Article by Brenton Smith, Newsmax reprinted with permission

Over the weekend, the Congressional Budget Office (CBO) produced numbers that triggered an outflow of worry about entitlements spending. That concern is well founded, but largely unfocused.

Barron’s, for example, said that Social Security and Medicare are ruining us, and present a hellish future for those who depend upon the system.

Entitlements
geralt / Pixabay
Entitlements

These articles follow a study by CBO which suggests that the amount of debt relative to the GDP will double. To economists, this figure basically compares what the nation owes with roughly what the nation earns. In the eyes of CBO, the United States is like the family of 4 which makes $40,000 has a growing credit card bill that it expects to rise to $60,000.

Yes, the federal debt is a worrisome concern. Blaming Social Security for this rise is however really misguided. Debt is caused by spending money that we do not have. The current fear about Social Security is the amount of money that the program expects not to spend at all. Currently benefits levels are projected to fall between 20 and 30 percent in about 15 years, depending upon the expert.

Social Security has a massive financial imbalance. The Federal Government owes a lot of money, and it is easy to bring these challenges together. I can reasonably assure you however “not-spending-money” is not a driver of our nation’s debt.

And yet, CBO specifically suggests that Social Security is a driver of these issues. “In particular, spending as a share of GDP increases for Social Security, the major health care programs (primarily Medicare), and interest on the government’s debt,” says the CBO’s 2017 Long-Term Budget Outlook.

How is it that these experts believe that not spending money will lead to massive amounts of debt? CBO’s numbers diverge from reality in two important ways:

In 1983, Social Security was moved off-budget so that excess money paid into the program could not be mistaken as general tax revenue. Congress of that time did not want future Congresses to treat Social Security as a profit and loss center to finance other programs. The stated point was to make sure that we didn’t cut benefits in order to balance the spending on other programs.

Beyond that, CBO’s projections ignore the automatic expense throttle which is built into Social Security that will reduce benefit levels in the future. Benefits are reduced to the level of revenue collected. It almost can’t add to the amount of debt.

In response to CBO’s analysis, most critics of Social Security today tend to see benefit cuts as a solution to this problem. If Social Security’s spending is the problem — spend less.

Here is the flaw in that thinking: As the program spends less, the system will generate excess cash as it did in the 1990s and into the first decade of this century. That excess cash will be invested in government securities just as it is today. The amount of debt of the nation doesn’t change by a dime. The only difference is which pocket holds the debt.

We desperately need to focus on the debt of the nation. We aren’t going to do that with numbers that reflect a make-believe world. For example, incorporating Social Security into the budget today hides about $30 billion of interest from the budget deficit today.

Barron’s worries that those dependent on the current system of elder-care entitlements face a potentially hellish future. And the solution is to make those who will depend upon the future system of elder-care face a certain one. This type of appeasement of the current voter is the cause of Social Security’s imbalances — not the cure.

Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.

More Posts by Brenton Smith

More Newsmax Blogs: