"Social Security has nothing to do with the deficit"

[Guest]

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've said that exact same thing at least twice in this thread. But I'm not sure why you find it "interesting". The fact that someone who incurs a debt receives the money at one point, and then is expected to pay it back at a future point, is pretty basic. (Edit to add: This point is clarified in my post with the Treasury Report further down the page - CP)

Obviously if you look at the entire period from when an entity incurs a debt and then pays it back, you're going to see an increase in cash at the start, a decrease at the end, and the numbers will be pretty similar, less interest and expenses. But that's not how the government has ever calculated the "deficit". The budget deficit, as far as I can tell, is always referring to a specific fiscal year. So for FY 2013, Social Security most certainly did have to do with the deficit. If you are going to introduce a novel and radically different definition for calculating such things, you should probably be up front about that.

The point is that we are now in the in-between period of this cycle. Congress has borrowed $2.7 Trillion from the Trust Fund, and that will become due over the next few decades. And in the years where SS is short and needs to get money back from Congress, that will contribute to the deficit.

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."

First, I think President Obama was telling the truth.

As for Reagan, regarding the general principle of whether it is possible for SS "to do" with the deficit, he is definitely lying or mistaken, since I think it's fairly well established that SS shortfalls need to be accounted for in the budget.

I think the only difference is that in 1983, Social Security was still running a surplus (and would for quite some time - see chart above), so from the perspective of President Reagan in 1983, talking to voters about the upcoming years' budgets, certainly social security had nothing to do with any deficits (except maybe by lowering the deficits to the degree that congress uses the surpluses...?)

If we were having this conversation in 2007, it would be totally different. I would arguing that SS could add to the deficit if there were ever a shortfall and they had to draw on the "Trust Fund" account and get money from congress, and you would be arguing that it's never happened before, and even if it's theoretically possible, it certainly isn't true at that point. And you would be right (unless we got into a discussion of whether SS was reducing the deficit...)

But it's 2015, and we've had four years of SS deficits, so that ship has sailed. Things look very different to President Obama (and whoever the next President is).

[_cinepro]

Okay, I think I found the best official explanation of what's going on. I just couldn't find a simple, authoritative report showing exactly how the money flowed from the Trust Fund to the general fund (and then gets spent by Congress).

But I finally found it. This is a 2009 report from the Treasury Department called "Budget Trust Fund Perspectives".

http://www.treasury.gov/resource-center ... s_2009.pdf

When the trust funds loan excess revenue to the general fund, they in turn receive additional authority to spend on benefits and other program expenses. (This additional authority takes the form of an increase in the assets in the trust fund and an increase in liability for the general fund.) The general fund, in turn, has taken on the obligation of repaying the principal of those loans with interest when trust fund income falls below expenditures—the loans will be called in and the general fund will have to reduce other spending, raise taxes or borrow more from the public to make the payments to the trust funds.


http://www.treasury.gov/resource-center ... s_2009.pdf

The report goes on to describe exactly how it worked for FY 2008. It goes into greater detail showing how (as discussed above), surplusses in this account can work to lower the deficit in good years (at the cost of needing to be paid back in future bad years):

From the government-wide (budget) perspective only earmarked revenues received from the public –– payroll and benefit taxes, premiums, and other taxes, fees and payments –– and expenditures made to the public are important for the final balance. For HI [Medicare], the difference between such revenues ($213.2 billion) and total expenditures made to the public ($230.2 billion) was a $17.1 billion deficit in 2008, indicating that HI increased the overall budget deficit in that year. For the SMI [another Medicare] account, revenues from the public (primarily premiums) in 2008 fell short of total expenditures to the public by $163.6 billion, resulting in a net draw on the overall budget balance in that year.

For OASDI [Social Security and Disability], the difference between revenues from the public ($689.0 billion) and total expenditures ($617.0 billion) was $71.9 billion in 2008, indicating that OASDI had a positive effect on the overall budget in that year. In sum, from the budget perspective, OASDI made a positive contribution to the budget, HI had a moderately negative impact, and SMI made a substantial draw on the budget. On net the three programs contributed $108.7 billion ($71.9 - $17.1 - $163.6, respectively) to the 2008 unified budget deficit of $454.8 billion.

So there you have a clear, unambiguously worded statement in a report from the Treasury Department explaining exactly how the Medicare and Social Security Trust Funds have "to do" with the federal deficit (either making it lower or higher in any given fiscal year). If that's not good enough for those who would suggest there isn't such a link, I don't know what else you can ask for...

Here's a diagram from the report showing how money flows from the trust funds to the general fund (the red circles). The arrows going out of the general fund back to the Trust Funds would be how the Trust Funds contribute to increasing the deficit.

[_cinepro]

DP

[_EAllusion]

Cinepro -

I think Kevin is trying to argue that you aren't acknowledging the benefits of the social security program insofar as it acted as a deficit reduction contributor to the federal budget. To that, the more appropriate response is that this happened through a highly regressive payroll tax, which is not something anyone should favor if the objective simply was to bring down the budgetary deficit. There are other ways to finance federal expenses if they ought to exist.

