Big Lie #1 Revisited – Paying Social Security Benefits Makes The Deficit Worse

Remember back to February, when I wrote Big Lie #1 – Cutting Social Security’s Administrative Budget Helps Reduce the Deficit. At that time, I was only talking about the administrative budget, which is the money SSA needs to process the huge and increasing workloads assigned to it, as the baby-boomers begin to retire. There was no talk then about cutting Social Security Benefits, or getting rid of Medicare and replacing it with a voucher system, aside from what the Cat food Commission upchucked.

Since February, the Republican rhetoric has sharpened. The Paul Ryan budget, approved by 235 out of 239 Republicans in the House of Representatives, is in the Senate now. It takes direct aim at Medicare. According to Everyone currently age 54 or younger, would not be able to get Medicare as we know it. When they attained age 65, they would instead get a voucher (amount to be determined later) and sent to the private insurance companies to buy their own coverage with the voucher. Bear in mind these are people most of whom will already have serious health concerns. What kind of deal will the insurance companies give them?

According to Don Berwick, Medicare’s chief, in an Op/Ed he wrote for the Wall Street Journal. he wrote, referring to the Paul Ryan plan, “Force the average senior to pay $6,400 more for their insurance, eliminate guaranteed Medicare benefits and limit choices when it comes to doctors and hospitals. That approach would end Medicare as we know it and do nothing to bring down healthcare costs.”

Obama Medicare chief says Ryan plan would shift costs to seniors.

Seniors with vouchers in hand might not be able to find any insurers willing to do business with them. In an article in Talking Points Memo, the author writes, “… the Paul Ryan plan would instead bring the oldest, sickest, and least profitable demographic to the table. And with the CBO projecting that the average senior would be on the hook for over two-thirds of their health care costs within just 10 years of the plan’s adoption — a proportion that is projected to worsen in the long run — the government subsidies backing them up may not bring in enough profitable customers to make things worthwhile.

“If reimbursement rates are too low to provide basic benefits, they’ll tell the government, ‘You do it,'” one insurance lobbyist told TPM. “I don’t think they can require they lose money, they’d just pull out.”

Will Anyone Even Insure Seniors If Paul Ryan’s Medicare Plan Passes?

And now, Speaker John Boehner has sounded off on CBS’s Face The Nation, last Sunday, May 15, 2011. He was interviewed by Harry Smith.

Boehner: “Today there are 10,000 new people signing up for Social Security every single day. 10,000 more every single day. And as a result, the money in the so-called trust fund doesn’t exist. And it has to come out of current revenues. And that’s why everything needs to be on the table. We’ve put forward our plan, and our plan says that no one 55 or older would, would, would, would have any changes to their current plan…

Harry Smith: “But isn’t that…

Boehner: “… but for those 54 and younger, I think it’s time to make changes to those plans, or they won’t exist. Remember, the greatest threat to our country and our economy is doing nothing.”

There are two things to be taken from this statement. First, Boehner is supporting the Ryan plan. This is after weeks of Republican town halls in which the Representatives had their heads handed to them by angry constituents. Secondly, when he says “the so-called trust fund doesn’t exist,” he is lying. The trust fund does exist. It is currently valued at about $2.6 trillion dollars. However, it isn’t a hoard of cash stuffed in a mattress or locked in a safe. As is required by law, it is invested in Treasury Department securities which pay about 4.9% interest. Another way of saying this is that the Social Security Administration is lending the money to the Treasury Department
The Republicans like to harp on this point, except they say that the Federal Government is “taking” the money and spending it on things other than Social Security. To quote from Paul Ryan’s “Path To Prosperity 2012”, “… any value in the balances in the Social Security trust fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1983 to 2011, the trust fund collected more in Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The trust fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.”

Can one spend one’s money or cash in one’s U.S. Saving Bonds only if the Treasury Department permits it?

“Beginning in 2011, the Social Security started paying out more in benefits than it collected in taxes – a trend that will skyrocket as the baby boomers continue to retire. In order to pay full benefits, the government must pay back the money it owes Social Security”.

The Path To Prosperity 2012 (Paul Ryan’s introduction to his budget proposal. It is in .pdf format and is 73 pages long.)

Ryan forgets to mention, as do Republicans in general, that the Treasury Department securities, which, like cash money, are backed by the full faith and credit of the United States. Treasury is obliged to repay Social Security back when this becomes necessary. However, if Congress fails to raise the debt ceiling soon, the United States will start defaulting on its obligations and its credit rating and its money will lose a lot of value.

The reason the Social Security trust fund is so large is due to the 1981 Amendments, which I have referred to earlier. There were some benefit cuts, but also a substantial increase in Social Security taxes and a raise in the retirement age from 65 to 67, which is phasing in now. The 1981 Amendments were the result of a compromise between the Reagan administration and then-House Speaker Tip O’Neill. They were attempting to strengthen Social Security so that it could handle the baby boom cohort when the first boomers began retiring, in about 2008. When Boehner refers to 10,000 claims per day, this is what he is referring to. The baby boom cohort numbers about 75 million, born between 1946 and 1964, and the first of them are age 66 next year.

US Birthrate 1909 through 2003

The segment in blue, from 1946 through 1964, is the baby boom cohort. It was to cover the cost of their retirements that the Social Security trust fund was allowed to accumulate. Now that Social Security is beginning to need this money ($120 billion in 2011, for example) and is requesting repayment from the Treasury Department by redeeming its securities, the Republicans are trying to get out of it. It is clear to me that this is the Republican Party’s main reason to want to reduce Social Security benefits, so the Federal Government won’t have to pay back as much to Social Security.

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