Law professor Richard Kaplan, an expert on federal taxes and retirement benefits, says the gloomy reports on Social Security are rooted in myth.
CHAMPAIGN, Ill. – Don’t trust the glum reports that sprout like cherry blossoms in Washington every spring, forecasting the seemingly inevitable demise of Social Security’s trust fund, a University of Illinois law professor says.
Truth is, the federal retirement program has no trust fund, and there are no artificial limits on what the government can spend to keep benefit checks flowing, said Richard L. Kaplan, an expert on federal taxes and retirement benefits.
“The government can spend what it wants from whatever source it needs to tap to pay benefits,” Kaplan said. “After all, there is no Pentagon trust fund, but the war in Iraq continues to receive hundreds of billions of dollars each year anyway.”
Trustees for the Social Security program issued an annual report this week, warning that resources in the program’s trust fund will be depleted by 2041. By 2017, trustees predicted, the program will begin paying out more in benefits each year than it collects in payroll taxes.
“The amazing feature of these reports is that they report the status of a myth,” Kaplan said. “In fact, there is no ‘trust fund’ that limits what can be paid for the program.”
The notion of a dedicated account for Social Security is likely the most enduring myth about the government retirement program, said Kaplan, the author of a paper titled “Top 10 Myths of Social Security.”
He says confusion stems, in part, from the annual status reports from trustees that refer to a “trust fund.” The reports project how long income and payouts will stay in balance and when they will ultimately yield net deficits, but incorrectly imply that the money lands in some special account, he said.
Instead, annual income is now used to pay today’s retirees, Kaplan said. Current surpluses are used for other government expenses, from defense to interest on the national debt, backed by a federal IOU that guarantees to return the money with interest.
Eventually, payroll-tax income and those government paybacks may fall short of Social Security’s needs. But Kaplan says the hefty spending on a once unheard of war against terrorism is a good example of why that won’t necessarily spell disaster for the retirement program.
“The war demonstrates one of the many reasons that very long-term economic forecasts must be consumed with lots of salt,” Kaplan said. “After all, no one even six years ago predicted extended military combat in Iraq, let alone the enormity of the cost.”
Kaplan’s paper on Social Security myths also addresses other popular misconceptions, including that retirees are simply recovering their own money and that benefits are proportional to lifetime earnings.
Editor’s note: To contact Richard L. Kaplan, call 217-333-2499; e-mail rkaplan@law.uiuc.edu.
