Why we don’t need to repay Social Security principal
{Cross posted from dKos Social Security Defenders group. Some parts will be pretty familiar to AB readers}
You may have to bear with me here. Because very few people have seriously examined what a solvent Social Security system would actually look like. One of those that has is (thankfully) Steve Goss, the Chief Actuary of Social Security, who last year wrote what may be the single most important article on Social Security that I have ever read. It was included in the 75th Anniversary edition of the Social Security Bulletin under the title The Future Financial Status of the Social Security Program
The whole thing is important but I want to focus on and then unpack the following passage, because the implications are simply transformational.
However, the occurrence of a negative cash flow, when tax revenue alone is insufficient to pay full scheduled benefits, does not necessarily mean that the trust funds are moving toward exhaustion. In fact, in a perfectly pay-as-you-go (PAYGO) financing approach, with the assets in the trust fund maintained consistently at the level of a “contingency reserve” targeted at one year’s cost for the program, the program might well be in a position of having negative cash flow on a permanent basis. This would occur when the interest rate on the trust fund assets is greater than the rate of growth in program cost. In this case, interest on the trust fund assets would be more than enough to grow the assets as fast as program cost, leaving some of the interest available to augment current tax revenue to meet current cost. Under the trustees’ current intermediate assumptions, the long-term average real interest rate is assumed at 2.9 percent, and real growth of OASDI program cost (growth in excess of price inflation) is projected to average about 1.6 percent from 2030 to 2080. Thus, if program modifications are made to maintain a consistent level of trust fund assets in the future, interest on those assets would generally augment current tax income in the payment of scheduled benefits.
Let’s start with this phrase: “assets in the trust fund maintained consistently at the level of a “contingency reserve” targeted at one year’s cost for the program”. The Trust Funds individually and combined are considered in ‘actuarial balance’ if they reach year’s end with a balance equal to the next year’s projected cost. If they are projected to meet this test for the next ten years they are considered to be in ‘short term actuarial balance’, if they are projected to meet it for the next 75 years they are considered to be in ‘long term actuarial balance’.
Simple enough but it gives us an odd result. For example if we look at the following table from the 2010 Report Table VI.F9.—OASDI and HI Annual Income Excluding Interest, Cost, and Balance in Current Dollars, Calendar Years 2010-85 we can see the Social Security Cost is projected to increase every year in nominal terms until it ultimately reaches $27 TRILLION a year. Not to panic though this still remains the same percentage of projected GDP after 2030 at around 5.8%, the combination of real economic growth and inflation simply making for eye-popping numbers. But equally it means that for Social Security to reach the end goal of ‘sustainable solvency’ which in Goss’s definition requires it to be in ‘long term actuarial balance’ with the tail trending upwards, the Trust Fund year end balance would need to increase at at least the rate of Cost growth. Which in the case of what Goss calls a “perfectly pay-as-you-go (PAYGO) financing approach” means rolling over the ENTIRE principal each year and augmenting it with enough of the accrued interest to maintain that one year of Cost in reserve, or in Social Security lingo a Trust Fund Ratio of 100.
Which gets us to the point in the title of the diary, once Social Security is ‘fixed’ one way or another there will be no need to redeem the principal in the Trust Fund. This doesn’t mean it becomes irrelevant, those assets still being available to perform their primary function as a reserve in times of temporary slowdown in revenues, and being a real obligation to Treasury in that they will still be earning interest but, and this is a key point, only a portion of that interest has to come in form of cash, the rest simply coming in the form of newly issued Special Treasuries in the amount needed to augment existing principal to reach a continuing TF Ratio of 100. Or as Goss puts it “In this case, interest on the trust fund assets would be more than enough to grow the assets as fast as program cost, leaving some of the interest available to augment current tax revenue to meet current cost.”
Under this ideal scenario the Trust Fund becomes an interest only loan and with a discount on that interest to boot as part of it is simply credited to principal in the form of Special Treasuries that are not financed in the normal sense, simply being instruments backed by Full Faith and Credit if and when they were ever needed.
Of course we are not in a Pay-Go status long term, although the combined OASDI Trust Funds meet the Trustees’ test for ‘short term actuarial balance’ and then some, current projections under the Intermediate Cost projection show the TF Ratio falling from a peak of 403 in 2012 downs to 110 in 2035 meaning actuarial imbalance starting in 2036. Table IV.B3.—Trust Fund Ratios, Calendar Years 2010-85 Which by extension means failing the ten year ‘short term actuarial test’ in 2027, or a dozen years before the actual crisis point of Trust Fund Depletion and benefit cuts. Which on a practical basis gives us all the years between now and 2026 to thoughtfully plan a fix, it is not like 1983 when TF ratios were already sitting weeks from zero. Now THAT was a crisis, today’s situation is not remotely similar.
So we don’t need to let this debate devolve down to “we can’t afford to pay back what we borrowed” vs “the hell you say! That’s our money you are stealing!!”. After all if the capitalists don’t want to pay down that principal they don’t have to, they just need to accept very modest increases in revenue sufficient to restore the system to Pay-Go status, an amount currently projected at just under 2% of payroll. (Or if they can, make the case why the current schedule of benefits is in fact too generous on its own terms.) After that they only have to commit to servicing a portion of Trust Fund interest in cash. Or to repack it:
In fact, in a perfectly pay-as-you-go (PAYGO) financing approach, with the assets in the trust fund maintained consistently at the level of a “contingency reserve” targeted at one year’s cost for the program, the program might well be in a position of having negative cash flow on a permanent basis.
Note that if only 1.3 points of that 2.9% real interest rate needs to be paid in cash with the rest retained in the forms of Special Treasuries in real world terms the TF is taking a paper haircut of 55%.
Plus under the NW Plan all of the increased costs in the meantime are paid by the workers (and perhaps their employers). Leaving the MOTUs with a heavily discounted interest-only loan in perpetuity. They are bitching why?
Not to sound like Krugman, but I pointed out the permananent negative cash flow (using other words) years ago. In my head I have always used 5 percent, but I missed the year over year growth, so I will revise my thinking there.
Why do you say the interest rate is discounted? It is taken at an average over recent treasury rates, so it should be a pretty good estimate for an undiscounted rate.
The time to start changing rates is when the TF starts reducing, a couple of years before we lose short term actuarial balance. Much as I hate analogies, it is at the point when we can see over the top. Now is NOT the right time to even propose hard rates (as opposed to triggered rates) because during a downturn forecasts are systematically pessimistic.
Bruce, my estimate for 2011 will have SS shortfall +at ~$161B. All of that must be borrowed, but 2/3s is from the 2% FICA holiday. To make SS Pay-Go with zero borrowing (not adding to the “actual” deficit) we need to add back the 2% plus another .5% each side (wage earner and employer). To keep it in that status we need some small jiggering of FICA and/or benefits.
Drawing down interest will not stop the borrowing (adding to the “actual” deficit) until we improve employment and/or the economy.
One other thought comes to mind. There is some risk that once we make the “SSTF principal” safe, Congress could just write it off to lower overall debt. A political move, clearly, but not out of the realm of possibility in these times with the emphasis on deficits and debt.
CoRev,
The treasury is borrowing something like $500B in 2011 to pay for the wars, and readying for the next Task Force Smith, buying overrunning, under performing late, good thing they are not needed weapons. How does this implication that the treasury, might need to borrow to pay out interest payments to the SSTF affect the tea party stance of the government keeping their hands off their medicare and SS?
Check out: http://www.interfluidity.com/v2/1272.html From Economists’ View links for the date.
One other thought, let the US congress legislate a default on any obligation……………
See where that takes the US.
Really ! How Profound. Everything is OK. We don’t need that 4.5 trillion they took from the trust fund. Trust fund my ass. There is no trust and there is no fund. You insult me and anybody else that tells me this will all be OK.
To put it even more simply:
The trust fund is arithmetically meaningless. (Though it’s rhetorically and politically important [though arguably it shouldn’t be].)
It simply doesn’t matter whether inflows and outflows pass through the trust fund one their way in and out, or are simply collected and disbursed by the general fund. The end result for the unified budget is the same.
So eradicate the damn thing, and raise taxes by 0.6% of GDP (as you say, about 2% of payroll) — which coincidentally is exactly what would be raised if we removed the income cap on contributions.
This would have the virtue of moving our total tax system (local, state, fed combined) towards actually *being* progressive above about $60K a year in income. (It’s not now.)
I’d rather see something even more progressive, and something that taxes unearned income more highly than earned income that people presumably work for, producing stuff that’s valuable to humans, but…
ILSM, the 2012 budget expects to borrow some what near ~$1.5T. Most of which will be for entitlements, with ~$50B – ~$160B for SS. How does that 2 to 1 ratio of mandatory entitlement spending to discretionary military affect the liberal stance of we borrow and spend more to prove Dems are fair and more caring?
The US congress will not legislate a default, but they very well could legislate a write down/off of the SSTF principal. As far as that goes they could do the same for all TFs. Who would care? Spending for their recipients would continue.
Jim
it would be hard to insult you. you are so proud of your ignorance.
Steve
fine if you don’t care about details and unwanted side effects.
the trust fund is “arithmetically meaningless” only if you don’t understand arithmetic and don’t care about legal chains of ownership.
since Social Security is not a tax, turning it into a more progressive tax would be a regressive move.
Arne,
yep.
and darn, not to sound like… but I too pointed out the permanent negative cash flow… but missed the year over year growth. damn.
I wonder if the trust fund ratio were set at a smaller number would the interest just match the needed growth, and save the treasury any cash flow to SS at all?
there is nothing magic about the One Year’s Benefits reserve. One Year of Benefits in Reserve ought to last something like ten years of “normal” recession level unemployment.
on the other hand, if Treasury is going to borrow money from anyone, it might as well borrow from SS.
Even a permanent interest only loan cash flow is “saving” Treasury the cost of repaying the loan, so it might be worth the yearly cost.
CoRev,
I have been getting back to basics this weekend. I am reading a synopsis of Adam Smiths Inquiries into the Wealth of Nations. Seems he felt the wealth should be the summing of the wealth of households, not the top oners.
That is for starts then he disposes of merchantilism and demands a free market where the invisible hand is not mucked with by the “Establishment”.
But to your question.
“How does that 2 to 1 ratio of mandatory ……………………”
Mandatory entitlement, required, legislated, which collected excesses to the tune of 2.4T, how many redundancies about those SS outlays do you want to roll on?
