The Social Security Sweepstakes

November 15, 1999

by Andrew G. Biggs

"Everyone has received them in the mail," says Rep. Frank LoBiondo (R-NJ). "'John Doe, you have won ten million dollars.' You open the envelope and inside are a packet of official-looking documents bearing seals and stamps... It is not until you get out the magnifying glass and read the fine print on the back of the fourth page, do you realize you have a better chance of being struck by lightning twice in the same day then actually winning a prize." On Nov. 2, the House quickly passed legislation "to protect our most vulnerable consumers" that requires "up-front, clear, and easy to read disclosures" in sweepstakes mailings. If only the government could follow the same rules.

Despite Congress's concern, Americans today receive mailings that make sweepstakes entries look like paragons of full disclosure. But there is no law to protect consumers from these particular mailings, because they come from the government itself. Last month, the Social Security Administration (SSA) sent out the first new "Social Security Statement," a four-page report the SSA touts as a "great tool for financial planning." Designed to calm workers' fears over Social Security's future, the Statement essentially says, "If you earn this much and work to this age, this is how much you'll receive from Social Security when you retire."

There's just one problem: it is flat-out untrue. The SSA describes the Statement's purpose as "getting people to look at real numbers." Here are some real numbers the SSA should look at: the 1999 Trustees Report, which shows that by 2034 Social Security will be so short of cash that it would have to cut today's average monthly benefit of $780 to a mere $553.

"All we would have to do in 2034 if there were no changes is cut benefits back to about 71 percent of their current level," Deputy SSA Commissioner James Roosevelt admits. (All we would have to do? Tell that to a poor retiree, completely dependent on Social Security, who suddenly finds himself living over 25 percent below the poverty line.) The problem is not that essential details like this are hidden in the fine print; it's that they're not there at all.

Whatever the merits of sweepstakes mailing, anyone who actually reads the entry knows that you have not won anything, that the numerical odds against winning are very high, and that you do not have to pay in order to enter. Contrast that with the Social Security Statement, where even the most meticulous reader would find out what Social Security promises him but nothing about the more than 25 percent payroll tax increases needed to pay it. Adding insult to injury, the Statement costs taxpayers over $70 million annually to distribute - that's very expensive junk mail.

One Congressman has plans to change this. Rep. John Sununu (R-NH) is preparing legislation that would require the SSA to amend the Social Security Statement. Sununu's plan would notify recipients that to repay the bonds in the Trust Fund taxes would have to rise, benefits fall or borrowing increase; that after the Fund runs out Social Security will be capable of paying only 71 percent of promised benefits; and that Social Security's rate of return to beneficiaries has dropped steadily over time. These changes would give workers a much better idea of how bad a deal Social Security is turning out to be.

It may be a million-to-one shot to win a sweepstakes. But unless market-based reform raises Social Security's rate of return, your chances of getting full benefits without a tax hike or retirement age increase are even lower than that. Maybe Congress should work on its own mailings before it sets about fixing those from Publishers Clearinghouse.

2001 Index | 2000 Index | 1999 Index | 1998 Index