"Social Security has nothing to do with the deficit"

[_cinepro]

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.

Uh, the bolded part is totally true*, and is exactly what I've been arguing for this whole thread. So at least we agree that Social Security "contributes to the unified budget deficit" (in the years it has a shortfall).

Now you just need to convince Kevin.

*Although I'm not sure why it's qualified with the comment about "the act of paying back the trust fund." The Trust Fund is simply the account through which the money flows, as shown in the flowchart above. Congress can write a check to the Trust Fund, to the Social Security administration, or Harry Reid could sit down and write out individual checks to all the beneficiaries...it's all the same in the end.

[_cinepro]

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?

Well, I can definitely say I agree with these two statements from the 2000 budget and Treasury department 100%.

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

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

It's my understanding that the "Trust Fund" is represented in the form of non-negotiable, non-marketable Treasury bonds that are "special issue" and not like regular bonds. This means that the Social Security administration can only redeem them from one place (the Treasury), and their redemption must be funded by Congress.

It is also my understanding that these bonds represent surplus money that has been "deposited" by the Social Security administration, and then otherwise spent by Congress in the general fund. So no, the actual account doesn't have any "real money", at least as I understand what you might mean by "real money." Obviously, since it's a term you just made up, you could define "real money" as "the stuff that's in the SS Trust Fund" and then the Trust Fund would have "real money" in it.

The good news for retirees is that Congress will always be good for the face value of the bond, and will get the money through some combination of raising taxes, reducing spending, borrowing from the public, or printing it*.

The bad news for non-retirees is that Congress will always be compelled to pay the face value of the bond, and will get the money through some combination of raising taxes, reducing spending, borrowing from the public, or printing it.

Whether or not that is a problem, and how to deal with the problem, is where we leave the realm of math and public accounting and get into politics.

*The Fed could be given power to buy the bonds with newly created money, similar to how it has bought mortgage securities using newly created money these past few years.

[_Analytics]

Well, I can definitely say I agree with these two statements from the 2000 budget and Treasury department 100%.

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

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

It's my understanding that the "Trust Fund" is represented in the form of non-negotiable, non-marketable Treasury bonds that are "special issue" and not like regular bonds. This means that the Social Security administration can only redeem them from one place (the Treasury), and their redemption must be funded by Congress.

It is also my understanding that these bonds represent surplus money that has been "deposited" by the Social Security administration, and then otherwise spent by Congress in the general fund. So no, the actual account doesn't have any "real money", at least as I understand what you might mean by "real money." Obviously, since it's a term you just made up, you could define "real money" as "the stuff that's in the SS Trust Fund" and then the Trust Fund would have "real money" in it.

With regards to the "unified budget perspective" we are basically on the same page. I don't think we agree about the trust fund perspective, though.

With regards to the first quote that you 100% agree with, I suspect we understand differently what the author means by "real economic assets." I get the impression you think that "real economic assets" were collected in SS taxes and deposited into the Trust Fund, which were then exchanged for something other than "real economic assets."

So while we both agree with that quote, I suspect we understand differently what it means. Let me know if you'd like to discuss further.

[_Analytics]

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.

Uh, the bolded part is totally true*, and is exactly what I've been arguing for this whole thread. So at least we agree that Social Security "contributes to the unified budget deficit" (in the years it has a shortfall).

Now you just need to convince Kevin.

*Although I'm not sure why it's qualified with the comment about "the act of paying back the trust fund." The Trust Fund is simply the account through which the money flows, as shown in the flowchart above. Congress can write a check to the Trust Fund, to the Social Security administration, or Harry Reid could sit down and write out individual checks to all the beneficiaries...it's all the same in the end.

The reason why "the act of paying back the trust fund" doesn't contribute to the deficit is because "the act of paying back the trust fund" isn't a an outlay. From
page 176 of the US Office of Management and Budget Handbook - Adminstrative, Management and Budgeting Strategies

Outlay means a payment to liquidate an obligation (other than the repayment to the Treasury of debt principal).

https://books.google.com.mx/books?id=Ni ... &q&f=false

[_cinepro]

I just read a good article by an economist with the SSA who addresses the issue of whether or not the trust fund is "real", so I'm deleting my previous post and replacing it with the conclusion from the article:

The OASDI reserves are an account on the books at the Department of Treasury, and the OASDI cash transactions (revenues dedicated to the OASDI trust funds and benefit payments drawn from the funds) are merged with the Treasury's cash transactions for the rest of the government. The reserves are in effect borrowed for a time by the rest of the government, and then repaid with interest when the trust funds need them back. The results, in the end, are essentially the same as they would be if the trust funds were maintained entirely independently of the rest of the government, investing the surplus revenues on the open market. The trust funds do not gain or lose by the arrangement, and the management of the cash flows is simplified considerably.

The arrangement also has little direct effect on the rest of the government. The publicly held debt is reduced during the period the reserves have been borrowed, and the cash interest payments to the public are reduced as well. However, the total general account debt, taking into account both the amounts owed to the public and the amounts owed to the trust funds, is unaffected, as is the total interest paid. Although some analysts have argued that there might be an indirect effect—if trust fund surpluses mask and thereby encourage larger general account deficits—the evidence for such an effect is inconclusive. Even if such an induced increase in general account debt and interest payments exists, those increases would be directly attributable to the postponed financing of general account expenditures, not to the OASDI surpluses themselves.