The US entitlements to discretionary spending ratio should be 8:1. In Germany and the UK discretionary spending is 10% of outlays, they not having bloated military industrial complexes and other forms of corporate welfare.
Besides even cashing interest both SS and Medicare are like 80% funded by current collections of payroll taxes.
There is no dedicated funding for the military industrial complex and no one will raise taxes on the memebrs of the Establishment for discretionary spending.
The Establishment demands those excessive discretionary spending and other things that take away from the wealth of the 98% of households. Mises, hayek and all would be better served to understand that Smith was not talking about a place filled with apprenticeships, insurance scams, monopolies and trusts with a interfering treasury and tooo big to fail banks working for the Establishment.
The congress will do what the Establsihment tells it.
coberly,
There is no math in ideology.
Steve/Jim are anti New Deal, nothing there to debate.
Anti Adam Smith too, but that goes with anti new deal which was implemented to save capitalism.
To them the wealth of the nation is accrued to an establishment few, not the many.
CoRev,
I have been getting back to basics this weekend. I am reading a synopsis of Adam Smiths Inquiries into the Wealth of Nations. Seems he felt the wealth should be the summing of the wealth of the nation’s households, not the only top oners.
That is for starts then he disposes of merchantilism and demands a free market where the invisible hand is not mucked with by the “Establishment”.
“How does that 2 to 1 ratio of mandatory ……………………”
The US entitlements to discretionary spending ratio should be 8:1. In Germany and the UK discretionary spending is 10% of outlays, they not having bloated military industrial complexes and other forms of corporate welfare.
Besides even cashing interest both SS and Medicare are like 85% funded by current collections of payroll taxes.
Well yes and no. Steve is not wrong conceptually, but Coberly is hinting at the untrustworthy group that makes up the US Congress at any point in time. So we do need to keep the budgets un-unified as current legislation relating to the budgets requires.
On the other hand what Steve says about the need to raise taxes on the upper reaches of the income distribution is morally correct if politically unlikely. Forget the concept of a progressive tax system. It isn’t going to sell in Peoria. What is more significant is that those who benefit most from our government and economy are not paying for the benefit advantage that they enjoy. That needs to be the message in regards to the general budget and the income tax structure. Those who benefit the most from government activity, which includes our economic system, should be paying the cost of sustaining that government and all of its activities.
Bruce:
Forgone conclusion if we do so. However, lets just fund SS this time instead of every other gov. program
Coberly:
> legal chains of ownership.
>since Social Security is not a tax, turning it into a more progressive tax would be a regressive move.
Thanks for demonstrating my parenthetical point. The trust fund is certainly important rhetorically and politically. (Legally is a stretch.) Would be foolish to deny that.
Jack, totally agree on your recommended rhetorical position. I should probably keep my mouth shut cause my arithmetical point undercuts your rhetorical one.
Steve,
Please point out Jack’s untrue premises.
There are differences between math versus rhetorical logic.
In math all premises must be demonstrated to be true, in rhetoric falsehood is brushed over by propaganda and blither.
Also please state your arithmetic facts clearly so we can see the veracity and do clearly present a math proof for your arithmetic.
ilsm: “Please point out Jack’s untrue premises.”
Huh?
“Jack, totally agree on your recommended rhetorical position”
ILSM, I *think* I understand. Are you under the impression that “rhetoric” is a perjorative term?
Jack
i agree with you and steve about the need for “The rich” to pay more taxes… at least until they have paid for what their congress has already bought. but i think it is important that the “chain of ownership” in SS remains clear. you pay taxes for what the government does for you as a general member of society. you pay the SS “Federal Insurance Contribution” in order to pay for your own retirement insurance.
steve
damn if i understand what you mean. i think the trust fund is legally exactly what it needs to be. it helps to keep things clear.
as Shaw said “a man’s word is never as good as his bond. because you can trust his honor more than his memory.”
i wish this post had a different title.
we DO need to repay the Social Security principle… if by that you mean the amount of money in the Trust Fund at the end of the year not counting the interest for that year. (interest rolled over each year becomes “principle” just as if it were paid and an equivalent amount borrowed.)
we don’t need to pay the principle down to zero. we don’t need to pay it down below “one year’s reserve.” but we do need to pay down the 2.3 Trillion in order for the TF to ease the burden of the Boomer retirement.
Actually, but this is not Bruce’s point… we don’t need to repay it. The after the boomers could pay for the boomers themselves… writing off the TRust Fund as a bad debt. This would not even result in any “inequity” because the after the boomers are going to live longer than the boomers and get back everything they pay in SS “tax” back in SS benefits over their longer life expectancy.
the only reason to pay the Trust Fund is out of respect for those legal claims of ownership that help keep our finances sane. or at least predictable.
This does not mean that I in any way disagree with Bruce. Just that this post really didn’t have anything to say about the need to repay SS one way or the other.
No supporter of SS asked for that payroll cut. Counting it in is bullshit.
That’s just what I’ve been saying all along. The distinction is critical because given any opportunity the excessively wealthy would like very much for the “payroll tax” to be counted into the general revenue stream rather than dedicated to the Social Security program. They’ve got all the income and they want all the potential retirement funds. Do they ever stop asking for more while complaining that they’re getting less?
The problem with arithmetical points and ppositions is that when numbers come into the discussion logic leaves the field. Read through all the econo blogs, discussions, etc. One set of numbers generates and/or supports all points of view.
It becomes little more than an argument over the interpretation of what the numbers mean. Always keep in mind that while “statistics don’t lie, statisticians do.”
On the other hand, a valid argument is just that. There is no denying that a very small sector of our population enjoys enormous fruits of the country’s best efforts. There is a cost to organized government and those that benefit most from that organization are obliged to pay the cost of that government. That share can’t be determined solely on the basis of a percentage of income earned and unearned, but must take into account an equal share of the cost of it all.
Let’s just say that so long as the interest earned on the Trust Fund’s full value is sufficient to supplement FICA revenues when needed to meet benefit requirements then the principal amount need not be retired. It’s a well established capitalist concept that you don’t spend the principal so long as you can live on the earnings. However, always be certain that the identity of that Trust Fund principal not be distorted or misconstrued or misapplied.
It’s reality.
Well done Webb. You have made the case for a rework of SS perfectly. We all owe you for this.
Webb only confirms what Goss and the TF have said for the past few years. In order to get SS back on a stable path we need an immediate payroll tax increase of 2%.
The problem? It is is absolutely possitively certain that there is no 2% increase in SS payrolls in our future. Not going to happen. Forget it. Try something else. Change tunes.
Does Webb’s acceptance of the need for a 2% increase deny the logic put forward by Coberly with his plan that “comes to only a few pennies a week”?
actually the smaller reserve would still have the same ratio of interest to rate of growth so you’d still end up with an “excess” interest that would need to be converted to cash flow to keep the trust fund from growing too large. but with a smaller TF the size (not percent) of that cash flow would be smaller. all in all it doesn’t sound like a serious problem. either way.
CoRev
i hate to get in the middle of this because i can never tell where you are going to go with your reasoning.
but i think i agree with you that the 2% needs to be put back right away. and i even think the payroll tax needs to be where the money to replace the “holiday” comes from. but i am not rigid about that.
jack
i agree that the liars use numbers, and even “correct arithmetic” to make entirely misleading points.
but they do that with “logic” too.
there is no safety in numbers.
but i find that counting on my fingers helps.
Times and sayings change in political theater all the time. I remember the SS crisis manufactured around the late nineties which never happened. Unfortunately political theater has real consequences.
krasting
the need for a 2% increase is not immediate. it can be approached at the rate of one half of one tenth of one percent per year. that’s forty cents per week this year.
still trying to be nice to you, but you surely don’t seem to be able to understand this stuff.
to try to help the krastings of this world
the point of this essay might have been better stated not as “we don’t need to repay..” but that “there is nothing wrong with negative cash flow.”
as long as the government borrows from SS, there is no reason for SS not to use the interest (and the principle) to provide “negative cash flow” to supplement its “normal” income… the Federal Insurance Contribution… popularly known as the “payroll tax.”
On the other hand, if the government doesn’t want to borrow money anymore there would be no reason that SS couldn’t keep its reserve in the bonds of some other entity,public or private, as long as everyone understood that during times when the interest from those bonds was less than expected, the payroll tax would have to go up… probably by a tiny amount. but as we have seen, even 2% is not a big enough amount to seriously inconvenience even a low-end taxpayer. as long as the money is going into his retirement fund and not to walmart.
Dale, the key is to protect Treasury from borrowing to redeem SSTF treasuries. Doing that essentially sequesters the SSTF, and you guys can argue all day that changing SS is just bad policy/politics. Failure to do that leaves SS vunerable to budget debt/deficit politics.
Once sequestered, then the congress can do whatever it wishes with the SSTF without affecting anyone.
Dan, I also remember the SS “issues” near the turn of the century. My memory is that it predicted what we are going through today, and was an attempt to move it from a “Defined Benefit” to a” Defined contribution” program. Which had already been undertaken for the Federal Employees retirement system.
Looking back, which position was more correct? Depends, on whether you think politics is theater or an attempt to anticipate potential problems. Failures to anticipate problems also have consequences. 9/11 is only one example of missing the clues for potential problems. We might also add the current recession as another such example. No party is immune.
Many are saying get the budget/debt/deficit under control. Eliminating your favorite program(s) from consideration is foolish political theater.
This is an example of the inanity of the Trust Fund- centric concept. By this logic, if the Trust Fund were bigger or paid a higher interest rate, we’d be better off. In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury.
“In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury”
Nail hit squarely on head…
CoRev
still don’t understand your point. the only way to “sequester” SSTF from treasury is not to lend treasury any money. or not to ask treasury to pay back the money it already borrowed.
the way things are, i’d accept both of those … but you’d have to know that the latter amounts to theft, and the former incurs financial risks that i don’t thin are as great as the current political risks, but they need to be understood.
CoREv
I wish you hadn’t said this. upthread i was thinking you were having a rational day. but the nineties assault on ss was just an effort to kill it using the magic words of the day. today we have a new day with new magic words and the same old evil bastards trying to kill SS.
the “prediction” of the nineties was an hysterical overstatement of the long understood fact that ultimately SS would need a small increase in the tax to pay for longer life expectancies. except that the evil bastards called that “going broke.” now they call it “contributing to the deficit.”
those are lies.
sammy
this is an example of bullshit. the treasury borrowed the money. paying it back may be a “cash call” but what the hell else did they expect when they borrowed it?
or do you just not believe in paying your debts?
gwarsh Rwe
you are not there yet.
