There have been several posts around the blogosphere on President Bush's recent remarks on Social Security and commentary by Rex Nutting of CBS Marketwatch, by Brad DeLong, Max Sawicky, and Angry Bear. The title of Nutting's article is, "Fact-checking Bush on Social Security: President exaggerates problems in retirement system." It is true that there are some statements that are easily misunderstood in the President's interview, and they all do go in the direction of making the problem more rather than less urgent. But the headline is overkill. Let's take a look at the article.
Here's the introductory material:
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.Nutting loses points for looking only at the next 75 years, knowing full well that the system has collected taxes during that period on earnings that generate benefits after that period. He hasn't misstated anything that's in the Trustees Report, but he is using an incomplete measure of the program's projected financial shortfalls. His ability to accurately use these terms to convey something incomplete is partly due to the imprecision of the language that is routinely used in these discussions. In the glossary of the Trustees Report, we find:
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. Read the Social Security trustees report here. Read the CBO's analysis here.
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.
Long range: The next 75 years. Long-range actuarial estimates are made for this period because it is approximately the maximum remaining lifetime of current Social Security participants.
I would prefer that he say 1.2 percent of GDP, acknowledging that the annual shortfalls are projected to continue rising after the 75-year horizon. (Both numbers are shown here.)
He then starts in with a "Bush v. facts" section:
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."If he has to put the word "bankrupt" in quotes, then he knows he is stretching his point that there has been an exaggeration or a factual error. Informally, I certainly think of myself as one of the program's creditors--I'm paying FICA taxes now and being told that I'll get benefits later. Sounds a lot like a creditor/debtor relationship to me. We could look up the definition of bankrupt and find that it includes several usages, ranging from "legally declared financially insolvent" to "impoverished." We could then look up "insolvent" and find that it can mean "Insufficient to meet all debts, as an estate or fund." Note the word "all" in that definition.
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.
The President used the term "bankrupt" in accordance with its common usage. The common usage just permits more than one interpretation. The system will not be "impoverished" and I don't think that "flat bust" is helpful language, but this does not strike me as a case of a factual error. Nutting accurately describes what the system's shortfalls are projected to be in 2042 and 2078.
The appropriate fact-check isn't whether the people will see more than a dime, it is whether that's what "most younger people in America think." It turns out that there a lot of people who, quite incorrectly, believe that the system goes away when the Trust Fund runs out of money. (I don't know if the polls would make this "most younger Americans.") It may in fact be true that, because of the imprecision of the language that is used in describing trust funds and bankruptcies, the popular discussion of the issue has led to that misconception. Nutting gets his discussion of what actually happens in the "flat bust" scenario right, and I do think it is incumbent on the President to explain what would happen in this scenario.
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."It seems to be a safe bet that the President was paraphrasing this statement in Section II.E of the Trustees Report:
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
Based on the Trustees' best estimate, program cost will exceed tax revenues starting in 2018 and throughout the remainder of the 75-year projection period.
The President said "money coming in" when he should have said "tax revenues." This one is definitely minor.
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.
Life expectancy both at birth and at age 65 have improved over the past half century, and Nutting has cited the figures from this table correctly (assuming half century refers to 1940-2003). The distinction may matter because there is a difference in the implications for Social Security financing between improvements in life expectancy at birth and life expectancy at 65. If the improvement is in infant mortality, then the change is equivalent to an increase in the population growth rate, and this has a positive effect on Social Security's finances. The later in life the improvements occur, the less positive the effect, leading ultimately to a negative effect if the improvements occur only after retirement. (Imagine the effect if the only improvement was that no one died between ages 89 and 90.)
However, there is no discussion in the Trustees Report that validates the assertion, "Most of the increase in life expectancy in the past half century has been for infants, not for the elderly." In earlier posts, I've cited the exact opposite statement from an article in the New York Times. Where is Nutting's evidence on this point? In fact, one could hardly blame the President if he were again paraphrasing Section II.E of the Trustees Report:
Under current law the cost of Social Security will increase faster than the program's income, because of the aging of the baby-boom generation, expected continuing low fertility, and increasing life expectancy.
The growth of costs relative to income is, in fact, "the problem," and the Trustees are the ones who cite increased life expectancy as a driving factor. One could quibble with the President's statement of the problem as being in the present rather than the future (if Nutting's assertion is accurate), but even that seems like a stretch if it is to claim that he made a factual error or an exaggeration.
It's less obvious to me what the President's reference to women working outside the home means in this context. Nutting has explained the impact of women working outside the home on the system's current finances accurately. I can see two possibilities. The first, which is a big stretch, is that this was a reference to the decline in fertility rates, which is in part caused by women working outside the home to a greater extent than in the past. The second is that the President has another talking point in his head about how the current system can be unfair to women working outside the home (for exactly the reason that Nutting discusses) and could be made more fair through personal accounts. My guess is that the President just confounded the two points that he wanted to make here.
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 the issues that are relevant.
It's worth pointing out, as well, that the President isn't a specialist in the area, and non-specialists in any area are prone to making imprecise statements. The President does have several specialists working for him, including Chuck Blahous, a Special Assistant to the President on the National Economic Council. He was featured yesterday in the "Ask the White House" forum, where he took questions on Social Security reform. That discussion may provide some clarification.
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