"Stop the Raid": Fiction vs. Fact

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"Stop the Raid": Fiction vs. Fact

July 29, 2005 5 min read
The Heritage Foundation

FICTION: "Stop the Raid" legislation would increase the federal budget deficit by more than $1 trillion over 10 years, without fixing Social Security's long-term solvency problem.


FACT: "Stop the Raid" legislation does not increase the long-term national debt. Eliminating hidden borrowing will appear to increase short-term deficits, but this is because Congress only looks a few years into the future when it does its budget. Look a few more years out and neither the amount of spending nor the amount of borrowing will change. The only change is that Congress is forced to report the actual level of its deficit spending instead of using Social Security as a slush fund to conceal part of it from the American people.



FICTION: "Stop the Raid" uses an accounting gimmick. Counting the surplus revenue twice is, in effect, a double raid.


FACT: Congress today uses the Social Security surplus to cover up its out-of-control spending habit. "Stop the Raid" would put an end to that accounting gimmick and force Congress to honestly report the actual level of its deficit spending.



FICTION: "Stop the Raid" issues two sets of bonds on the same money.


FACT: "Stop the Raid" would force Congress to use Social Security revenues to pay for Social Security. That requires changes in the way that Congress does its accounting. But if you look at the money coming in each year and the money going out, that stays about the same as it is now. How the government issues bonds between its different programs doesn't matter so long as those numbers stay the same.



FICTION: Social Security would be saddled with two new long-term obligations that would further weaken the program. These would include administrative costs to operate the private accounts and extra expenditures required to make the accounts inheritable by recipients' survivors.


FACT: There would be no big increase in administrative costs. Personal accounts would be managed mainly by existing methods. The non-partisan Social Security Administration estimates that administrative costs would amount to about 0.3 percent of account balances annually-that's less than you pay on your 401(k) or IRA. SSA already issues an annual statement to workers that can be easily and inexpensively expanded to show their account balances, and most tasks can be handled by existing government workers or contracted out.


Making accounts inheritable is a simple matter of fairness, and it doesn't cost that much, either. It's not fair that people could pay into Social Security all of their lives, die before collecting a dime, and then leave nothing at all. "Stop the Raid" won't solve this problem completely, but it's a big step in the right direction.



FICTION: Setting up accounts takes money out of Social Security (or the Social Security trust fund), and so benefits will have to be cut.


FACT: These accounts wouldn't take money out of Social Security, they'd keep it in Social Security. For two decades, Congress has spent Social Security revenues on other government programs-in other words, taking money out of Social Security. Personal accounts would save Social Security surpluses and make sure that they could only be used to pay Social Security benefits; this keeps money in Social Security. It's plain wrong to say that spending Social Security money on other things is somehow "saving" it, and safekeeping Social Security money in accounts is somehow "spending" it.


There is no alternative to accounts. Let's say we do nothing-we know that in 12 years, in 2017, Social Security is going to take in less money than it has promised to pay out in benefits. In 2017, Congress will have to decide whether it wants to raise taxes, run up the debt, cut benefits, or cut back hard on other spending-there are no other options. How can this happen when we're taking in so much extra money today in Social Security? Easy-the money comes in and Congress spends it.


But when you put that extra money into accounts, Congress can't spend it. So putting that money into accounts means that the crunch isn't bad when it finally does come. If you're collecting benefits then, you would get some from Social Security, just like today, and some from your account. In total, you would receive the same that's promised today-no cuts. There's even the chance you could get a bit more than is promised today, depending on how the accounts are set up.



FICTION: "Stop the Raid" will require hefty tax increases.


FACT: Doing nothing requires hefty tax increases. Come 2017, Congress will have to figure out how it's going to pay for promised benefits because Social Security won't be taking in enough money to cover the bill. There are three options: run up the debt (which means future tax hikes), make big cuts in other programs, or raise taxes. And after 2017, things don't get better; they get worse. Taxes keep going up, other programs keep getting squeezed out, and the debt explodes.


"Stop the Raid" isn't a permanent fix for Social Security, but it's a step in the right direction. It puts Social Security on sounder financial footing by making sure that money that goes into Social Security stays there and isn't spent on other things. Congress is still going to have to figure out how to deal with the future costs of Social Security, but "Stop the Raid" buys us a little time and makes us better off than if we do nothing at all.



FICTION: Putting Social Security's surplus into accounts is risky.


FACT: Are government bonds risky? The millions of Americans who own them don't think so. That's what the accounts would be invested in initially-government bonds. After a few years, workers might have the choice of a few other safe investments, like stock indexes and bond funds. Whether you keep your money in government bonds or try something else-that's your choice.


What's really risky is doing nothing. According to Social Security itself, if Congress does nothing now, the program starts paying out more than it takes in 12 years from now. Then Congress has a choice: raise taxes or cut benefits? If we do nothing today, we're gambling on what Congress is going do 12 years from now and every year after that.



FICTION: "Stop the Raid" would create accounts that are so small as to be meaningless.

FACT: "Stop the Raid" would create individual accounts just big enough to keep Congress from spending Social Security's surplus revenues on everything from highways and bridges to the Rock 'N Roll Hall of Fame museum. The accounts would keep that money in Social Security and use it to pay Social Security benefits. That is an important step, and the accounts will be just the right size to accomplish it.Congress could look at bigger accounts, which are a good idea, in a couple years, but stopping the raid on Social Security's trust fund now is an urgent priority.


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