When the general account budget and the OASDI trust fund budget are consolidated under the unified budget framework, any trust fund surplus reduces the consolidated budget deficit to a level below that of the general account deficit, just as the borrowed trust fund reserves reduce publicly held debt below the level of general account debt. An important implication of the self-financing status of the OASDI trust funds is that this reduction in the consolidated budget deficit does not ultimately ease the financing of the general account debt. Any addition to the trust fund surplus (and any reduction in future trust fund deficits) adds only to the trust fund reserves. The financing of the general account debt must ultimately come from changes in general account revenues and expenditures.

http://www.ssa.gov/policy/docs/ssb/v75n ... .html#mt30

It's a good article overall, and I think he makes some interesting points. His ultimate point is that the Trust Fund is, at its simplest, a delay mechanism that allows the Treasury to put off future public debt (i.e. instead of issuing $100 B in public debt, it can borrow from the Trust Fund). So when the SSA needs the money back, the Treasury can then issue public debt if it needs to.

That's obviously what my two favorite quotes in this thread have been saying all along (that the Trust Funds will have to be paid back with more taxes, less spending, or borrowing), but if you look at it as if the money would have been borrowed anyway, I guess it's easier to see it as a wash. But that also supports the "kicking the can down the road" complaint about how the money is being spent now with the idea that it will be someone else's problem to pay it back in the future.

So looking at it from the assumption that anything that was borrowed from the Trust Fund just would have been paid for with public debt anyway, I can see the argument that it doesn't make a difference. But it's more of a "we're screwed either way" argument, not a "everything's okay" argument.

[_Kevin Graham]

Now you just need to convince Kevin.

Oh so that's how you're going to play this? As if he's arguing with me and not you?

I know you have a lot to live up to in this thread after making comments like this:

"Kevin, at some point your insistence on this tumbles into willful delusion, and you're only going to end up looking foolish."

You initially thought no economist or expert would agree with me until I quoted them, at which point you referred to experts on both sides as "dueling ideologues." And as far as I can tell, Roger doesn't disagree with anything I've said and the only person being schooled on this subject is you. My overall point still remains, that Social Security does not add one penny to our debt. The reason I brought it up is because it flies in the face of decades of Right Wing fear-mongering about how entitlements are driving up our debt to almost $20 trillion. They like to add up the outlays but ignore the trillions in revenue surpluses we've been accumulating for thirty years.

The simple fact is you don't accrue debt by paying off your debt. This isn't so much a matter of talking past one another as it your failure to grasp basic math. Analytics explained, "The reason why the act of paying back the trust fund doesn't contribute to the deficit is because the act of paying back the trust fund isn't a an outlay."

He can't really simplify it more than this. If it isn't an outlay, it is deficit neutral.

[_Analytics]

Just to explain where I’m coming from on this issue, here are some more points.

Social Security taxes should be a Republican’s wet dream. Starting at your very first dollar, 12.4% of your gross income goes to Social Security (half of that amount is hidden from you because the employer doesn’t report it as part of your gross income).

But there is an upper-limit on this. Once you’ve earned $118,500 in a year, you don’t have to pay another dime into Social Security for the rest of the year. An engineer who makes $120k, a surgeon that makes $500k, and a hedge-fund manager that makes $10 million all pay exactly the same Social Security tax: $14,694. The fact that a janitor who makes $30k a year pays 12.4% of his income into this system and Mitt Romney pays something on the order of 0.07% of his income into this shows how regressive this tax is. The apologists for the ultra-wealthy like to talk about how people who make over $250k pay 45% of the total income tax collected. However, people who make less than $250k pay something like 90% of the Social Security tax collected.

The rationalization for this extremely regressive tax structure is that Social Security is a Social Insurance system. Since there is a relatively modest cap to the monthly Social Security benefit you can receive, there is a relatively modest cap to the Social Security tax you have to pay. This is a program that is funded by workers to provide retirement benefits to workers.

By law, every penny collected by Social Security is used to pay Social Security benefits. If the program has a positive cash flow, the excess is invested in the Social Security trust fund. By law, the only funds available to pay for benefits are the money in the trust fund and current Social Security receipts. The money in the trust is prudently managed and invested in the safest interest-bearing securities on the planet--U.S. government bonds. If the fund runs dry and current Social Security receipts aren’t enough to pay benefits, by law benefits are cut to keep the system from going into debt. These are all good things, right?

There are two things that are putting stress on the system. First, people are living much longer. Second, they are having fewer kids. We realized 35 years ago that in order to keep the system fair and solvent, a large insurance premium rate increase (i.e. tax increase) was needed; the generations that were going to receive Social Security benefits for a much longer average time were asked to pay much more into taxes. Having them pre-fund their benefits rather than making their kids pay the bill is called called “inter-generational equity.” In other words, rather than making the baby boomers pay only the small tax needed to fund the small group of previous retirees who were dying relatively young, they were asked to pony up and pay an amount commensurate with the benefits they were going to receive. This is a good thing, right?