Arne it is effectively discounted because 55% of it is paid in paper that likely will never be redeemed, instead being used to bolster the Trust Fund on a long term basis. Since Special Treasuries are not financed as such, instead simply being obligations on the future General Fund, the fact that only 45% of their face yield actually has to be paid out in cash to me means a discount in practical terms.
CoRev: “Its reality”
Dude you don’t shoot someone in an artery and then claim his subsequent blood loss is just ‘reality’ and so proof he should chop off a limb or two so as to use less blood going forward.
Of course he believes in paying off debt.. The point he is making ,(and I try to make) is that since the SSTF has already been borrowed and spent, that making good on that debt is now a general-fund expense. It wouldn’t make a fiscal bit of difference in the federal-deficit, if the general-fund makes good directly on the difference between SS revenue, and SS obligations , or if the general fund pays off some of the SSTF debt first, so that the SSTF can make up the difference…. It’ll be the same addition to the deficit.+
Dale, back it down a notch. No need to call BS. No matter how many timres you react, it is after all just emoting. Sammy is correct, and we all know it. Treasury ,makes the decision on how to raise the money, and today there is nearly no oyther source but borrowing; adding to the deficit, and flying in the face of today’s politics.
Bruce
I am afraid you understood the essential, eternal, CoRev better than I did.
Nevertheless, since you did such a brave job of explaining a difficult point to the few people that get it, I’ll throw in (again) a difficult point that no one will get:
IT is better for SS to let the bastards steal the trust fund than to let them “fix” Social Security, on the principle that it is better to be robbed than to be murdered.
The workers can make up the loss of the Trust Fund with no real hardship or injustice. The fixes on the table would kill SS… make it impossible for workers to save their own money for their own retirement protected from inflation and market losses and their own personal bad luck by the magic of pay as you go financing with wage indexing.
Rwe I don’t see that it serves us well to take the AB fight over here.
But for all of you, the title was carefully chosen, and too many people seem to have jumped over the numerical analysis and/or not carefully read what Goss is saying here.
Given projected increases in Cost maintaining a 100 TF Ratio means increasing year end balances each year. Which means rolling over all principal and augmenting it with a portion of the interest. Meaning that over the long run principal balances never go down and only up.
If you look at the spreadsheets Coberly prepared for the Northwest Plan you see only a tiny dip in Trust Fund balances during the 2026-2037 period from an interim peak of $4.964 in 2026 trillion down to a trough of $4.826 in 2034 or $138 billion over an eight year period NOT adjusted for inflation. After 2034 under the NW Plan balances continue to grow until they reach a projected $33.136 trillion in 2085. This principal payment doesn’t represent the entirety of the negative cash flow, some interest will have to be paid in cash but the total annual flow, once again not adjusted for inflation peaks at $311 billion in 2030 then shrinks to $32 billion in 2061 (against a Cost figure of $53 trillion) and doesn’t get back to $311 billion until 2078, a point at which SS Cost tops $109 trillion, meaning that General Fund transfers will be required to cover 0.3% of Cost.
That my friends is Pay-Go and it means paying a most a small fraction of principal (that $138 bn from 2026-2034) over a 75 year period from an end balance of $133 trillion. or a bit over 0.1% of the total. IF we adopt a plan that increases FICA by 0.3% between now and 2026 and then start an 11 year series of 0.2% increases to 2036, with periodic bumps after that of 0.1% or 0.2% we effectively relieve capital of the responsibility for paying back the actual money they borrowed.
Which is a pretty fucking good deal for them even as it delivers 100% of the scheduled benefit to workers. Yet they won’t even consider this win-win solution. Suggesting to me that they don’t care about worker retirement at all, instead sticking it to workers and pissing on FDRs grave even if it comes at a cost of trillions of dollars in transfers from them over time is worth it.
http://spreadsheets.google.com/pub?key=r49_nOHQG4QdHuwcbMGmP0Q
coberly – except that the evil bastards called that “going broke.” now they call it “contributing to the deficit.” those are lies.
There is no question that redemption of special issue Treasuries in the Social Security OASDI combined trust funds can result in an increase in the fiscal year deficit of the General Fund of the U.S. Treasury.
The fiscal year deficits discussed in the news media are the fiscal year Federal Budget deficits which are the fiscal year General Fund deficits.
Debt above that level is known as Federal Total Public Debt Outstanding, Gross Federal Debt, or, in common language, the U.S. National Debt. Gross Federal Debt is composed of Debt Held by the Public (marketable U.S. Treasuries and other instruments) and Intergovernmental Holdings (trust funds and revolving accounts Federal debt).
The U.S. Treasury explains, “The deficit is the fiscal year difference between what the United States Government (Government) takes in from taxes and other revenues, called receipts, and the amount of money the Government spends, called outlays. The items included in the deficit are considered either on-budget or off-budget.”
“You can think of the total debt as accumulated deficits plus accumulated off-budget surpluses. The on-budget deficits require the U.S. Treasury to borrow money to raise cash needed to keep the Government operating. We borrow the money by selling securities like Treasury bills, notes, bonds and savings bonds to the public. The Treasury securities issued to the public and to the Government Trust Funds (Intragovernmental Holdings) then become part of the total debt.”
The FY2011 Federal Budget deficit is projected by OMB to be $1.645 trillion at the end of the fiscal year.
Gross Federal Debt as of March 10, 2011 was $14.16 trillion, of which $9.55 trillion is Debt Held by the Public and $4.61 trillion in Intragovernmental Holdings.
Social Security OASDI trust funds assets – the special interest Treasuries and earned interest – are reflected in the Gross Federal Debt as part of the Intragovernmental Holdings identified above. When any of the debt is transferred to the General Fund, it is then recorded as a liability or outlay of Treasury’s General Fund. If such require any public financing with new marketable Treasuries, then that portion of the debt transfer becomes new Debt Held by the Public. Otherwise, the Treasury’s General Fund absorbs the transfer liability cost as an outlay in the General Fund accounting. If new publicly held debt is required for redemption or reimbursement, that new debt is recorded and carried in the Geneal Fund. The interest costs of the new debt are recorded in the General Fund budget as Interest payments and is simply added to the existing level of other Interest payments that are outlays of the General Fund.
Special issue Treasuries or the earned interest on such which are redeemed by the Treasury are recorded as liabilities in the Treasury’s General Fund for the fiscal year in which they are transferred from the SSA to the Treasury for redemption. If there is insufficient general revenue in the General Fund, a debt obligation is incurred to provide redemption or reimbursement payment to the SSA. Additional deficit spending occurs in the General Fund if that situation exists. So, yes, redemption or reimbursement payments to the SSA for the combined OASDI trust funds can most assuredly result in an increase in the General Fund fiscal year […]
CoRev
I get a little tired of people who lie and distort and are not above using their own emoting and even name calling… getting on their high horse when i call bull shit bull shit.
Sammy is dead wrong. He is calling for stealing money from the peole who lent it to the government in good faith. All on the pretense that the government just can’t afford to pay it back. Bull Shit.
“Today’s politics” is just the same o same o politics of the Confidence Man getting you to vote for him by promising you lower taxes. And when your lower taxes don’t pay the bills, you call for cuts in programs that hurt, first, someone else. But ultimately they will destroy the country.
There is no lie, no stupidity, that you won’t fall for if its dressed up as “lower taxes” “smaller government” and, oh yes, “national security.”
Fair enough.. I truly didn’t want to dig that up here.. I was enjoying this thread (you told me to Google for it).. but then the last post (at that time) might as well have been written by me; so I endorsed it.
I’ll exit this thread as I did our last.. and return when the FY2011 budget will document that whatever the SS unfunded-liability (better than deficit ?) might be (last report was $40B), it will be a part of the FY2011 deficit spending… puting that debate to rest.
If you think I am “just emoting,”
remember that when you visit a farm and the farmer “emotes” “Look out for the bull shit!” and you just keep on stepping in it.
Only please don’t track it in on the rug.
the farmer’s wife might do a little emoting of her own.
Expenses in the general budget need not be “sequestered,” whatever that might mean. The interest and principal payments from Treasury to the Trust Fund is no different than the process of the Treasury redeming any other T-Bill. The Treassury can meet its obligations by raising taxes on those that have money availble and subject to taxation. Or the Treasury can reduce its other expenses in an effort to reduce the impact of paying down its debt. That’s a time honored method for approaching solvency. The $500Billion in war spending and other military waste, as noted by ilsm below, appears to be nearly half the total deficit. That’s seems a lot more appropriate a place to start paring the budget than any pre=funded program which has been doing well by most Americans for more than half a century already.
Sammy,
That is correct.
There is most assuredly an accounting relationship between Social Security OASDI cashflow surpluses and shortfalls and the General Fund.
Stephen Goss, Chief Actuary of the Social Security Administration, stated last year in Social Security Bulletin, Vol. 70 No. 3, 2010 that “the trust fund assets are generally assumed to be a wash: an asset for the trust funds, but an equal liability for the General Fund of the Treasury.”
Stephen Goss stated further that “it is reasonable to assume that the financial markets understand that securities held by the trust funds may be redeemed in the future, requiring the Treasury to collect additional taxes, lower other federal spending, or borrow additionally from the public.”
The Social Security OASDI combined trust funds like many other Government trust funds have an impact on the operation of the General Fund. This is the case whether trust funds provide surplus cashflows for other Government operations and payments, or require reimbursement from the General Fund to the trust funds as may be required based on trust fund cash balances and Government debt holdings including any interest earned on such holdings.
It is readily acknowledged that surpluses of Government trust funds offset some portion of existing on-budget funding deficits should such exist, or reduce needed funding levels of appropriations for other Government programs. Similarly, it is also understood by budget analysts and others that reimbursements to Government trust funds from the General Fund increase the funding obligations or outlays of the General Fund.
If Government trust fund reimbursement outlays require the issuance of new Treasuries on the open market, interest costs for such publicly held issuance are added to the interest costs outlays already identified in the General Fund. As such, trust fund reimbursements by the General Fund can involve a dual line accounting entry, one for trust fund reimbursement costs identified as a Government program outlay and one for related interest costs if such exist.
As you know, this is basic accounting.
Reference: SSA
Oh well now Corev…the we all know it is not true. The problem is a constellation of things needed to be solved…too bad you went to this sleight of hand.
Sammy to be as polite as I can you are a (deleted) idiot. Under “this logic” if the Trust Fund were bigger and the interest rate were higher the end result would be an ultimate HIGHER cash call not smaller.
