Sen. Harry Reid Misleads on Social Security Financing
Washington (CNSNews.com) – Senate Majority Leader Harry Reid (D-Nev.) on Monday disputed warnings that Social Security is headed for bankruptcy, calling those assertions an “outright lie.” And he says the huge federal entitlement program has not added “one penny” to the federal deficit.
Both of Reid's claims are misleading.
Reid made the comments at a “Back Off Social Security” rally at the Capitol on Monday. Reid was joined by other Senate Democrats and liberal activists, who accuse Republicans of plotting to privatize Social Security. Democrats have used similar tactics in the past to scare senior citizens, who vote in large numbers.
“Social Security has not contributed one penny to the debt or the deficit ever in its 75 years,” Reid said at Monday’s event.
The claim is false. According to the actuaries for Social Security and Medicare, the Social Security program ran a deficit of approximately $41 billion, excluding interest on the bonds in the Social Security trust funds. Those bonds, which are a special type of Treasury bond, are placed in the trust funds in place of the cash surpluses Social Security has taken in from payroll taxes.
Because there is no cash in the Social Security trust funds, any deficits the program runs, including the 2010 deficit – and those projected into the future – must be repaid from current tax revenue.
Since the federal government was already running a deficit in 2010, and ran one in 2009, the money required to pay the Social Security deficit would have had to be borrowed, meaning it was added to the deficit and the national debt, contrary to Senator Reid’s claim.
Reid also rejected warnings that Social Security is going bankrupt, saying that the New Deal-era entitlement program was in sound fiscal shape.
“We hear pundits and politicians take the bait that’s been thrown to them by these Republicans over the last few decades,” Reid said. “You throw it to them, and they grab it. They grab it, and they claim Social Security is headed for bankruptcy. It’s not just an exaggeration that Social Security is headed for bankruptcy -- it is an outright lie.”
This statement is misleading. According to the Social Security actuaries, the program will no longer be able to pay out full benefits beginning in 2037, at which time it will have exhausted both its dedicated tax revenue and the value of the interest from the government bonds in its trust funds.
“The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037,” the actuary reported in August 2010.
What this means is that Social Security will begin using income tax revenue to make up the difference as it runs continual deficits from now until 2037. In 2037, the program will have completely exhausted the Treasury bonds in its trust funds – meaning it will not be able to take any more extra tax revenue. At that point, the income from the program’s dedicated payroll taxes will only be able to pay approximately 75 percent of promised benefits.
The statement is misleading because if Social Security were a private-sector pension, the federal government itself would consider it insolvent or bankrupt.
According to the Pension Benefit Guarantee Corporation – the federal entity that manages and bails out bankrupt or defunct pension plans – a pension must be taken over if it is insolvent and does not have enough money to pay out current benefits, or if it will go bankrupt.
“PBGC must terminate a plan if assets are unavailable to pay benefits currently due,” the agency states on its website.
In other words, Social Security is heading towards a level of insolvency that the federal government itself considers to be of such danger to its beneficiaries that – were it a private pension – the government would step in, take it over, and bail it out.