Social Security is not an anti-poverty program

One of the most pervasive myths in the debate about Social Security promotes the role of the program in the alleviation of poverty.

Common sense should tell us that something is amiss with this endearing myth. Social Security does not pay a penny of benefit based on need.  The system does not even have visibility into need. So at best any benefit that goes to a poor person is more a matter of luck than systemic policy.
The benefit formula of the program is designed to make that outcome less than likely though.  The system allocates benefits based on among other things wages and the number of years worked. So until working a long and productive career causes poverty, Social Security will never be an anti-poverty program.

Some Americans are not even eligible for its benefits. Again, until Social Security is universal, it will never be a safety-net.

Facts support common-sense.  The IRS reports that in 2012 70% of tax returns filed with Social Security benefits triggered rules for filers with substantial outside income.  Pew Research reports that households headed by someone 65 and older have the highest median net-worth of any age demographic.

How is it possible that anyone can confuse a system that actually pays the wealthiest segment of our society based on how much they have earned in the past with poverty alleviation?
The myth largely demonstrates that statistics remain the greatest lie. The statistic starts at the US Census Bureau, with this statement.

"Without adding Social Security benefits to income, the supplemental poverty rate overall would have been 8.6 percentage points higher (or 24.1 percent rather than 15.5 percent). People 65 and older had a supplemental poverty rate of 14.6 percent, equating to 6.5 million. Excluding Social Security would leave the majority of this population (52.6 percent or 23.4 million) in poverty."  ~ U.S. Census Bureau

The factoid subsequently spins out of control on the internet. The natural extension of the raw data is that Social Security is a safety net without which a majority of U.S. seniors would be poor.  The extension of that extension is that without Social Security there would be people starving in our streets when they weren't dying from exposure.

The primary problem with the statistic is that US Census Bureau measures poverty by income.  The fact is that income measures productivity, not poverty.  Income level may cause poverty, but it is not a sensible measurement of it.   Poverty should be measured by net-worth. 

The second problem is that people engaged in the debate about Social Security do not read disclosures.  Both the Social Security Administration and the Census Bureau warn readers that the definition of income excludes a range of revenue on which seniors depend.  Separately the authors provides a disclaimer, cautioning readers that respondents tend to under-report non-wage income.  In other words, Census’s measure of poverty is based on an incomplete and imprecise measure that is known to overstate poverty in the elderly.

The US Census report does not include a disclaimer that should be present.  The IRS tax rules on Social Security benefits for people with substantial outside income create a significant incentive for the elderly to appear poor.  The Congressional Budget Office reports that these tax rates can approach 47%.  These rules are triggered near the poverty line.

The statistics also exclude a significant factor, the cost of Social Security. If we ignore cost, any government program provides poverty alleviation.  For example, pay-outs from the lottery are a great poverty alleviation tool as well.  The reality of the lottery is however that you are spending a dollar to buy a dime.  If we ignore the dollar of poverty, the dime of cure appears to be the greatest social program ever designed to lift people out middle-classdom.

In terms of the cost of Social Security, an average couple retiring in 2010, lost roughly $600,000 in savings over their lifetime funding the retirement of others. Is it reasonable to say that Social Security lifted that couple out of poverty by returning $30,000 in a given year?   If we are going to say that Social Security lifted some millions of people out of poverty, should that figure not be net of those younger Americans who were put into poverty by the system?

Americans really do not need to know the details of how Social Security interacts with poverty.  Voters need to know that someone in Washington is paying attention.  Politicians, pundits, and policy experts have set policy for the program around statistics that they haven’t bothered to fully research, allowing the raison d'etre of the system to drift into a Bizarro social policy skit from Seinfeld.

I have no idea how Social Security interacts with poverty. I am pretty confident that the politicians who quote this data do not either, and I doubt that they care.