You not only got the arithmetic wrong but bass-ackwards to boot. You must have been asleep in class I day I gave this lesson back in 2008 (but originally written in 2004 on my blog)
http://www.angrybearblog.com/2008/05/bw-on-soc-sec-x-danger-of-low-cost.html
In retrospect it was a mistake to let the Trust Fund get as big as it is, a mistake actually recognized by Bob Ball and Sen Moynihan back in 1983, instead an increase that should have been triggered in 2010 was front loaded back to the very early 90s basically for short term political considerations, people wanted to get the fix behind them and done. But it is still possible to put the TF on a glide bath back to a 100 TF ratio even as we minimize the actual need to GF transfers and all without benefit cuts. But seemingly few want to slow down and examine the numbers. Leading to dumb conclusions that mockingly suggest all we need to do is boost the interest rate when in fact long term that it a recipe for political disaster.
If you think about it hard. Which seems to be Sammy’s missing piece.
RweTHEREyet,
I have watched your exchanges with Webb on DKos if you’re whom I think you are.
You have been correct to say that the redemptions for special issue Treasuries of the Socail Security OASDI combined trust funds impact the General Fund. And, yes, if public financing is required, the action increases the fiscal year General Fund deficit in which the action occurred and the fiscal year interest costs will continue to show up in fiscal year General Fund budgets as debt obligations.
You may be interested in this thread as well: http://www.angrybearblog.com/2011/03/open-thread-march-11-2011.html
Hope you stick around.
No numerical analysis on the part of those who make the argument for changing SS simply bogus if the aim is fiscal prudence, and somehow the point of contention that this debate appears to hinge on is so narrow as to be rather minor compared to other areas of the budget.
As to the other aspects of not paying the money back, there is a lot of pushback by large organizations…so no, coberly is not alone. To say so is a political calculation and claim, not a fact.
RweTHEREyet,
Stick around. This isn’t Webb’s blog. This blog is owned and operated by Dan Crawford.
Your opinions will probably be treated with more respect here than on DKos.
One of Dan’s goals is to improve the level of participation on his blog.
Your participation is most assuredly welcomed by me.
Webb – “Sammy to be as polite as I can you are a (deleted) idiot. Under “this logic” if the Trust Fund were bigger and the interest rate were higher the end result would be an ultimate HIGHER cash call not smaller. You not only got the arithmetic wrong but bass-ackwards to boot. You must have been asleep in class I day I gave this lesson back in 2008 (but originally written in 2004 on my blog)”
Sammy made three separate statements in his comment post.
Sammy – “This is an example of the inanity of the Trust Fund- centric concept. By this logic, if the Trust Fund were bigger or paid a higher interest rate, we’d be better off. In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury.”
You’re trying to combine the second and third statements and pretend that Sammy is saying something that he didn’t say.
Sammy’s third separate statement is correct. It doesn’t matter if the interest or principal from the Social Security OASDI combined trust funds are being redeemed as it is the same cash call on the U.S. Treasury and the General Fund of the Treasury.
Sammy’s third statement is a stand alone statement.
Webb – “Sammy to be as polite as I can you are a (deleted) idiot. Under “this logic” if the Trust Fund were bigger and the interest rate were higher the end result would be an ultimate HIGHER cash call not smaller. You not only got the arithmetic wrong but bass-ackwards to boot. You must have been asleep in class I day I gave this lesson back in 2008 (but originally written in 2004 on my blog)”
Sammy made three separate statements in his comment post.
Sammy – “This is an example of the inanity of the Trust Fund- centric concept. By this logic, if the Trust Fund were bigger or paid a higher interest rate, we’d be better off. In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury.”
You’re trying to combine the second and third statements and pretend that Sammy is saying something that he didn’t say.
Sammy’s third separate statement is correct. It doesn’t matter if the interest or principal from the Social Security OASDI combined trust funds are being redeemed as it is the same cash call on the U.S. Treasury and the General Fund of the Treasury.
Sammy’s third statement is a stand alone statement.
Jack,
Those are time-honored methods of dealing with the deficit.
But neither President Obama (D), the Senate (D) or Congress (R) have any willpower or inclination to do any of that. At all. Obama’s just submitted budget that was $1.5 Trillion in the red for just this year plus the Democrat controlled vote during the lame-duck session maintaining current tax rates, also signed into law by President Obama (D), reinforce that idea.
As I have said months ago, Congress bi-partisanly does not want to redeem the SS Trust Fund. At all, if they can get away with it. They won’t write it off or anything, they will just ‘solve’ SS by raising rates a little (coberly’s 40 cents/week idea or some such) and never actually get in a position where the SS TF actually draws funds from the general fund. The Trust Fund just sits there accuring interest, that never gets paid back…
Bruce – And CoRev just pointed out reality. Just becuase we don’t like an action doesn’t mean it didn’t happen or that Obama is suddenly going to reverse course and change it. So counting it in is not bulls**t. It facing reality.
Jack – one last thing, actual spending on the hugely popular bi-partisanly supported war is under $200 B / year. ilsm tends to add ALL military spending to his numbers.
Jack – Maybe you can answer my age old question….Where did the anti-war protestors go?
Islam will change
coberly,
Be nice to the newbies (I think Jim is new, sure sounds like it)!
Jim – Go read the tab at the top entitled Webb’s Social Security. Then ask questions about anything your read. THEN you can critisize. But first get set with the basics.
Islam will change
Rdan,
What Sammy said is 100% true. Redeeming the SS TF is a sending money FROM the general fund to SS. Its a line item on the general fund spending just like buying another submarine or high speed rail.
And that is EXACTLY how Bruce and coberly explained how it works. Exactly.
So what are you guys saying is FACTUALLY incorrect???? I thought this was a reality based blog.
Islam will change
CoRev – “Dale, back it down a notch. No need to call BS. No matter how many timres you react, it is after all just emoting. Sammy is correct, and we all know it. Treasury ,makes the decision on how to raise the money, and today there is nearly no oyther source but borrowing; adding to the deficit, and flying in the face of today’s politics.”
Rdan – “Oh well now Corev…the we all know it is not true. The problem is a constellation of things needed to be solved…too bad you went to this sleight of hand.”
Dan, what is the basis for your statement and the “sleight of hand” slap at CoRev?
CoRev is correct. Transfers of debt from Intragovernment Holdings to the General Fund require payment. At the present time, the Treasury is borrowing more money on the open market to make such reimbursements (redemptions of special issue Treasuries or interest earned on such instruments) which were until transfer Intragovernment Holdings and the new Treasury borrowing is evidenced by the sale of marketable Treasuries which become part of the Debt Held by the Public. The General Fund of the Treasury records the action as a liability both for the reimbursement and the related interest costs of the additional borrowing. So, yes, the fiscal year deficit of the General Fund will increase as long as general revenue is not used or is unavailable to render reimbursement of the Intragovernmental Holding for which reimbursement is being sought.
The Treasury’s General Fund fiscal year deficit increases anytime general revenues are unavailable to pay current obligations and such payments are made by selling more marketable Treasuries on the open market.
I assume that you understand these points.
MG
Yes, what the government spends each year to either pay its debts or pay for new and continuing activities all add to the cost side of the ledger. And it is also a truism of accounting that all reductions in revenues reduces the government’s ability to balance its budget, therefore, all tax reductions add to the deficit. You’ve focused on Trust Fund debt. Why not focus on war expense, corporate welfare, reduced tax revenues and eliminations of tax revenue sources. The 35% highest marginal rate is lower than at any time in many decades. The near elimination of estate taxes is a modern revision of age old tax policy. The preferential treatment given to capital gains and other forms of unearned income is also a recent and wasteful revision of US tax policy. And what about that $500Billion in war waste?
Try expanding your search for savings if you want to be taken seriously in a discussion regarding the deficit. Your one track narrow gauge continuous forcus on Social Security, its Trust Fund and other forms of social betterment give evidence of an ideological agenda having less to do with budgetary conciderations and more to do with political machinations.
We might call that “taking a Walker” as in Scott Walker worryiing about his budget while giving away the store.
Rdan,
What makes it bogus is we are talking (during the next few years at least) about noise level numbers. RweTHEREyet said the 2012 shortfall is about $40 B. That’s $40 B that the general fund will send to the SS Admin to write checks to SS recipients. A net outflow from the general fund – just like paying the heating bill at the White House.
But considering the 2012 budget will probably be in the area of $3,700 B, your talking about just over 1% of the entire Federal budget. And less than 3% of the projected deficit.
Its in the noise. Saving the SS expenditure is a drop in the bucket. Call me when you have savings with another zero.
The sturm and drang seems to be about the simple fact that the general fund has to spend money when it redeems the SS TF. I realy don’t understand why that is such a contentious issue when its a basic fact.
As a matter of opinion, I don’t think anyone in the Congressional or executive branches want to pay any of the SS TF back or as little as possible. We can discuss that, but I would like to hear from anyone who can show ACTIONS by these parties that would prove me wrong.
Islam will change
CoRev
Back it up a little. Make your concern for the budget deficit seem real by focusing on cutting war spending, rolling back the tax levels to the higher levels of the not too distant past, restoring the estate tax, and taxing unearned income at the same levels that earned income is taxed at. And acknowledge that all Treasury obligations, including your own pension, are a part of the deficit. Social Security and the Trust Fund did not create the budget deficit. They are only one of many debt holders. Don’t blame the lender for the profligate behavior of the borrower.
Bruce,
Exactly the point I have been making. Under this plan they never repay the SS TF. It just sits there forever.
So under this plan you support are they stealing the money (since the general fund spends it), since there is no plan to ever pay it back? Why would you just not call this a transfer of SS taxing authority straight into the GF budgets?
Islam will change
Buff
the forty cents per week assumes the Trust Fund will be paid back as legally required. w/o the trust fund the workers could pay SS pay as you go for about twice that much… not crushing burden.
the congress and president, bi partisans all, are either criminally stupid or just criminal. that doesn’t mean we should just shut up and take it.
but, for what it is worth, the trust fund is being paid back as we speak.
and ilsm is right to point at the whole bill for military spending as a cause of deficits. that doesn’t mean we have to cut mil spending to zero. it does mean we need to stop pretending the deficit is caused by “entitlements.”
MG
you do use a lot of words to confuse yourself. paying a debt does not increase your deficit.
by playing with words… oh poor us, we have to, gasp, borrow money, to repay the money we borrowed but weren’t expecting to have to repay.. will increase the deficit we have to repay, as opposed to the deficit we could just stiff the working people for.
