Today, the Social Security system is broke.
If conservative activist Steve Lonegan is to be believed, millions of people throughout the country should not expect to receive any more Social Security checks. During a recent discussion on News 12 New Jersey’s Power & Politics show, Lonegan, state director of Americans for Prosperity, a conservative advocacy group, suggested that the federal program had run out of money. Lonegan appeared on the show with Deborah Howlett, president of the left-leaning New Jersey Policy Perspective. "Today, the Social Security system is broke," Lonegan said during the show broadcast on Oct. 1 and 2. "For the first year since the 75 years Deb talked about, they’re in a cash-flow negative situation." PolitiFact New Jersey found that Social Security is facing long-term fiscal challenges, but the program is not broke. According to federal projections, scheduled benefits should continue to be paid in full for about another 25 years. Let’s explain how Social Security is funded. Social Security benefits and administrative costs are paid from two trust funds, which are made up of payroll taxes, income taxes on some Social Security benefits and interest owed by the government for fund balances. The surplus in any given year is turned over to the U.S. Treasury to finance other government operations in exchange for government securities. Those securities, which comprise the trust fund balances, essentially represent money the government owes itself. By the end of 2010, the trust funds held securities worth about $2.6 trillion. But here’s the sign of long-term fiscal woes: starting last year, Social Security no longer takes in enough annual tax revenue to cover its expenses each year. With interest earnings, the program’s total income will only be able to pay the bills until 2023. After the trust funds start to make up the difference, those reserves will be depleted by 2036. At that point, tax revenues would only support 77 percent of scheduled benefits. In 2085, tax income would cover 74 percent of scheduled benefits. So even if nothing is done to address the problem, roughly three-quarters of benefits would still be paid about 75 years from now. Lonegan argued that "broke" wasn’t too strong of a word to describe Social Security. The revenues don’t match the expenditures, and the government will have to borrow money to meet the obligations of the trust funds, Lonegan said. "They’re basically living on borrowed time," Lonegan said. Lonegan referred us to Peter Ferrara, who served in the White House Office of Policy Development under President Ronald Reagan. Ferrara agreed that Social Security is broke, partly because tax revenues don’t fully support the program and trust funds are just made up of securities. "Those trust funds are not real money," Ferrara said. Other experts we spoke to argued that Social Security is not broke. Henry Aaron, a senior fellow of economic studies at the Brookings Institution, a policy think tank, pointed out how the U.S. Treasury bonds held by the trust funds are "the most secure asset in the world," and can be presented for payment at face value at any time. "Is a person 'broke' if he has a big bank account that is paying interest, which together with current earnings, more than covers expenses, so that the account balance is increasing?" Aaron said in an email. "I don't think so." Virginia Reno, vice president for income security policy for the National Academy of Social Insurance, said of Social Security: "It’s not broke in the sense that it’s gone." Stan Hinden, a Social Security expert with the American Association of Retired Persons, compared the program to his 15-year old car in need of repairs. "So, could you say that my car is ‘broken’?" Hinden said in an email. "No, I would say that I’ve got a great car with lots of mileage left. It just needs some repairs to keep it running well." Our ruling Lonegan claimed "the Social Security system is broke." It’s true that annual tax revenues no longer support the program’s expenses. But made up of government securities, Social Security’s trust funds should be able to cover full benefits until at least 2036. That deadline may be cause for concern, but it also means the system is not broke. We rate the statement False. To comment on this story, go to NJ.com.
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