"Social Security has nothing to do with the deficit"

[_ajax18]

These problems are easy to fix by increasing the retirement age

How many liberals on this page want to see the retirement age increased? Ed Schultz seemed pretty hostile to that idea.

[Guest]

The same principle applies to the Social Security trust fund. If the SSA cashes in a $100,000 bond, the government pays that bond, but its liabilities go down by exactly $100,000 when it does so. In aggregate, no effect on the deficit.

I disagree. This is the part where Kevin is supposed to come in and condescendingly tell you that you don't know the difference between the "debt" and the "deficit".

The Treasury department defines the "deficit" (or "surplus") as "Receipts - Outlays".

http://www.treasury.gov/press-center/pr ... l2664.aspx

So what we're talking about here is the P&L statement, not the Balance Sheet (which your referred to above).

Using the Treasury department's definition in that link above, they show that the "Receipts" for FY 2013 were $2.77 trillion, and the "Outlays" were $3.45 trillion which leaves us with a deficit of $680 billion.

So the key question that started this whole thread is whether or not social security can make that $680 billion number bigger or smaller. And the answer is "yes". The deficit can be made smaller by borrowing from social security, and it will be larger if money has to be transferred to social security. And as was clearly explained (but not helpfully highlighted by you):

[Trust fund bonds] are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

Congress isn't like a borrower who took out a $1,000 loan from the bank and put it in bonds, or gold, or real estate. Congress is a borrower who used that $1,000 to go to Hawaii. When the bank wants the $1,000 back, it isn't a matter of converting the safe investment back into cash and repaying the loan. It's a matter of figuring out where the heck they're going to find $1,000, because all they have are the pictures from the vacation.

But the proof is in the pudding. In 2011, Obama expressed unsurety about whether or not the delay in raising the debt-ceiling could delay social security checks going out. If the trust funds are fully funded and separate from the general budget, why would the debt-ceiling have anything to do with SS checks? When asked about the possibility, he said:

“I cannot guarantee that those checks [he included veterans and the disabled, in addition to Social Security] go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

http://www.forbes.com/sites/merrillmatt ... rust-fund/

Was he lying? Was he mistaken? Or was he showing in a practical matter that there is a very real connection between social security and the general budget?

[Gladness]

These problems are easy to fix by increasing the retirement age

How many liberals on this page want to see the retirement age increased? Ed Schultz seemed pretty hostile to that idea.

Who is Ed Schultz?

I would be in favor of a sliding scale depending upon the type of work. Let the proletariat retire at 65, and make the bourgeoisie work until they are 80.

[_canpakes]

These problems are easy to fix by increasing the retirement age

How many liberals on this page want to see the retirement age increased? Ed Schultz seemed pretty hostile to that idea.

I don't qualify as a liberal but I have no problem with the retirement age being advanced.

[_Analytics]

The same principle applies to the Social Security trust fund. If the SSA cashes in a $100,000 bond, the government pays that bond, but its liabilities go down by exactly $100,000 when it does so. In aggregate, no effect on the deficit.

I disagree. This is the part where Kevin is supposed to come in and condescendingly tell you that you don't know the difference between the "debt" and the "deficit"....

Three points. First, I'm going to go on a limb and guess that you aren't a CPA. Am I right?

Second, I hope you are having as much fun as I am.

Third, what I said above is phrased from the perspective of accrual accounting. In accrual counting:

Profit = Cash In - Cash Out + Increase in Assets - Increase in Liabilities

So from this accrual accounting perspective, when the SSA cashes in a $100,000 bond, the government's profit goes down by $100,000 because $100,000 of cash goes out the door, but it immediately goes up by $100,000 because the liabilities go down by $100,000. The two things wash, and there is no change in profit--i.e. no change in deficit.

That's my point.

The Treasury department defines the "deficit" (or "surplus") as "Receipts - Outlays".

http://www.treasury.gov/press-center/pr ... l2664.aspx

So what we're talking about here is the P&L statement, not the Balance Sheet (which your referred to above).

Using the Treasury department's definition in that link above, they show that the "Receipts" for FY 2013 were $2.77 trillion, and the "Outlays" were $3.45 trillion which leaves us with a deficit of $680 billion.

So the key question that started this whole thread is whether or not social security can make that $680 billion number bigger or smaller. And the answer is "yes".

Great move on referencing the $680 million. That includes both on-budget items and off-budget items, so if the thread really is about whether or not SS can affect the $680, you are right--it can.

The deficit can be made smaller by borrowing from social security, and it will be larger if money has to be transferred to social security. And as was clearly explained (but not helpfully highlighted by you):

[Trust fund bonds] are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

Technically, borrowing from Social Security aren't receipts, and paying Social Security back aren't outlays. (see page 77 of Federal Accounting Handbook: Policies, Standards, Procedures, Practices, Second Edition if you don't believe me. Seriously. This source clearly explains what I've been saying--restructuring debt doesn't entail outlays).