Buff
read the rest of Sammy’s comment. and try to remember Sammy’s eternal comment.
saying the “exact” truth while misleading the “mark” is the oldest way to lie in the world.
better than you do apparently.
they could just raise taxes or reduce other spending. then they wouldn’t have to raise their on the books deficit to reduce their off the books but still legal debt.
what you are doing is called sophistry. or fast talking the mark. except in your case its not fast.
MG
the accounting is basic. your understanding of it does not reach that level.
trying to bury theft with creative accounting is called embezzling.
Bruce, sorry, but when you must resort to analogy to form a position on your own article, you’ve lost the audience.
What you just said was, just because a patient was shot in the artery he does not need to be treated for that wound. You’re kidding, right?
What’s on your mind…
Jack,
This main post is about the Social Security OASDI combined trust funds.
You’re just trying to play a misdirection game and drag the comment thread off subject into other budget matters.
Worse, you’re pretending that I and others haven’t discussed other budget considerations on other threads. Even worse, you’re pretending that I have only focused on the Social Security OASDI combined trust funds. That is a false claim.
Your misdirection rant belongs on another thread. It belongs on an open thread if no where else. That’s what you did this weekend when you foolishly called me and others “reactionary war mongers”. I’m nor going to respond to that kind of ignorant personal attack.
Bruce
you are essentially correct, but the 2.4 Trillion in the Trust Fund now does get paid down. we don’t need to argue about words. you and i agree about the facts.
buff
you are in over your head. the general fund borrowed the money. collecting interest on it is not stealing it. if they want to pay off the principle entirely, and leave SS with a 0 Trust Fund, they could avoid all interest payments. it would be a stupid way to try to do things. but i imagine the Trustees could just keep a little extra cash in the lockbox to cover contingencies.
coberly,
Go ahead and pretend that what I stated isn’t factual. Oddly, you didn’t challenge a word of it. Instead, you make a couple of useless, phony statements.
MG
my mother would have called this rationalization and she would have washed my mouth out with soap if i had kept at it.
you should have been a shyster lawyer. no honest judge or jury would put up with your torturing the truth this way, but your clients would have written you love letters from prison.
Bruce Webb – “Sammy to be as polite as I can you are a (deleted) idiot. Under “this logic” if the Trust Fund were bigger and the interest rate were higher the end result would be an ultimate HIGHER cash call not smaller. You not only got the arithmetic wrong but bass-ackwards to boot. You must have been asleep in class I day I gave this lesson back in 2008 (but originally written in 2004 on my blog)”
Sammy made three separate statements in his comment post.
Sammy – “This is an example of the inanity of the Trust Fund- centric concept. By this logic, if the Trust Fund were bigger or paid a higher interest rate, we’d be better off. In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury.”
You’re trying to combine the second and third statements and pretend that Sammy is saying something that he didn’t say.
Sammy’s third separate statement is correct. It doesn’t matter if the interest or principal from the Social Security OASDI combined trust funds are being redeemed as it is the same cash call on the U.S. Treasury and the General Fund of the Treasury.
Sammy’s third statement is a stand alone statement.
Rwe
what the politicians DO does not mean that’s what they should have done. But you are right, once they have murdered the victim, that much of the debate is settled.
Buff
you are not wrong. but the issue i have been hearing is not does the general fund spend money when it redeems the SSTF.. but does it NECESSARILY increase the deficit when it does so.
MG and his satellites will dance around that distinction until you get sleepy. you are getting sleepy. very sleeeeepy…
Actually, now that MG is here, and i can hear his mighty tread, i remember that i have a barn to clean. gotta go.
Dan, slight of hand??? The core of this part of the thread is Sammy’s statement: “ In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury.” Are you denying that? That’s what MG’s many refer4ences has said. My own commenting over these many weeks and BKrasxting’s comments follow the same logic.
If you want to discuss the constellation of things needing solutions pick some and we can discuss, but don’t come in and make unsubstantiated accusations. I readily admit that not everyone understands/agrees with Sammy’s statement ” it is the same cash call on the Treasury”, but that is far from a slight of hand. It is the constant misstatement of Sammy’s point, some of which appears to be deliberate after these many months, that gets us into these emotional discussions.
Rdan – “No numerical analysis on the part of those who make the argument for changing SS simply bogus if the aim is fiscal prudence, and somehow the point of contention that this debate appears to hinge on is so narrow as to be rather minor compared to other areas of the budget. As to the other aspects of not paying the money back, there is a lot of pushback by large organizations…so no, coberly is not alone. To say so is a political calculation and claim, not a fact.”
The Intergovernmental Holdings reimbursements by Treasury to the Social Security Administration in support of two of its three programs have direct impact on the operation of Treasury’s General Fund. While such requirements are projected to be in the range of $300 to $500 billion plus for this decade (SSA analysis – $300 billion plus; CBO analysis – $500 billion plus), the demands for Social Security OASDI combined trust funds reimbursement (redemptions) rises substantially during the next decade to a level of roughly $3 trillion. This is not a minor budgetary consideration for those members of Congress who are attempting to address near, medium, and long term fiscal issues of the Federal Budget (General Fund budget). Yes, there are larger General Fund outlay requirements by various programs during this and the next decade, but all outlays are being reviewed.
The bottom line, absent changes in Federal law for revenues or Government programs’ cost containment, is that General Fund discretionary spending will become the prime target of budgetary reductions. We’re seeing that effort in the Congress now.
The Federal Debt Held by the Public will continue to grow absent efforts to reduce its impacts on the General Fund budget and at some point in time may become the largest component of General Fund net outlays during future fiscal years.
Total Public Debt or Gross Federal Debt continues to rise each fiscal year, and the fiscal path that the U.S. Government is on has been determined – by Treasury, CBO, and other entities – to be unsustainable.
The projected future demands of all Mandatory programs spending including redemption of any special issue Treasuries and related interest earnings is quite substantial Such demands exceed any other financial growth consideration of the General Fund other than growth in Debt Held by the Public and Net Interest payments obligations.
I assume that General Fund discretionary spending will continue to be reduced or eliminated in order to support the financial obligations and General Fund outlays necessary to support Mandatory programs and Net Interest payments.
I have no idea what else will unfold. I don’t believe that you know, either.
Sorry – I’ll make it 80 cents/week. Obviously I will have to cut back on my trips to Cannes….
I never say people should shut up and take it. But venting on AB may feel good, but I don’t see it changing anything. To get a change you have to change Congress and Obama’s minds on the subject. (Or vote them out and someone in…)
And I think they go after the entitlements becuase that’s where the money is. The old bank-robber excuse, which reflects well when applied to teh Federal Government…
Islam will change
Sammy – “This is an example of the inanity of the Trust Fund- centric concept. By this logic, if the Trust Fund were bigger or paid a higher interest rate, we’d be better off. In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury.”
coberly – “Sammy is dead wrong. He is calling for stealing money from the peole who lent it to the government in good faith. All on the pretense that the government just can’t afford to pay it back. Bull Shit.”
You’re making a false claim against Sammy. He made three statements in his only comment on this thread at this time and none of those statements come close to supporting what you have accused Sammy of saying.
Why do you make up these phony claims against other participants?
coberly,
Bruce just said at that we would not pay back the trust fund. Here: “we effectively relieve capital of the responsibility for paying back the actual money they borrowed. “
Did I misunderstand what he just said?
Yes, I was being a little sarcastic with my response, but Bruce just reinforces my point, along with the main point, that Congress and Obama don’t want to pay back the SS TF. Ever. If you never pay it back who cares what the interest rate is?
And that is my point. If they up the payroll tax to 80 cents/week and cover the SS shortfalls, and NEVER repay the SS TF a penny, did they steal the money?
Just wondering, becuase that’s how I see Congress ‘saving’ SS. Maybe even making it 100 cents/week just so the General Fund will get a little more money from the SS TF to help cover the gaping hole in the GF revenue.
Islam will change
MG,
Thanks for all the facts and Links you bring to teh discussion. You add a lot!
Islam will change
Dale asks: “but the issue i have been hearing is not does the general fund spend money when it redeems the SSTF.. but does it NECESSARILY increase the deficit when it does so.” In today’s world, where we are borrowing, the simplest answer is yes, either directly or indirectly. The deficit is directly increased when Treasury decides it must borrow 1 for 1 on the redemption of SSTF treasuries. The deficit is indirectly increased when it takes the redemption from available GF revenues, and then borrows for that portion of the daily/weekly/periodic outlays not covered by GF revenues. That’s the crowding out/accounting for it issue.
As long as we are borrowing to cover outlays, the SS payments in excess of SS revenues increase the deficit.
Why can the SS-protection at any costs contingent admit in one sentence that the GF borrowed from the SSTF and lowered the impacts of the ac6ual deficit, and then not accept that the inverse is just as true. If surpluses lower the deficit, redemption of the SSTF treasuries raise it. It doesn’t matter if that redemption is from interest or principal.
Buff, CBO is now projecting a $45 billion cashflow shortfall for SS OASDI in FY2011. Other sources put the cashflow shortfall at $50 billion. CBO is now projecting cashflow shortfalls throughout this decade.
Coberly – Entertaining but I do not know how you are able to go over the same points time after time. You would think logic would eventually sink in.
MG, I have little confidence in the SS shorfall estimates. The 2% FICA tax holiday amounts to a 16.129% drop in overall FICA revenues. The overall 2010 collections for Social Insurance nd Retirement Receipts were ~$865B of which ~$540B were for SS collections.
By my calculations that 2% Tax holiday costs ~$87.1B with an additional ~$45B structural shortfall giving us ~$132.1B shortfall during the duration of the 1 year FICA tax holiday.
That, BTW, is lower than my previous estimate as I used a different baseline of ~$700B for the FICA collections.
The numbers are from here: http://www.fms.treas.gov/annualreport/cs2010/rta.pdf
coberly,
Your lies and personal attacks have no place in the commentary on Dan’s blog.
I explained the Federal accounting process as it works in the real world. That is not a sophism. Instead, it is a factual presentation.
The issue isn’t about what they could do, it’s about the real world present situation.
You appear to be busy pretending that the redemption of special issue Treasuries and related earned interest to such have no record of financial accountability in the General Fund.
You appear to be pretending that the General Fund does not incur any new debt when the redemption occur or when the Treasury sells new marketable Treasuries and other financial instruments to cover the called debt.
