A June 23 article in The Washington Post on a new proposal by House Republicans to use the Social Security surplus to finance private investment accounts quoted two sources making contradictory factual claims but offered no hint about which claim was true. In fact, the Social Security Administration's (SSA) analysis of the plan makes clear that the claim by "House Republicans" was false, while the claim by "an economist at the liberal Center on Budget and Policy Priorities" was true. As of this posting, the Post has yet to follow up with a clarification.
The proposal by Reps. Paul Ryan (R-WI), Jim McCrery (R-LA), Clay Shaw (R-FL), and Sam Johnson (R-TX), which Sen. Jim DeMint has also endorsed, would allow workers to invest their proportional share of the Social Security surplus into private investment accounts. The main difference between this plan and President Bush's initial private accounts proposal is that the Ryan-DeMint plan would limit private account contributions so that the amount diverted each year would encompass only the surplus -- i.e., the amount by which Social Security payroll tax revenues exceed what the program pays out in benefits each year. The plan would not authorize contributions to private accounts beyond the point when Social Security stops running a surplus, which the Social Security trustees estimate at 2017 (though critics fear that substantial political pressure would build at that point to authorize further diversions).
The factual dispute described in the Post article concerned the plan's impact on Social Security's long-term solvency -- specifically, the date when the Social Security trust fund would be exhausted and the program no longer able to pay promised benefits. The trustees currently project that, with no changes, the trust fund will be exhausted in 2041. Post reporters Mike Allen and Jonathan Weisman reported contradictory claims about the plan's effect on solvency with no attempt to reconcile them:
House Republicans said the plan would extend solvency from 2041 to 2043 because the amount in the accounts would reduce the trust fund's obligation, according to a preliminary analysis by the Social Security Administration. ...
[Jason] Furman ["an economist at the liberal Center on Budget and Policy Priorities" (CBPP)] said the plan would push the program to insolvency two years faster than doing nothing, because of administrative costs and the amount that was inherited.
But the Social Security Administration resolves the dispute set up by the Post. The SSA projects that the Ryan-DeMint plan would hold the projected insolvency unchanged at 2041, but it maintains this date only by requiring a "transfer" into Social Security of nearly a trillion dollars from general revenue of the federal budget, a crucial element of the plan that the Post failed to mention. The plan does not outline specific tax increases or budget cuts that will finance these transfers, so they amount to what CBPP has called a "magic asterisk," a promise to pump in billions -- somehow, from somewhere -- years down the road. The Social Security Administration (SSA) analysis (which has not been posted on SSA's website but which Media Matters for America has obtained) explains:
Because the annual cash-flow surpluses would be redirected to the individual accounts, the trust funds would not be as large as under current law, starting in 2006. However, the plan also provides that transfers would be made from the General Fund of the Treasury to the trust funds sufficient to maintain trust fund levels equal to annual program cost long enough so that full scheduled benefits would be payable until 2041.
Table 1a of the memo shows that the plan calls for $998.4 billion dollars of "transfers" between 2033 and 2036. It also shows that without this infusion of cash, the Ryan-DeMint plan actually moves the projected insolvency date forward to 2038.*
The Post's reference to the "preliminary analysis by the Social Security Administration," quoted above, makes it unclear whether Allen and/or Weisman actually obtained the analysis, or whether they simply took the "House Republicans' " word for what it said. But even without the memo, the "House Republicans' " assertion that their plan "would extend solvency" ought to have seemed suspicious: How could taking money out of Social Security serve to improve the program's solvency? Though Republicans attempted to answer this question with their account -- false, as it turns out -- of the SSA's analysis, this explanation is also dubious on its face: Even if "the amount in the accounts would reduce the trust fund's [future] obligation," these reductions could at best equal what is diverted today, plus interest. Unless the plan called for cutting accountholders' guaranteed benefits by more than what they originally put into their private accounts, plus interest (which would make them a losing proposition) such a plan would at best keep the solvency date unchanged.
In fact, the plan would harm Social Security's long-term solvency for at least two reasons: first, the surpluses diverted into personal accounts would no longer be available to pay guaranteed benefits; second, because the plan specifies that account holders can pass the accounts on to their heirs if they die before retirement, Social Security will never be able to recover the money initially diverted into those accounts. For account holders who reach retirement, the system will recover the money initially diverted into private accounts through an "offset," i.e., reduction, in the retiree's traditional guaranteed benefit. But the system will not be able to recover this money from heirs who do not have a guaranteed benefit to be reduced.
A New York Times article on the plan also featured a falsehood that the SSA analysis refutes. The Times wrote: "If their [private] accounts did poorly and the total of the two checks [one from the private account and one from traditional Social Security] was less than a full Social Security payment would have been, the government would make up the difference. So everyone would fare the same or better than they would under the current system, the Republicans said." In fact, the analysis makes clear that such a government guarantee against private account losses is not a feature of the Ryan-DeMint plan. Media Matters was unable to verify if Republicans actually made this claim at their June 22 press conference to unveil the plan.
*Table 1a: Subtract column (4) ["Accumulated as of End of Year"] from column (5) ["Total OASDI Trust Fund Assets at the End of Year"]. The result is a negative number beginning in 2038.