"Social Security has nothing to do with the deficit"

[Guest]

Kevin, first you say this:

="Kevin Grahm"]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.

And then you post this (from the obviously outdated about.com article):

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.

Now we're back to where we started. You're trying to have it both ways. And keep in mind that your original contention was that "Social Security has nothing to do with the deficit", which is still obviously false. The deficit does increase when the general fund has to make payments back to Social Security (which payments are then sent out as checks to beneficiaries, at which point they become "outlays" ).

I do agree that this isn't Social Security's problem (until the Trust Fund balances get to zero). They're going to get their money back! The problem is Congress's, and ultimately the tax-payers, or the people affected by decreased spending, or future tax-payers and Congresses that have to pay back the increased public debt. But eventually it will be someone's problem.

Part of the problem in this whole conversation is that there are two basic ways to look at Social Security and the Trust Funds. Do you look at it as a separate entity from Congress, the Treasury and the General Fund, or do you lump them all together? (That goes back to the "Unified Budget" issue that Analytics was talking about.) Sometimes the government looks at it one way, and sometimes the government looks at it another way, producing different sets of numbers. Sometimes this is helpful, and sometimes it is done to obscure what is going on.

But either way, a Social Security deficit is going to add to the general deficit. It either happens when the general fund has to transfer the money back to the trust fund (looking at them separately), or it happens with the checks are sent out to beneficiaries (looking at them together). As long as Social Security is sending out real money to people, that real money is reflected in the budget. As long as the Federal Budget is run on a cash basis, this is how the deficit will work (and how Congress wants it to work, lest they have to account for the $2.7 Trillion trust fund now!)



(Obviously, the "surplus borrowed" arrow would indicate the deficit being lowered in years where there is a surplus to borrow)

[_cinepro]

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.

The OASDI trust fund isn't invested in regular Treasury Bonds. They're different, and in important ways. Do you know how they are different, and why it is important to this discussion?

[_cinepro]

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.

Perhaps this is the best note to end this conversation on. I don't think there are any more documents from the CBO, White House or Treasury for me to find, so i think this summary from the Washington Post says it best. Regarding the 2011 claim of a Representative (Bacerra) that SS didn't contribute to our debt or deficit, they say:

To some extent, this is a matter of theology.

Beccerra looks at the pile of $2.6 trillion in assets built up by Social Security, and says, correctly, that Social Security did not add to the debt; it is indeed a creditor to the United States. “I’m obviously concerned the federal government has to pay its debts, but it pales in comparison to the trillions the federal government has taken and borrowed from Social Security,” he said. (He also provided a fact sheet laying out his case.)

But others can look at the same numbers and say this is just paper-shuffling among different parts of the U.S. government. There may be a legal — and moral — obligation to make good on the benefits promised to Social Security beneficiaries, but ultimately what matters is whether the system is running a positive cash flow.

We come down somewhat in the middle on this debate. The fact that the system is running a negative cash flow now — and the foreseeable future — is an important warning sign of fiscal imbalance.

And what did the president mean when he said Social Security was “not a primary driver” of the debt?

“The Social Security Trust Fund is running a surplus, continuing to build up assets, and projected to be solvent for decades. However, the system does face a long-term shortfall,” said Kenneth Baer, senior adviser and communications director at the White House budget office. “That shortfall adds to the federal government’s overall fiscal imbalance, but it is not a primary driver of it. The President is committed to strengthening the Social Security system and eliminating that shortfall so that the Social Security system is stable and secure for generations to come.”

http://www.washingtonpost.com/blogs/fac ... _blog.html

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?

Well, the Fed created several trillion dollars out of thin air and bought up mortgage-backed securities, so that isn't really a hypothetical question (and for the record, I do believe we are in another housing "bubble" right now).

[_Analytics]

Perhaps this is the best note to end this conversation on. I don't think there are any more documents from the CBO, White House or Treasury for me to find, so i think this summary from the Washington Post says it best. Regarding the 2011 claim of a Representative (Bacerra) that SS didn't contribute to our debt or deficit, they say:

To some extent, this is a matter of theology....

For my part, I'll end by saying that I've enjoyed this conversation and appreciate your engagement. Most of the sources you linked to were excellent.

[_cinepro]

At risk of beating a dead horse (or resurrecting a dead horse), I was recently answering a question about Medicare finances, and came across this interesting statement about the Medicare trust funds in a Congressional report. To the degree that the Medicare (HI) trust fund operates similarly to the SSI trust fund, it may be relevant:

HI (Hospitalization Insurance - Medicare Part A) operates on a “pay-as-you-go” basis; the taxes paid by current workers and their employers are used to pay Part A benefits for today’s Medicare beneficiaries. When the government receives Medicare revenues (payroll taxes), income is credited by the Treasury to the HI trust fund in the form of special issue interest-bearing government securities. (Interest on these securities is also credited to the trust fund.) The tax income exchanged for these securities then goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund; this cash may be used for any government spending purpose. When payments for Medicare Part A services are made, the payments are paid out of the general treasury and a corresponding amount of securities is deleted from (written off) the HI trust fund.

In years in which the trust fund spends less than the income it receives, the trust fund securities exchanged for any income in excess of spending show up as “assets” on the financial accounting balance sheets and are available to the system to meet future obligations. The trust fund surpluses are not reserved for future Medicare benefits, but are simply bookkeeping entries that indicate how much Medicare has lent to the Treasury (or alternatively, what is owed to Medicare by the Treasury). From a unified budget perspective, these “assets” represent future budget obligations and are treated as liabilities. If the HI trust fund is not able to pay all of current expenses out of current income and accumulated trust fund assets, it is considered to be insolvent.
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http://greenbook.waysandmeans.house.gov ... 2_gb_0.pdf

[_Kevin Graham]

The whole point to the Republican attack on Social Security and their argument for getting rid of it, is that it doesn't work as is and that it is bankrupting the nation. This has been shown to be wrong on all levels. First of all, Social Security has worked as intended and it has kept millions of elderly folks out of poverty since its inception. This is just a fact. Maybe you don't believe saving lives and keeping elderly out of poverty is something the government should be involved in, but that is really beside the point that the program works as intended.

The quibble about whether or not it "adds to the deficit" is intended to imply that it is a drain on taxpayers and is a waste. But the program has since taken in over $2.5 trillion more than what it has paid out in benefits for its first eight decades. That's pretty damned impressive. Now, if the powers that be are playing a shell game with the different funds - effectively showing a change in the deficit- well that isn't the fault of Social Security. So Republicans are back to square one, needing to come up with a serious argument that has merit.