You appear to be pretending that such Gross Federal Debt accounting transfer transactions from Intergovernmental Holdings to Debt Held by the Public and/or the Treasury General Fund do not increase the fiscal year General Fund deficits whenever the sale of new marketable Treasuries or other Federal financial instruments occurs to support redemption to the Social Security OASDI combined trust funds Intergovernment Holdings.
If you weren’t busy pretending so much, you would acknowledge, however reluctantly, that the General Fund budget deficits (Federal Budget deficits) are, in fact, increased when such accounting transfer transactions occur and new debt is sold to the public to cover the costs of such transfers.
This is basic budget and operational financial accounting. Yet, you want to deny that it happens.
The redemption of special issue Treasuries and the related earned interest of such does increase the fiscal year General Fund deficit (fiscal year Federal Budget deficit) whenever insufficient general revenues are available to cover the new debt obligation. To say otherwise is to lie or engage in a misdirection exercise, as useless as it is.
coberly,
Your endless lies have no place in the commentary on Dan’s blog.
Your comments at this point are well out of line.
coberly, your endless lies have no place in the commentary on Dan’s blog.
Buff,
You’re welcome. It’s time to bring the no fiscal year deficit relationship con game to an end.
I am not sure whether I don’t follow or don’t agree. Interest is figured at current rates on the full TF balance. I am not sure where you 55% number comes from.
Arne if I borrowed $1000 from you at 5% and you let me roll over the principal and 60% of the interest forever then I am paying an effective cash rate of interest of 2% the first year, and then 2% plus 2% of the rolled over foregone 3% interest the second year or 2.06% effective cash the second. It is hard to see that as anything other than a discount to the borrower. I suppose compounding of that rolled over interest catches up to you someday, but in the meantime you are retaining a ton of cash.
CoRev you introduced a deficit number that has nothing to do with Social Security itself but instead is the result of a purely political calculation.
To claim that a $160 bn (deficit) in SS (which won’t score that way) mostly do to a $120 billion reduction in revenue is somehow a relevant metric is just to prove how stupid this deal was. It just handed another bogus talking point to folks like you while having zero to do with long term solvency as such.
MG the bottom line Social Security surplus/deficit including interest effects is included in the deficit number reported in the media, it is not just the General Fund deficit. The $1.645 number you cite is net of SS, or if I am wrong maybe a page/table cite a little narrower than Treasury,OMB might be helpful here.
MG it is factual, it just doesn’t mean what you want it to mean.
Trust Fund interest accrued and not redeemed in a given year scores as a Receipt and not an Outlay something you confused by quoting language about the effect at redemption, which on a combined basis (which is how OMB treats SS in top line tables) we are not yet at.
MG if Sammy didn’t want those two statements combined he shouldn’t have included them in the same paragraph in a way that implied causality. And given that he started off by putting his second statement in my mouth (“by this logic”) it takes some brass balls to suggest I am the one misrepresenting the argument here.
Well…so what? That does not provide a response to the notion that there are other ways to get there…the increased shortfall is of course due to the 2% reduction in this years revenues, which we have suggested might be part of the move to go after the SS program in general.
Corev’s figures point to the need for general fund replacement and the use of same by him appears to re-inforce this prediction that it will be used by predictable groups as a gotcha. In this political climate it seemed obvious to me last November.
Of course I am not sure about how things will go in reality…it looks likely SS will get a change. But you do notice what is actually off the table?? Which is why I believe the SS first agenda is manufactured and is the result of constant campaigning for the last twenty years and has little relation to fiscal responsibility by the current players.
Arne encouraged waiting about five years to see what the current Great Recession and the last decades of wage stagnation has on SS (before the FICA holiday). Now I would have to ask him.
Lots of changes will occur, but I fail to see why SS appears first on the list. And the lack of courage in the face of the onslaught of propaganda on taxes in the political arena is what it is, but hardly about fiscal responsibility by the look of what gets nailed first, and the sacred and third rail parts of the budget are hardly just about SS.
And in that large groups in a variety of ways want to protect a well functioning program is part of the process I believe.
Healthcare costs public and private is set to become a much bigger deal to the overall economy.
If we’re past the SS adding to the deficit issue.. the next discussions are what to do about it. There are three types of solution to debate. Acknowledging that this thread was aimed at, and touches these topics:
1) Raise taxes (FICA or income)
2) Cut spending (other than SS payouts)
3) Modfiy benifit payouts (cut them, raise age eligibility, or means-test)
Now, if a combo of spending-cuts and tax increases don’t total some $1.7T (or whatever a given year’s deficit-spending might be)..(which seems silly when the pols are fighting to their political death; arguing about a cut-range that’s a mere fraction of that), then we’re just reducing the deficit, and the SS unfunded-liability is still adding to that deficit… to the tune of hundreds of billions over the next decade.
Since we obviously aren’t going to be bringing the deficit to zero anytime soon, and we want to sell a tax-increase as targeted for eliminating the SS unfunded-liability (so that it doesn’t increase the deficit), then it will have to named as such… and boy-o-boy does that open a political can-o-worms. The feds would have to be effectively saying, “we know we’ve already taxed you MORE than enough to fund this program.. but since we spent that money elsewhere, we’re gonna have to tax you again“. Good luck with that…
Moving on to a FICA tax increase. It’s essentially the same argument.. RE-taxation after already extracting more enough tax-revenue to fund the program.
If we go with raising the FICA salary cap, and don’t also raise the payout formula proportionally (making it a long-term wash); then we’re driving SS from its moral high-ground as an insurance deal, and dipping its toes into a welfare deal.. Again, good luck with that..
This leaves modifying the payouts. To me; raising the retirement age is a given. The only debate is to what age-bracket it starts going into practice.
Means testing is on the table (to me), but that gets tricky. Consider two persons of the same age, who earned the same amount during their working years. One of them lived within his means.. never buying more home nor car than he should have.. always supplying a healthy down-payment … never running credit-card debt up, and always adding to his retirement savings. The other guy did the opposite of all that. One retires in a paid-for home, debt-free and has a huge nest-egg to draw on. The other retires still holding a mortgage, credit-card debt, and has no savings. Should their SS checks be different amounts ? Tough call for means testing.
So.. IMHO, a combo of a gradually raised retirement age.. and a tapering to zero for benefits paid, starting at a yet-to-be-determined upper-retirement-income level (ie.. a person taking home well into six-figures of personal, investment-based retirement income can start foregoing a portion of his SS benifit)..(which ends up being a defacto tax-increase on the “rich”, without punishing them for being productive whilst being productive), will steer us toward SS solvency.
MG your continual appeals to what does and does not have a place at Dan’s blog were tiring to start with. It implies to people who don’t know better that you are in a position to judge that in Dan’s absence. That is simply not the case. For one thing Dan is not actually absent, for another thing Dale and I get 2-3 emails on average from Dan everyday. If and when he has a problem with us he brings it up off site. And somehow he seems to get upset with us with much less frequency than you do.
You are not the civility judge here. Even if you were not prone to playing the ad hom card when it suits you.
Here’s the same main post by Bruce at Daily Kos.
Why we don’t need to pay back Social Security Principal
It’s posted under Social Security Defenders.
Why the big difference in the number of blog reader responses?
You can’t believe that. You think America wants a 2% tax increase for SS? Simply not in the cards.
Buff no they are not stealing anything, read Goss’s piece again.
The primary function of the Trust Fund is to serve as a reserve, much in the same way that banks are required to hold a percentage of their deposits with the various Fed Banks. In both cases this allows them to endure short term fluctuations in the ratio between revenue/cost for SS or deposits/withdrawals in the case of banks. Equally in both cases the reserves earn interest which can be used to bolster those reserves as deposits increase with any extra available to pay current obligations.
As long as earnings on the Trust Fund are legally allocated between maintaining a 100 TF ratio and using any excess to help pay benefits the Trust Fund is no more theft than a Bank’s mandatory reserves are.
Here’s the same main post by Bruce at Daily Kos.
Why we don’t need to pay back Social Security Principal
It’s posted under Social Security Defenders.
Dale under the NW Plan it doesn’t get paid off, instead TF balances never drop below more than $4 and a half trillion and then grow from there.
Buff
I unfortunately agree with the way you feel. However an old tradition requires that I do not just quit because I am surrounded and hopelessly outnumbered.
CoRev
we lost you ages ago. the rest of the audience appears to be keeping up. not counting you know who.
MG. I have full Admin privileges on this blog and have full ownership of any post put up under my name. To suggest otherwise is just to display some confusion on your part as are your continued attempts to speak for the blog to new users. “one of Dan’s goals”
Frankly you yourself are here on sufferance, you are essentially on probation and the subject of discussion off and on by the Bears, and really not in a position to take RweTHEREyet under your wing.
krasting
one half of one tenth of one percent per year.
the 2% would not be a tax increase, but an increase in the amount of money you have to save for retirement if you are going to live a lot longer than your grandparents.
Dan, who are you talking to in your comment?
Rwe
it does make a difference. one way honors the chain of ownership of the money… call it basic accounting and respect for the law.
the other way would just make a confusing mess subject to all you deficit cutters claiming that SS was causing the deficit.
Webb – “MG if Sammy didn’t want those two statements combined he shouldn’t have included them in the same paragraph in a way that implied causality. And given that he started off by putting his second statement in my mouth (“by this logic”) it takes some brass balls to suggest I am the one misrepresenting the argument here.”
You attacked Sammy with your usual putdown nonsense which hasn’t been missed at all at Angry Bear since Dan started cleaning up the personal attacks. You didn’t bother to show any civility and decency and simply ask him a question as to whether he meant the two sentences to be viewed together.
It’s clear to me that his third statement raises a separate, factual issue: “In reality, it doesn’t matter whether it is principle or interest, it is the same cash call on the Treasury.”
If Sammy comes back to the comment thread and reads your attack on him, he can decide whether he wants to provide clarification which you appear to need.
Buff but you are not right either. The General Fund like the Trust Funds is an accounting device and is not just a mirror of Treasury’ overall borrowing/cash position.
I don’t know all the answers because the methodology used by Treasury, OMB, and CBO are complicated, opaque, and not necessarily congruent, each are tasked with looking at the numbers for different purposes.
