The Investor

AARP Should Retire

Its dishonesty on Social Security has grown old.

By 3.17.05

Recently, the seniors groups USANext created a big controversy when it ran ads, including ones on this site, panning AARP. One of the ads showed a gay couple getting married, a criticism of an AARP Ohio affiliate that opposed a constitutional amendment banning gay marriage. (Indeed, the controversy over this ad has not ended for USANext. Go here.)

Not surprisingly, this provoked howls of outrage from the left-leaning portion of the blogosphere. Joshua Marshall dubbed it "the Rove slime," while radical lefty blogger Atrios -- a.k.a. Duncan Black -- called it a "smear job on AARP." It seems that "slime" and "smear" have become the current adjectives of choice for lefties when describing criticism they dislike (see also questioning patriotism and violation of free speech.)

Anyway, the AARP's defenders might have a better case if AARP weren't doing such an effective job of dismantling its own credibility. For example, earlier in the year, AARP ran full-page ads against Social Security reform that compared stock market investment to gambling. Then it featured on the cover of its January Bulletin a man at a poker table holding out a Social Security card with stacks of chips in front of him. Thus, it's strange that AARP is apparently willing to "gamble" with its own members' money by offering them discounted mutual fund investments in Scudder Funds. The stock market is a gamble if we allow the average worker to invest part of his payroll tax in it, but it's sound investing when AARP can make money selling mutual funds.

AARP also has released a poll claiming more Americans oppose than support personal accounts. But it cooked the data by not polling anyone between ages of 18 to 29, a demographic that highly supports personal accounts. It also phrased the question to make personal accounts seem unappealing, telling respondents that the amount an "average worker" could invest would be "about $750 per year."

AARP has mounted a vigorous defense of the current Social Security system, but it's one resting on very shaky ground. The key to its case is the so-called Social Security "trust fund." An article in the January AARP Bulletin states: "Congress passed legislation in 1983 that would create a surplus in the Social Security trust fund to help pay for the boomers. As a result, by 2018 the trust funds holdings will balloon to $3.7 trillion, up from $1.5 trillion today. This is the boomer's nest egg."

On its website, AARP maintains, "Social Security is not going broke. It can pay 100% of promised benefits until 2042." It also states:

By law, all income to the trust funds not immediately needed to pay expenses, is invested in bonds guaranteed by the U.S. government. These bonds are like the bonds that you or I might buy to save for retirement or for our children's education. Far from being "worthless IOUs," those investments are backed by the full faith and credit of the federal government. The bonds earn interest-in 2002 the rate of return earned by the trust funds averaged 6.4%. For more than 200 years, in good times and bad, during wars and depressions, American bonds have always paid off. They're one of the safest investments in the world.

As I've argued countless times, this sort of analysis never addresses the central question: where will the federal government, and ultimately the taxpayers, find the money to make good on those bonds? As the CBO notes, Social Security "trust funds are mainly accounting mechanisms and contain no economic resources." The bonds in the trust fund are nothing more than claims on future tax revenue. The more bonds we put in them now, the greater the liability for future taxpayers. Furthermore, Congress has the power to decide to not make good on those bonds. Although it would highly unwise for Congress to do so, default on the bonds is not forbidden by the Constitution.

In other words, the trust fund isn't a real asset so much a symbolic one. Indeed, John C. Rother, AARP's policy director, recently admitted as much to the New York Times. ''It is a symbol of the insurance nature of the program and the social contract that lies behind it,'' he said. ''But it doesn't really bind the Congress...no individual's benefits are insured by it.''

Of course you won't find that description of the trust fund anywhere on AARP's website. That would too obviously undermine its case for keeping Social Security as is.

In his defense of AARP, Joshua Marshall described the organization as "the colossal fogey-bund we've all come to know over recent decades." That's no longer true. AARP is a liberal advocacy group rolling in all the money it makes by selling discounted consumer goods to baby-boomers. It has thrown its Social Security eggs into the anti-reform basket. It's fair game for criticism.

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About the Author

David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.