An honest attempt at increasing intergeneration equity and demographic realities causes there to be a large Social Security Trust fund. Because the money in the fund was paid by workers for specific disability and retirement benefit of workers, it inherently discrete than the rest of the “unified budget.” While it’s true that the treasury needs to deal with the issues across the unified budget, it’s misleading to point to the effect that Social Security has on the unified budget and imply that the system is doing something bad by “contributing to the deficit.”

[_Analytics]

It's a good article overall, and I think he makes some interesting points. His ultimate point is that the Trust Fund is, at its simplest, a delay mechanism that allows the Treasury to put off future public debt (i.e. instead of issuing $100 B in public debt, it can borrow from the Trust Fund). So when the SSA needs the money back, the Treasury can then issue public debt if it needs to.

That's obviously what my two favorite quotes in this thread have been saying all along (that the Trust Funds will have to be paid back with more taxes, less spending, or borrowing), but if you look at it as if the money would have been borrowed anyway, I guess it's easier to see it as a wash. But that also supports the "kicking the can down the road" complaint about how the money is being spent now with the idea that it will be someone else's problem to pay it back in the future.

So looking at it from the assumption that anything that was borrowed from the Trust Fund just would have been paid for with public debt anyway, I can see the argument that it doesn't make a difference. But it's more of a "we're screwed either way" argument, not a "everything's okay" argument.

I italicized the part of this that I take issue with. You seem to be complaining that "the money is being spent now" rather than being saved. From a macro-economic perspective, this does not make sense--the only way to save money is to give it to somebody to "spend now" with a contractual obligation to then pay it back later.

If we lived in an alternate reality where the federal government wasn't in debt and had no need to borrow $2.7 trillion, then the Social Security trust fund in all likelihood would be invested in things like Fannie Mae mortgage-backed securities. That might be a better situation, but would that infusion of capital cause a housing bubble?

In any case, there has to be a macro-economic balance where across the economy, total savings equals total borrowing. You seem to be complaining about this rather than recognizing it an unavoidable reality.

[_Kevin Graham]

If we lived in an alternate reality where the federal government wasn't in debt and had no need to borrow $2.7 trillion, then the Social Security trust fund in all likelihood would be invested in things like Fannie Mae mortgage-backed securities. That might be a better situation, but would that infusion of capital cause a housing bubble?

That's a great point. They're not going to just put $2.7 trillion in cash somewhere in a piggy bank. They're going to invest it the safest way possible. Treasury bonds.

[_Kevin Graham]

Who Owns the U.S. National Debt?

The Biggest Owner Is You!

The U.S. debt is more than $18 trillion. Most headlines focus on how much the U.S. owes China, which is one of the largest foreign owners. However, the biggest owner is actually the Social Security Trust Fund, a.k.a. your retirement money. How does that work, and what does it mean?

The Debt Is in Two Categories

Intragovernmental Holdings - Nearly 30% of the Federal debt is owed to about 230 other Federal agencies. Why would the government owe money to itself? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need right now. Rather than stick this cash under a giant mattress, they buy U.S. Treasuries with it.This effectively transfers their excess cash to the general fund, where it can be spent. Of course, one day they will redeem their Treasury notes for cash. The Federal government will either need to raise taxes, or issue more debt, to give the agencies the cash they will need. Which agencies own the most Treasuries? Social Security, by a long shot. Here's the detailed breakdown (as of September 30, 2014):

Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) - $2.783 trillion

Office of Personnel Management Retirement - $924 billion

Military Retirement Fund - $483 billion

Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) - $270 billion

All Other Retirement Funds - $117 billion

Cash on Hand to Fund Federal Government Operations - $463 billion. (Source: Treasury Bulletin, Monthly Treasury Statement; Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities, September 2014)

Debt Held by the Public - Foreign governments and investors hold about half of the nation's public debt. A little over one-fifth is held by other governmental entities, like the Federal Reserve and state and local governments. Fifteen percent is held by mutual funds, private pension funds, savings bonds or individual Treasury notes. The rest is held by businesses, like banks, and insurance companies and a mish-mash of trusts, businesses and investors. Here's the breakout:

Foreign - $6.013 trillion

Federal Reserve - $2.461 trillion

Mutual Funds - $1.033 trillion

State and Local Government, including their pension funds - $818 billion

Private Pension Funds - $506 billion

Banks - $407 billion

Insurance Companies - $269 billion

U.S. Savings Bonds - $177 billion

Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.115 billion.(Sources: Federal Reserve, Factors Affecting Reserve Balance, January 2, 2015. Treasury Bulletin, Ownership of Federal Securities, Table OFS-2, as of September 2014)

This debt is not only in Treasury bills, notes, and bonds but also TIPS and special State and Local Government Series securities.

As you can see, if you add up debt held by Social Security, and all the retirement and pension funds, nearly half of the U.S. Treasury debt is held in trust for your retirement. If the United States defaults on its debt, foreign investors would be angry, but current and future retirees would be hurt the most.