For example the Federal Reserve holds a large yet undisclosed amount of regular Treasuries and is currently in the process of buying hundreds of billions more on the market via QE2. By the time they are done those holdings should total more than $1.5 trillion but I don’t know who outside the Fed and Treasury actually know the exact amount. Now the Fed returns it’s profits, including interest on it’s Treasury holdings, to Treasury. Which leaves a couple of questions. Interest on Public Debt is counted as an outlay for Budget purposes but it is not clear to me that interest rebates from the Fed are accounted as receipts either to the Budget or the General Fund as strictly defined. Which might allow those rebates, whose outlays were accounted for being available to backfill the Trust Fund redemptions leaving the General Fund harmless. I don’t know the answer for sure, but I am equally certain that MG doesn’t either and most of this confident talk by him and others that “of course” it is a debit on the GF is built on a foundation of sand.
And before the question is answered to my satisfaction I will need some pointers more precise than ‘OMB’, I simply don’t have the confidence in MGs readings as he does.
Webb – “MG your continual appeals to what does and does not have a place at Dan’s blog were tiring to start with. It implies to people who don’t know better that you are in a position to judge that in Dan’s absence. That is simply not the case. For one thing Dan is not actually absent, for another thing Dale and I get 2-3 emails on average from Dan everyday. If and when he has a problem with us he brings it up off site. And somehow he seems to get upset with us with much less frequency than you do.
You are not the civility judge here. Even if you were not prone to playing the ad hom card when it suits you.”
Webb,
Ask Dan what his latest policy is regarding personal attacks and other lies told on his blog. He is bringing that destructive game to an end. There have been a number of changes underway to clean up the conduct on his blog, and improve the potential for new participants to enjoy his blog. Your standard putdown conduct and personal attacks are nothing more a bad, unwelcome hangover at Angry Bear.
CoRev
because instead of borrowing the money to pay off their debt, they could get a job and earn it.
when someone said that borrowing the money from SS reduced the deficit they were speaking sloppily. they meant it reduced the debt owed to the public from what it would otherwise have been.
and mostly, you and your big friend are trying to play with words to make it seem that SS is contributing to the deficit, which it does not.
MG if Trust Fund Redemptions are going to total $300-500 bn in the next decade why are TF balances projected to hit an ultimate target of $4.2 trillion in 2023?
You may have these guys snowed but in the midst of your verbiage and top level links you tend to deploy precise numbers that are rarely accompanied by equally precise page and table citations.
Rwe
brave try, but you just don’t know what you are talking about.
SS is fully paid for. it can pay for itself under current projections with a SS tax increase of one half of one tenth of one percent per year.
The budget deficit.. another issue entirely… can be brought down to manageable levels, including paying the money owed to SS… down to the steady state Bruce is trying to explain to you.. with an income tax increase of about 3%… back up to before the Bush tax cuts.
only a moron would agree to raising his retirement age if he could guarantee the present age with an extra forty cents per week per year.
but be of good heart, there are famous people who know as little as you do about Social Security and write books about it.
what you are doing is “reasoning in the absence of facts.” Sherlock Holmes would have warned you against that. But Holmes went out and got the facts. You just like the sound of your own “reasoning.”
CoRev per the deal the Trust Funds are to be credited with a direct $120 billion transfer from the GF to offset the reduced payroll collection. Which in principal leaves CBO and SSA 10 year numbers held harmless.
You seem to have left this out of your calculations.
Bruce, rant all day about that FICA holiday, but it’s done, and we are paying for it. It will affect long term solvency if its continued. Is that your real fear?
Bruce, rant all day about that FICA holiday, but it’s done, and we are paying for it. It will affect long term solvency if its continued. Is that your real fear?
If long term solvency is not related, why are you part of a “Protect Social Security” group?
Bruce,
Sorry I wasn’t able to stick around and defend my original point. The fact that interest payments equal the SS deficit is merely a coincdence, a confluence of the size of the TF and the interest rate. It is not a cause for comfort. What drives the finances is benefit payments and taxes. If the benefit payments are greater than the taxes (and they will be) the Treasury makes up the difference.
Since the Federal Budget is on a cash basis, no one cares if the payments are principal or interest. Well no one but you, coberly, and the actuaries at the SS Agency. It is an arcane scoring system that, in the end, doesn’t matter.
K
Bruce,
Sorry I wasn’t able to stick around and defend my original point. The fact that the interest payments on the TF equal the SS deficit is merely a coincidence, a confluence of the size of the TF and the interest rate. So it is not a source of comfort. What drives the finances is benefit payments and taxes. If the benefit payments are larger than the taxes (and they will be) the Treasury makes up the difference.
Since the Federal Budget is on a cash basis, no one cares whether the payments are for principal or interest. Well no one except for you, coberly, and the actuaries at the SS Agency. It is an arcane scoring system that, in the end, doesn’t matter.
Bruce, much double speak and obfuscation. You need much more than pointers, because you are now asking if Dept of Treasury writes itself a check for the intgerest it pays to Fed Reserve for taking its bonds off the market.
In that kind of transaction Treasury need not ever actually sell any bonds to the public. All they need do is issue enough to the FED so that the interest they pay themselves is enough to fulfill any need. Which brings us to why issue any bonds/treasuries at all. We can just pay ourselves interest. Just fire up the ole printing presses. Everything’ll be fine.
That one’s worth a Sheesh!, Bruce.
.40/day = $20/year X 150,000,000 members of the workforce participating in SS = ~$3B
What’s this year’s shortfall ? Oh yeah, orders of magnitude higher *eyes rolling*
K
.40/wk = $20/year X 150,000,000 members of the workforce participating in SS = ~$3B
Bruce, and that credit comes from…. c’mon now…. Oh, that’s right borrowing, which adds to the deficit. Why in heaven’s name did Obama and the Dem controlled House and Senate pass this bill?
Because it was another $120B in stimulus, and just amounts to more support for the inanity of the SSTF centric approach to understanding anything SS.
.40/wk = $20/year X 150,000,000 members of the workforce participating in SS = ~$3B
What’s this year’s shortfall ? OH yeah.. orders of magnitude higher..
Dan said: “Lots of changes will occur, but I fail to see why SS appears first on the list.” That’s even another example of the hyper-sensitivity to SS. First has been non-defense discretionary budget items. Which soon will total ~$10B. Other than some vague references to small jiggering to the SS benefits, little more is being proposed. Dan do you have a reference for something more?
Bruce, I’ll let MG fight his own battles, but why are you implying “Trust Fund Redemptions are going to total $300-500 bn…” ($300-$500B more in deficits) are not pertinent to the politics surrounding the budget/deficits of today? The linkage to the SSTF is meaningless.
CoRev
must have learned a new word from his friend Sammy.
CoREv
just because you don’t like it doesn’t make it inane. i think you might get away with that crap on a blog of your co conspirators, but i suspect that here even people who don’t agree with me… except you know who… will not find “the inanity of the SSTF centric approach…” to even mean anything.
noting is being proposed except some small buggering with benefit cuts that will bleed SS to death.
CoREv
you are getting too cute for me to believe you are an honest idiot.
nothing is being proposed on my side except some tiny tax raises that will preserve workers ability to retire at a reasonable age…. tax raises that they would pay themselves if people like you werent’ keeping them from understanding that was the choice available to them.
number nine
i used to be a schoolteacher (for a brief time). by repeating it often enough the kids would remember, if not understand, it long enough to pass the test. which is all their mothers wanted.
Rwe
you are too dumb for this. you are trying to compare things that are not even similar. and because they don’t match you think you have Discovered Something.
all you have discovered is that you don’t know what you are talking about.
sammy
you are dead wrong. the temporary shortfall is made up by SS cashing in its bonds. if SS had a shortfall and no bonds, treasury would NOT make up the difference.
the interest on the TF is currently greater than the tax shortfall and will remain that way until about 2018, then the interest being less than the cash shortfall, SS will begin to draw down the principle.
that is all “in the plan.” a better plan would be to start raising the tax one half of one tenth of one percent per year so that as the TF is drawn down the tax rate would rise eventually to a point where the tax rate would pay for all the benefits….. however Bruce’s point, and Goss’s remains correct. as long as a reserve is held, in the form of treasury bonds, the interest on those bonds will slightly reduce the size of the tax SS needs to collect. it won’t be big enough to matter to anyone. except you. and, in fact, the interest rate being higher than the growth rate of SS… the interest on a reserve of any size will be enough to pay for the required growth in the reserve plus pay a little toward the current benefits. the part that pays for the growth in the reserve essentially becomes money the treasury doesn’t have to worry about… as long as the reserve is maintained.
but hell, why bother to try to explain all this to you.
MG
thank you so much. did you read the first line of the instant post?
hint for you
this years shortfall is being paid by the Trust Fund (interest i think, but i don’t keep up).
the forty cents increase each year eventually adds up to enough to pay for the future shortfall that would otherwise be created by the longer life expectancies of the people paying the tax.
but keep making stuff up. imagination is a wonderful thing.
Why?
Dale asks: “but hell, why bother to try to explain all this to you.’ Because you can not understand how wrong this statement is: “ if SS had a shortfall and no bonds, treasury would NOT make up the difference.”
Webb – “MG. I have full Admin privileges on this blog and have full ownership of any post put up under my name. To suggest otherwise is just to display some confusion on your part as are your continued attempts to speak for the blog to new users. “one of Dan’s goals””
I know what Dan’s goals are on this matter and other issues.
Dan is trying to increase the number of participants on his blog. That is a fact. Dan is also clamping down on the personal attacks and outright personal lies told at Angry Bear. That is another fact.
Webb – “Frankly you yourself are here on sufferance, you are essentially on probation and the subject of discussion off and on by the Bears, and really not in a position to take RweTHEREyet under your wing.”
I am an active participant on Dan’s blog and he has not informed me that I am “essentially on probation”. I spoke to Dan recently and know that your claim is a lie.
I am most assuredly in a position to encourage new bloggers participating at Angry Bear to stick around and not be run off the blog by you or anyone else. All participants at Angry Bear are in a position to encourage new participants to join the regular commenters at Angry Bear. We have had problems with new participants being attacked recently by a handful of ABers and Dan has called for a stop to that activity. There is no question in my mind that he is serious about putting a stop to personal attacks such as yours.
I have no intention to take any blogger “under my wing”. Rather, I am openly encouraging new participants to come back and help broaden the discussions on Angry Bear. That effort includes encouraging RweTHEREyet to stick around. He’s a smart guy. Angry Bear can benefit from his commentary.
You have conducted another one of your endless putdown games and personal attacks on a participant of Angry Bear. I have no expectation that Dan will tolerate your conduct in light of the efforts he is putting forth to clean up the blog for the benefit of all participants, new and old.
Dale, you can repeat this, and I use this term in hope, misunderstanding, it is past ignorance to stupidity or willful disbelief.