The way in in which Social Security affects the $680 billion is by including the off-book Social Security tax receipts, and including the off-book Social Security benefit payment outlays. But if you leave the off-book items off the books, what Kevin said in the OP is true.

Congress isn't like a borrower who took out a $1,000 loan from the bank and put it in bonds, or gold, or real estate. Congress is a borrower who used that $1,000 to go to Hawaii.

I've got to quibble with this analogy. It's more like a borrower who used that $1,000 to go to damned Iraq. But the fact that Congress has borrowed irresponsibly doesn't negate the fact that the SSA invested wisely.

But the proof is in the pudding. In 2011, Obama expressed unsurety about whether or not the delay in raising the debt-ceiling could delay social security checks going out. If the trust funds are fully funded and separate from the general budget, why would the debt-ceiling have anything to do with SS checks? When asked about the possibility, he said:

“I cannot guarantee that those checks [he included veterans and the disabled, in addition to Social Security] go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

http://www.forbes.com/sites/merrillmatt ... rust-fund/

Was he lying? Was he mistaken? Or was he showing in a practical matter that there is a very real connection between social security and the general budget?

He was lying. That's the answer your source gives. Did you just want to hear me say it? According to your link:

...Obama and Geithner are lying to us now...

.....Social Security has a trust fund, and that trust fund is supposed to have $2.6 trillion in it, according to the Social Security trustees. If there are real assets in the trust fund, then Social Security can mail the checks, regardless of what Congress does about the debt limit.

President Obama’s budget director, Jack Lew, explained all this last February in USA Today:

“Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. . . . Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

Is that the pudding with the proof you referred to?

There is a bigger point though. For the sake of argument, say that the correct way to look at the federal deficit is with the off-book SS receipts and outlays included. If you look at it that way, for the last few decades the deficit has looked a lot lower than it really should have, year after year after year. The difference between the real deficit (leaving the off-book items off the books) and the pretend deficit (with the off-book items included) has accumulated to about $2.7 trillion dollars. Think of that--if you add up all of the deficits since Reagan's first term, the real aggregate deficit is $2.7 trillion higher than that.

Now, the SSA is going to start cashing out the trust fund, which was the plan all along. This is going to make the deficit appear higher than it really is for the next 20 years. But this really isn't increasing the deficit. It's just finally recognizing deficits that were really incurred in the past. Then the illusion will stop, because SS will become a pay-as-you go system.

Here is the big point. Over that entire span (say, from 1983 to 2033), the aggregate affect that building up and spending down the trust fund will have had on the aggregate deficit of that 50-year period will be zero. That is worth repeating. Over the span of 1983 to 2033, the aggregate affect that building up and spending down the trust fund will have had on the aggregate deficit of that 50-year period will be zero. All that will have happened is that the deficits were manipulated to look lower than they really were for the Reagan, Bush I, Clinton and Bush II presidencies, and then higher than they really will be for the Hillary Clinton, Jeb Bush, and Chelsea Clinton presidencies.

Over this 50 year period, there is absolutely no effect on the debt or the aggregate deficit due to Social Security, regardless of how you look at it.

[_Kevin Graham]

Thanks for hammering the last nail in that coffin, Analytics.

The most interesting thing to me about all of this is that following cinepro's logic, Social Security has been reducing the deficits for thirty years. Because if you want to take the past two years (in which receipts failed to match expenditures) and use this as evidence that SS is increasing the Federal deficit, then you have to also admit that the accumulating surpluses had effectively reduced the annual Federal deficits for thirty years.

He can't have it both ways.

I also find it humorous that he's wanting to slam Obama for lying about SS and the deficit, yet he won't call Ronald Reagan a liar when he said point blank, "Social Security has nothing to do with the deficit."

[_MeDotOrg]

Thanks Analytics, for your lucid explanation. And thanks to all who contributed to this thread. It was very educational.

[Guest]

Technically, borrowing from Social Security aren't receipts, and paying Social Security back aren't outlays. (see page 77 of Federal Accounting Handbook: Policies, Standards, Procedures, Practices, Second Edition if you don't believe me. Seriously. This source clearly explains what I've been saying--restructuring debt doesn't entail outlays).

I agree. If someone pays off their Visa by putting the balance on their Mastercard, then they have just shifted the debt and it doesn't involve any "outlays". Likewise, if SS draws on the Trust Fund and congress has to borrow more money to pay them, then they have simply shifted the debt. So according to that year's budget, Social Security won't have contributed to a "deficit". But they've just kicked the can down the road. Eventually Congress will have to pay back that debt, and it will be reflected as an "outlay". That money has to come from somewhere because it isn't there now, and that somewhere always ends up in the budget.

