, finally paid in 1936). Essentially, a Chapter 11 bankruptcy reorganization of it’s debt.

        1. Lee Leslie

          Thank you for setting me straight. My “confidence” is in “we the people” and the potential of our form of government. I also have confidence in the people who work for our government – fully aware that there are some better than others, but confident that most are capable, competent and hardworking. I also have confidence in judiciary – at least those who are following the law and not their politics. However, it stops there. Without campaign finance reform, we’ll seldom have people in office who spend time solving the problems and helping to allow our society to function well, instead of, raising money, taking bribes and listening to partisan staffers. Wish us all luck.

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