Capitol View: August 8, 2012 Archive

PoliGraph: Nolan budget claim complicated, but mostly wrong

Posted at 2:20 PM on August 8, 2012 by Catharine Richert
Filed under: PoliGraph

With the primary election looming next week, the three DFL candidates vying to challenge 8th Congressional District Rep. Chip Cravaack debated earlier this week in Brainerd.

Social Security and Medicare came up frequently in the debate, both programs that the three DFL candidates have repeatedly accused Cravaack of wanting to end or change dramatically.

Rick Nolan, who has the DFL endorsement in the race, said that modifications to Social Security and Medicare are necessary, but both programs are too important to dismantle.

"Neither [Social Security or Medicare] have contributed one thin dime, not one penny to the national deficit. On the contrary, Social Security is financing a couple trillion dollars of the federal deficit as we speak," Nolan said.

Nolan's claim enters some complicated budgeting territory.

The Evidence

Up until fiscal year 2010, Social Security payroll tax revenues exceeded benefit payments, creating a cash surplus. But for the last two fiscal years, the program has run billion-dollar shortfalls, and additional deficits are projected into the future.

That doesn't mean beneficiaries are getting smaller checks. Nolan, like other Democrats, argues that though Social Security is currently experiencing annual deficits, the shortfall is effectively offset by interest on bonds it holds from its past surpluses.

But the situation isn't going to last long because Social Security is expected to pay out more than it takes in for the foreseeable future, said David John, a senior fellow at the Heritage Foundation, a Washington, D.C.-based think-tank that tends to support conservative issues. And that means there won't be surpluses to collect interest on.

According to the most recent Social Security Trust Fund report, interest earnings won't cover those shortfalls any longer by 2020, and the Social Security Trust Fund will be exhausted by 2033.

Eugene Steurele, a fellow with the Urban Institute in Washington, D.C., and an expert in Social Security and Medicare, also pointed out that those interest payments also contribute the nation's deficit.

Josh Gordon, policy director at the Concord Coalition said that just because the program is effectively living on interest, the most recent revenue shortfalls are cause for immediate concern.

"The problem is now because it makes no sense to wait until the first year where benefits have to be cut by 25 percent just to have it back in the balance," he said.

So, in the strictest sense, Nolan is correct that Social Security isn't adding to the deficit yet. But he's wrong about Medicare.

Like Social Security, Medicare Part A, which covers hospital care, is set up as a trust fund. But it's currently running a deficit even when interest costs are included, Steurele said.

Further, other parts of Medicare, including doctor's insurance, have always been supported in part by general fund dollars. For instance, the government pays in more than $200 billion per year for doctor's insurance coverage.

Economists largely agree that Medicare and Medicaid are major contributors to the nation's deficit. For instance, in 2009, the Brookings Institution wrote that Medicare and Medicaid are "perhaps the single most important cause of the growing imbalance between projected revenue and expenditures."

Nolan's campaign chairman, Jim Swiderski, said that Nolan believes that changes must be made to both programs to ensure their sustainability, but that neither should be eliminated.

"Rick believes that various modifications to these programs, such as lifting the cap on fund contributions, and allowing negotiated discounts for prescription drugs, can allow both programs to generate positive cash surpluses into the future," Swiderski wrote in an e-mail.

The Verdict

Because Social Security is making up for its annual deficits through interest, it isn't technically a drain on the deficit.

But though that may not be the case now, three economists from across the political spectrum who follow the program closely say that part of Nolan's claim is misleading at best because it implies that Social Security isn't in any financial trouble. In fact, the program's situation is untenable.

And all three agree that Medicare is contributing to the nation's deficit, contrary to Nolan's claim.

As a result, this claim leans toward false.

SOURCES

The Uptake, Democrats Debate to Face Congressman Cravaack in MN CD 8, Aug. 6, 2012

The Social Security Administration, A Summary of the 2012 Annual Reports, accessed Aug. 8, 2012

The Urban Institute, Social Security and the Budget, by Eugene Steuerle and Stephanie Rennane, May 2010

The Urban Institute, The Government We Deserve, by Gene Steuerle, March 24, 2011

FactCheck.org, Democrats Deny Social Security's Red Ink: Some claim it doesn't contribute to the federal deficit, but it does, by Brooks Jackson, February 25, 2011

PolitiFact.com, Obama says Medicare and Medicaid are largest deficit drivers. Yes, over the long term, by Angie Drobnic Holan, June 25th, 2009

Medicare Basics, accessed Aug. 8, 2012

Interview, Josh Gordon, the Concord Coalition, Aug. 7, 2012

Interview, David John, Aug. 7, 2012

Interview, Eugene Steuerle, The Urban Institute, Aug. 8, 2012