There is much misunderstanding routinely presented about Social Security and its impact on federal deficits. Some portray it as a problem; in fact, Social Security not only does not add to deficits, but supports millions of Americans and, thus, the economy. Consider these points from the Center on Budget and Policy Priorities (CBPP) and the Economic Policy Institute (EPI):
Social Security keeps 21 million Americans out of poverty
Social Security benefits play a vital role in reducing poverty. Without Social Security, 21.4 million more Americans would be poor, according to the latest available Census data (for 2011). Although most of those whom Social Security keeps out of poverty are elderly, nearly a third are under age 65, including 1.1 million children.
—157,000 fewer elderly poor (Figure 1)
—Without Social Security, 47.3 percent of elderly would be in poverty; with it, only 5.6 percent (Table 2)
—Beneficiaries: 592,000 in Iowa, including 435,929 age 65 and older, 130,205 ages 18-64, and 25,866 under age 18. (Table 3)
Social Security is a fifth of the U.S. budget …
Social Security: Another 20 percent of the budget, or $731 billion, paid for Social Security, which provided retirement benefits averaging $1,229 per month to 35.6 million retired workers in December 2011. Social Security also provided benefits to 2.9 million spouses and children of retired workers, 6.3 million surviving children and spouses of deceased workers, and 10.6 million disabled workers and their eligible dependents in December 2011.
… but it is not driving the deficit …
Social Security can only spend what it receives in tax revenues and has accumulated in its trust fund from past surpluses and interest earnings. It cannot add to the deficit if the trust fund is exhausted because the law prohibits it from borrowing (if current revenues and savings in the trust fund are not sufficient to pay promised benefits, these have to be cut). Though modest changes will be needed to put Social Security in balance over the 75-year planning period, the projected shortfall is less than 1% of gross domestic product (GDP). …
… and it helps to finance the debt.
Money that the federal government borrows from the public or from Social Security is used to finance the ongoing operations of the government in the same way that money deposited in a bank is used to finance spending by consumers and businesses. In neither case does this represent a “raid” or misuse of the funds. The bank depositor will get his or her money back when needed, and so will the Social Security trust funds.
Posted by Mike Owen, Assistant Director