[_Kevin Graham]

I think Kevin is trying to argue that you aren't acknowledging the benefits of the social security program insofar as it acted as a deficit reduction contributor to the federal budget.

Yep. But I think Analytics addressed it best when he showed that paying back Social Security from the general fund ends up being a wash as far as the overall debt is concerned. It would be like taking out a second mortgage to pay off all your credit card and student loan debt. Your overall debt is still the same, and all you really did was consolidate it and shift money around. I seems cinepro is basically saying that because this technically creates a "deficit" for your checking account that year, he wins a semantic battle and I end up "looking foolish." But budget deficits are only meaningful to the extent that they affect the national debt, and it is clear that in the context of Social Security, the debt is not affected.

The title of this thread is a direct quote from Ronald Reagan and so that's the reason I chose it. And it was intended to be a continuation from where Droopy left off some while back, though I'm having trouble locating the thread at the moment. He essentially blamed Social Security as the primary driver of our national debt. I

And this is really what I was trying to address, because Republicans have been making this argument for many, many years now. I remember hearing it (and believing it) when I was a die hard conservative back in the mid-90s. But the so-called Social Security deficits have only been happening the past couple of years, and even this is only true if you exclude the interest received. The program has generated nearly $3 trillion in funding for the government and this is something Republicans don't seem to acknowledge. Ever. For them it is all about government programs being failures from start to finish and the revenues are just meaningless IOUs, etc.

[_Analytics]

cinepro,

As I've said repeatedly now, whether or not Social Security "contributes to the deficit" depends upon how you look at it. From one perspective, it reduced the deficit for several years and will then add to the deficit for several years, but that over that entire time period, the surpluses and deficits will cancel each other out, with an aggregate zero deficit over the entire 50-year period.

From another perspective, the law clearly says that the Social Security program is "off budget." If you look at it from this perspective and treat it as its own self-funded entity as the law requires, it doesn't affect the deficit of the rest of the government. In fact, on a stand-alone basis it has a $2.7 billion surplus which is invested in the safest assets in the world. Further, by law this self-funded entity cannot go into debt and must reduce benefits if it becomes necessary to stay out of debt.

Both perspectives are legitimate and pointing to the differences doesn't indicate that one is right and the other is wrong. As far as I can tell you understand the first perspective, but don't seem to understand the second perspective.

That's where I'm coming from. I'll just respond to a few points.

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.

You were doing well until you said "but". Paying off the debt isn't an "outlay" either. Think about it. If I made $100k this year, and had $70k in expenses and used the remaining $30k to pay off my personal debt, would you say the following?

Surplus (Deficit) = Receipts - Outlays = $100k - $70k - $30k = 0

Of course not. You'd say that the year I paid off the $30k in debt I had a surplus of $30k. Paying back debt isn't an outlay.

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".

In the quote above, the first sentence is true, but the rest of it is false. Paying off debt isn't an outlay, regardless of whether it is paid with surplus or paid by refinancing. Those are the rules of the government's cash-based accounting.

[_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.

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...."

Racking-up debt or paying-down debt doesn't effect deficits. This is true in accrual-based accounting and cash-based accounting. I brought up accrual-based accounting because I was explaining the basic principle in terms of accrual-based accounting. In cash-based accounting, payments used to pay off debt don't count as "outlays."

[_Analytics]

Okay, I think I found the best official explanation of what's going on....

http://www.treasury.gov/resource-center ... s_2009.pdf

Thanks for linking to this. Note that the document talks about multiple perspectives, including the "trust-fund perspective" and the "government-wide perspective." In this thread I've primarily been trying to explain what the "trust-fund perspective" is, but I've always acknowledged the "government-wide perspective" exists and is also a valid perspective.

As far as I can recall, the only discrepancy you'll see between what I've said and what this paper says is whether the term "unified budget" should include Social Security or not. This paper defines "unified budget" as including Social Security, and I've quoted the SSA as saying that legally, the "unified budget" excludes Social Security. But that's just nomenclature.

[_Analytics]

The point is that we are now in the in-between period of this cycle. Congress has borrowed $2.7 Trillion from the Trust Fund, and that will become due over the next few decades. And in the years where SS is short and needs to get money back from Congress, that will contribute to the deficit.

The part you italicized is false. Let me know if you would like to further discuss.

edit to add: From a "unified budget perspective" social security benefit payments being higher than social security receipts is what contributes to the "unified budget deficit" in those years--not the act of paying back the trust fund.

From a "trust fund perspective", there is no effect on the deficit.

[_Analytics]

The point is that we are now in the in-between period of this cycle. Congress has borrowed $2.7 Trillion from the Trust Fund, and that will become due over the next few decades. And in the years where SS is short and needs to get money back from Congress, that will contribute to the deficit.

Just to make sure I understand your point, can you explain what you meant by, "Congress has borrowed $2.7 Trillion from the Trust Fund." It sort of sounds like you are implying that this was a decision Congress made after the fact, and that this decision leaves the trust fund with government IOU's as assets rather than real money. Is that what you are saying?