StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Dean Baker Has The Best Line Of The Day

04 Feb 2010
Posted by Stan Collender

Dean explaining why the Wall Street Journal got it wrong, wrong, wrong when it referred to Social Security as a "budget buster."

"...Social Security is a money loser in the same way as IPOD is for Apple."


Not quite

"The amount of money it takes in each year on the designated Social Security tax and the interest it collects on its bonds exceeds what it pays out in benefits."

And who exactly pays the interest SS collects on its bonds?

I may be wrong but I believe that right now it simply compounds but when the time comes to actually redeem thse bonds, the interest will be paid out of the general fund. Which makes SS a budget buster.

BTW, I believe the last report from the SS and Medicare trustees indicates thse bonds will start coming due in about 7-8 years.

The fact that SS is in a

The fact that SS is in a surplus today does not refute the projections that SS will be in ever growing deficit in the future.

Sorry but that's BS. Social

Sorry but that's BS.

Social security spends money. The social security tax takes in money. There's no set aside in the government budget as we've learned from the fact that the only thing in the trust fund is IOUs to the government.

To argue that a program that is projected to spend nearly a trillion dollars a year by the end of the decade is not a budget buster is crazy. That's before you get to the fact that it is a transfer from people who on average have very low net worth to people who, on average, have very high net worth.

The only way you can claim that SS is not a budget buster is if you buy one of two fictions...either that it's a sequestered budget (which we've proven it isn't both by past and projected future behavior (where general fund revenues will be used to pay benefits as opposed to raising the "SS" tax...or that it's really a pension program which would imply that your money that you've paid in has been saved somehow, which again clearly it has not been.

What about the CBO's recent report?

Table D-1 and Figure D-1 of the recently generated CBO report on the Budget and Economic Outlook ( suggest that Social Security is running a net deficit, not considering interest payments from Treasury.

It is true that they estimate it will blip positive for a couple of years around 2013-2014. But that is small consolation.

Granted, we are talking tens of billions. So this isn't our largest short-term problem. But it is a long-term one, all arrogance aside.

How classically ironic. Dean

How classically ironic. Dean ridicules others who are conceptually correct while offering a supposed correctly that is not only conceptually incorrect, but nonsensical.

It is nonsensical to measure the degree to which Social Security contributes to our long-term fiscal imbalance by the projected difference between (1) the portion of overall tax revenues that are collected via its dedicated tax (FICA SS, even if we include the "balance" of the "trust funds"), and (2) spending on Social Security benefits. From the standpoint of our overall fiscal imbalance, FICA SS revenues are merely part of overall revenues, and Social Security spending just part of overall spending. This utter baloney is constantly trotted out as a talking point by Dean and others who are either conceptually confused or disingenuous opponents of any decrease in projected Social Security spending on any basis ever.

Let’s apply Dean Baker’s “reasoning” to illustrate its absurdity. Presumably Dean Baker considers projected Defense spending a significant contributor to our long-term fiscal imbalance. Well, according to his “reasoning”, if we set up a dedicated tax for Defense carved out of overall revenues (i.e., not changing overall revenues) and set that tax rate high enough to cover all projected Defense spending, he’d have to say “Defense won’t contribute at all to our long-term fiscal imbalance. It’s fully ‘solvent’”. In fact, if the “Defense tax” rate were set high enough to double projected Defense spending, he’s say that we could double projected defense spending and Defense still wouldn’t be contributing a dime to our overall fiscal imbalance. And if we didn’t double Defense spending, he’d have to point out the “surplus” that Defense was projected to generate to actually “reduce” our long-term fiscal imbalance. Yet overall revenues have not changed, nor has overall spending, nor the size of deficits. It’s all just internal bookkeeping, how much goes in one pocket vs. another.

For additional explanation and illustrations, see and (in the second I accidentally repeated my "Medicare Illustration" in different words -- just forgot to delete the first one)

Dean, check your notes from that class!

those of us who did sit through third grade know that Social Security actually is running an annual surplus. The amount of money it takes in each year on the designated Social Security tax and the interest it collects on its bonds exceeds what it pays out in benefits.

1) Those of us who are awake know that SS actually is incurring a shortfall right now (as Victor notes above). Sorry Dean, events have happened since you were in third grade.

2) SS is "collecting interest on bonds" that helps the federal budget?? Hello? Who's paying this interest, the Germans or somebody? Dean couldn't possibly be talking about the interest the TF credits to itself by bookkeeping entry, because what cash does that provide to help the federal budget??

Either Dean wasn't paying attention in third grade, or he can't read his third-grade handwriting in his notes from then.

As a technical aside, those bonds are part of the national debt -- so crediting interest to them increases the liabilities of the US, increases the national debt. Perhaps they didn't explain this in third grade.

3) The other side of the trust fund -- Dean may not remember from his third grade class -- is that all those bonds have to be paid down post circa 2017, with cash funds from the federal budget. The liability of those bonds in action!

This is going to cost near 2 points of GDP of cash flow -- and the tax increase needed to cover this by itself will be by far the biggest tax increase since World War II.

(That'll be on top of all the other tax increases we'll need for Medicare and to service all the trillions of extra debt we'll be ladling on until then.)

"Budget buster"? Nah. Who could possibly think that?

Is Dean really shooting at Obama?

BTW, Dean's objections really seems to be against the Administration, not the WSJ.

This is what he was reacting to...

Interest payments devour nearly one-tenth of federal revenues ... Spending on Social Security, Medicare and Medicaid consumes an additional 57%. The administration projects that those entitlement programs, as they are known, plus interest on the debt, will absorb 80% of all federal revenues by 2020.

So Dean seems really peeved that the Administration projects these as "budget busters" -- and the WSJ dared report it!

Also, at issue is the year 2020 -- not today.

Did Dean have a third grader write this for him?

Well he's technically correct

Well he's technically correct that SS generates net revenues today, meaning it's not a budget buster today, but it's the exact opposite.

So he's right in the short run but wrong in the long run. It's not clear which way the WSJ meant it when they said "budget buster," so the two could just be talking past each other.

Folks, as per my comment

Folks, as per my comment upthread, it is nonsensical to measure the degree to which Social Security contributes to our overall fiscal imbalance by the difference between projected Social Security spending in FICA SS revenues (plus "repayment" of "debt" owed to the "trust funds" -- all misnomers). So debating the amounts of current and projected Social Security "gap" as if that represents the amount to which Social Security contributes to our overall fiscal imbalance makes as much sense as like debating how large the "gap" is between projected corporate income tax revenues and Defense spending, and saying that that gap represents the amount that Defense spending contributes to our overall fiscal imbalance. It's all part of the whole, not some island (regardless of the presence of a dedicated tax), nor does Social Security have a money tree or other source of revenue other than taxation.

As with everything else, we decide how much we want to tax and on what basis, how much we want to spend and with what allocation, and how much debt to have. (Obviously factors other than policy affect the amounts, but I'm talking about policy choices aimed at chosen objectives.) Every dollar we spend on anything contributes a dollar to our overall fiscal imbalance, and every dollar of tax revenue we raise reduces that imbalance by a dollar (leaving aside dynamic effects). Some program having a dedicated tax doesn't change that one whit.

Typo: I meant to say "...the

Typo: I meant to say "...the difference between projected Social Security spending and FICA SS revenues..."

Fantastic CBO Graph

This really shows what the problem is for long term government debt:

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