This quote is the clearest, most important explanation of the situation, and it mystifies me that there is any mystery about this:

These [trust fund] balances are available to finance future benefit payments and other trust fund expenditures—but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits.

http://www.gpo.gov/fdsys/pkg/BUDGET-200 ... 00-PER.pdf

Now, the SSA is going to start cashing out the trust fund, which was the plan all along. This is going to make the deficit appear higher than it really is for the next 20 years. But this really isn't increasing the deficit. It's just finally recognizing deficits that were really incurred in the past. Then the illusion will stop, because SS will become a pay-as-you go system.

Here is the big point. Over that entire span (say, from 1983 to 2033), the aggregate affect that building up and spending down the trust fund will have had on the aggregate deficit of that 50-year period will be zero. That is worth repeating. Over the span of 1983 to 2033, the aggregate affect that building up and spending down the trust fund will have had on the aggregate deficit of that 50-year period will be zero. All that will have happened is that the deficits were manipulated to look lower than they really were for the Reagan, Bush I, Clinton and Bush II presidencies, and then higher than they really will be for the Hillary Clinton, Jeb Bush, and Chelsea Clinton presidencies.

Over this 50 year period, there is absolutely no effect on the debt or the aggregate deficit due to Social Security, regardless of how you look at it.

Now you're just restating what I've been saying all along, but you seem to be trying to do it in a way that sounds like you're contradicting me?

Obviously, in years where congress borrows money from the Trust Fund, the deficit is smaller than it otherwise would have been. I've never said otherwise (and I've even said exactly that somewhere else in this thread). No one is arguing that. It's so self evident it's almost silly to have to say it. Obviously given the choice between raising taxes, reducing spending, or borrowing from the SS Trust Fund and worrying about paying it back later, Congress (and/or the President) choose to borrow the money.

But the flip-side of that coin is that congress will have to pay back that money at sometime in the future (re-read the quote above) . And in the years where that happens, it becomes an "outlay". And if the budget for that year is in a deficit, then that "outlay" contributes to the deficit. And we're back to "Social Security having to do with the deficit".

(Edit to add: This point is clarified in my post with the Treasury Report further down the page - CP)

[_cinepro]

The same principle applies to the Social Security trust fund. If the SSA cashes in a $100,000 bond, the government pays that bond, but its liabilities go down by exactly $100,000 when it does so. In aggregate, no effect on the deficit.

Third, what I said above is phrased from the perspective of accrual accounting. In accrual counting:

Profit = Cash In - Cash Out + Increase in Assets - Increase in Liabilities

So from this accrual accounting perspective, when the SSA cashes in a $100,000 bond, the government's profit goes down by $100,000 because $100,000 of cash goes out the door, but it immediately goes up by $100,000 because the liabilities go down by $100,000. The two things wash, and there is no change in profit--i.e. no change in deficit.

Oh, I also should point out one very, very important point:

The Federal Government calculates its finances using cash based accounting, not accrual based accounting.

Since this discussion is referring to the "deficit", we should probably stick with the methods that the government itself uses to calculate its surpluses and deficits. It's a little disingenuous to say "if the government used a totally different accounting system, then...."

And for the record, I heartily support the idea that the government should use accrual based accounting methods, but there is a good reason congress and the President don't want to:

Andersen’s 1986 report entitled, Sound Financial Reporting in the U.S. Government, aptly described the main difference in government accountability that occurs under a cash basis system of accounting as opposed to an accrual system:

“Given the existing practice of cash-basis budgeting and reporting, programs can be adopted and promises can be made without knowledge of their full cost. This lack of accountability creates an incentive for elected officials to curry favor with today’s voters at the expense of tomorrow’s taxpayers. This lack of accountability has long been a root cause of fiscal mismanagement within the U.S. government.”

The United States does not use the accrual basis of accounting for calculating its annual budget deficits and the resulting national debt. The Federal Accounting Standards Advisory Board has proposed hybrid-accrual standards for use in the preparation of annual U.S. Consolidated Financial Statements, but such standards do not include using traditional accrual/GAAP for reporting federal pension liabilities and obligations for Social Security and Medicare. Actuaries have estimated these obligations to be over $40 trillion, well above the outstanding current Treasury debt of nearly $16.7 trillion that is subject to the statutory debt limit.

http://thehill.com/blogs/congress-blog/ ... washington

[_ajax18]

Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits.

I have a firm faith that the politicians will raise my taxes and cut my benefits to pay to other people who might vote them into office in the future. That's what full faith in credit of the US government means.

and then higher than they really will be for the Hillary Clinton, Jeb Bush, and Chelsea Clinton presidencies.

That's the most depressing thing you've written yet, and I'm not sure Jeb Bush isn't the worst of those three.