You’re so confused, this is hardly worth sorting out.. Your “hint” points out your oblivia.
Every sane person in this debate understands that this year’s (or any year’s) shortfall being paid for out of the trust fund, IS the deficit spending we’re talking about.
My whole post was a reference to getting SS deficit neutral. We’re on different planets.
As a retired actuary/financial-planning/amortization programmer, I’m interested to see how we parlay a sum that not only doesn’t stop the bleeding, it doesn’t even slow it down, into covering the hundreds of billions of unfunded liabilites on the horizon.
Sacarsm and insult by inuendo aint cutting it.. up your game, JR.
Hmmm…lots of other issues involved here corev. The government potentially has a lot more flexibility than a family or company budget. It cannot be reduced to that level.
BTW…there were two deletions…one by Bruce and a reply to Bruce by MG.
’cause if there is no TF, and the treasury doesn’t make up the difference… there are a lot a SS benifit checks that will bounce.
Accounting devices serve a useful function.
RWE, great response. Sorry you have been subjected to such ignorant behavior. Oh, and welcome aboard.
Stick around. Dan runs a good blog with a few ideologues causing most of the pain. There can be some very open and interesting discussions.
Because his numbers don’t arithmetically add up in the face of increasing Trust Fund balances.
How does $2.4 trillion – $300-500 billion in redemptions equal projected 2019 balances of $3.9 trillion?
http://www.ssa.gov/OACT/TR/2010/IV_SRest.html#271967
To be charitable perhaps he has compressed his argument beyond recognition, which given his verbosity would seem to be impossible.
Less words. More arithmetic.
“the SS unfunded-liability is still adding to that deficit… to the tune of hundreds of billions over the next decade.”
Unfunded liability has exactly zero to do with either debt or deficit. You are using terms you simply do not understand.
Plus there is no such thing as ‘unfunded liability’ until Trust Fund Depletion. Words don’t mean whatever the hell you think they do.
Dale did you mean this one?
{Cross posted from dKos Social Security Defenders group. Some parts will be pretty familiar to AB readers}
The one that proves my long lived suspicion that MG never actually pauses to read the posts and just proceeds to the comment phase?
CoRev and Rwe. No. Not under current law. You two really don’t know anything at all.
If the Trust Fund goes to zero one of four things will have to happen. Either Congress passes legislation to lower the benefit to meet current revenue, or pass legislation to raise revenue to meet the current schedule, or pass legislation to have some sort of the mix of the two. Or per Andrew Biggs, fervent Social Security reformer and at one time the Principal Deputy Commissioner of Social Security under Bush delays in check issuance. But bounced checks can’t happen.
There is no legal liability in ‘unfunded liability’. You have been sucked in by a verbalism.
“There can be some very open and interesting discussions.”
Yeah like the ones that led Dan to create first ‘Open Threads’ and then ‘Open Threads: No GW’ because you were hijacking just about everything to discuss your pet peeve?
“.40/wk = $20/year X 150,000,000 members of the workforce participating in SS = ~$3B
What’s this year’s shortfall ? OH yeah.. orders of magnitude higher..”
You just discounted both the Trust Fund and its accrued interest to zero. Which has no support under current law and practice.
The combination of a 40 cent a week increase each year over 20 years combined with continuing Trust Fund interest puts the overall Trust Fund on a path to a Trust Fund ratio stabilized right around 128 after mid-century. If you actually understood any of the concepts here. I can understand why they retired you, after you start losing it they probably didn’t want you anywhere near the spreadsheets.
“I spoke to Dan recently and know that your claim is a lie.”
You too funny MG. Define recently and the mode of communication.
You are not privy to the internal discussions about the conduct of this blog. Period. End of story. So unless you have psychic powers you are talking out your ass. Again.
“Stephen Goss, Chief Actuary of the Social Security Administration, stated last year in Social Security Bulletin, Vol. 70 No. 3, 2010 that “the trust fund assets are generally assumed to be a wash: an asset for the trust funds, but an equal liability for the General Fund of the Treasury.”
Stephen Goss stated further that “it is reasonable to assume that the financial markets understand that securities held by the trust funds may be redeemed in the future, requiring the Treasury to collect additional taxes, lower other federal spending, or borrow additionally from the public.”
Yeah though you omitted the precise cite in favor of ‘SSA’, so let me provide it:
http://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html
Except that between your first and second quote in the same paragraph comes this:
“This is a valid perspective, but it does not lessen the claim that the trust fund assets have for future cash when needed. Trust fund securities have always been redeemed on maturity or when needed, and there is no risk of default on these securities.”
For a guy that is perfectly willing to post hundreds and thousands of characters at a time this truncation is thoroughly dishonest. Did you think I wouldn’t check? Since I was quoting from that same article?
Busted. Lets try adding both the sentences before your cite, the omitted sentence, your second cite and the passage following that:
“The assets of the trust funds are required to be invested in interest-bearing securities guaranteed as to interest and principal by the full faith and credit of the U.S. government. As a result, all assets are currently invested in nonmarketable special-issue obligations of the Treasury. In scoring assets and liabilities for the federal government as a whole, the trust fund assets are generally assumed to be a wash: an asset for the trust funds, but an equal liability for the General Fund of the Treasury. This is a valid perspective, but it does not lessen the claim that the trust fund assets have for future cash when needed. Trust fund securities have always been redeemed on maturity or when needed, and there is no risk of default on these securities. Moreover, it is reasonable to assume that the financial markets understand that securities held by the trust funds may be redeemed in the future, requiring the Treasury to collect additional taxes, lower other federal spending, or borrow additionally from the public. In fact, the trust fund assets are combined with publicly held debt to compute the total debt subject to limit, which is subject to approval by the Congress. If the redemption of trust fund securities in the future results in issuance of additional publicly held debt, this would not alter the total federal debt”
‘Liar’ is not too strong to describe this kind of cherry-picking. Shame on you.
“I fail to see why SS appears first on the list”
I totally agree. As a process engineer it was my job to identify the biggest issue on the manufacturing line and then figure out how to improve that. I would not have kept that job long if my analytical skills were no better than thinking SS was the first thing to work on.
If we have not improved health care costs by the time SS really needs fixing, we are going to be in big trouble.
Of course, sometimes you do need concurrent problem solving. Since increasing the revenue to cover increasing costs is pretty obvious, we could already set up the feedback mechanisms (triggers) which would make it balance. They would not need to take effect for a decade or more, so it makes no financial difference. One might think that since such a plan would put SS in perpetual balance, it would stop the waste of time arguing, but I am confident that SS detractors will come up with some new plan of attack.
“I fail to see why SS appears first on the list”
I totally agree. As a process engineer it was my job to identify the biggest issue on the manufacturing line and then figure out how to improve that. I would not have kept that job long if my analytical skills were no better than thinking SS was the first thing to work on.
If we have not improved health care costs by the time SS really needs some adjustment, we are going to be in big trouble.
Of course, sometimes you do need concurrent problem solving. Since increasing the revenue to cover increasing costs is pretty obvious, we could already set up the feedback mechanisms (triggers) which would make it balance. They would not need to take effect for a decade or more, so it makes no financial difference. One might think that since such a plan would put SS in perpetual balance, it would stop the waste of time arguing, but I am confident that SS detractors will come up with some new plan of attack.
Webb – “I spoke to Dan recently and know that your claim is a lie.”
You too funny MG. Define recently and the mode of communication.
You are not privy to the internal discussions about the conduct of this blog. Period. End of story. So unless you have psychic powers you are talking out your ass. Again.
Dan,
Webb is out of control. Kindly bring him up to speed.
Webb – “I spoke to Dan recently and know that your claim is a lie.”
You too funny MG. Define recently and the mode of communication.
You are not privy to the internal discussions about the conduct of this blog. Period. End of story. So unless you have psychic powers you are talking out your ass. Again.
Dan,
Webb is out of control. Kindly bring him up to speed. It was understanding from you that we weren’t going to have any more of this crap at Angry Bear.
Webb – “I spoke to Dan recently and know that your claim is a lie.”
You too funny MG. Define recently and the mode of communication.
You are not privy to the internal discussions about the conduct of this blog. Period. End of story. So unless you have psychic powers you are talking out your ass. Again.
Dan,
Webb is out of control. Kindly bring him up to speed. It was understanding from you that we weren’t going to have any more of this crap at Angry Bear.
Bruce (and coberly)
I thought you’d gotten past that mental block… that in order to access, deplete, or otherwise put the TF assets to use; the GF has to first pony up the cash.. and that regardless account-steps and report-naming; we know that an unfunded-liabilty ends up as deficit/debt, whether the GF borrows to pay them directly, or the GF borrows to make good on the TF bonds. Do you think you could bamboozle an accountant by paying down credit-card debt from an over-drawn checking account ?
As for me; I never got near spread-sheets, because the only spread-sheet out there, was Lotus123 run from 5.25″ floppys on IMB PCs. I hard-coded on an IBM S30 in COBOL. It was pure, financial application development.. raw data, REAL formulas… no cute macros on a spread-sheet designed to convey a message, as much as an answer to a financial scenario.
Now, can we we dispense with the condescending insults ? They don’t make, or counter any point.. they’re blogging caricature..
Bruce, what was your point in providing the whole quote? It changes nothing and only reinforces MG’s selection of the two sentences. If you are trying to alter the meaning of this: “it is reasonable to assume that the financial markets understand that securities held by the trust funds may be redeemed in the future, requiring the Treasury to collect additional taxes, lower other federal spending, or borrow additionally from the public.” (Adding to the deficit!) It does not! Total Federal debt is not the same as deficit.
Most of your comments on this thread have been obfuscatory, but they have failed.
“You just discounted both the Trust Fund and its accrued interest to zero. Which has no support under current law and practice”.
Good lord.. we’ve already covered this. The TF IS zero in relation to funding SS. The SS Administration even acknowledges this. You cannot extract ONE penny FROM it, without having to pay that SAME penny INTO it. The money borrowed from the TF has already been spent ..
Cut waste, fraud and excess profits in the socialized industry complexes: medicine and militarism. Make the non security state discretionary stuff paid by fees, and taxes. The US is no longer anything that Adam Smith’s fictions might have suggested. It is evolved to a merchantilistic economy, run by Wall St sharks, filled with unproductive luxuries for the “establishment”. This kind of empire, Petraeus is no Caesar, will not assure the domestic tranquility, nor the general welfare. So why bother with the national security state? The US is plundered, so what matters SS? I have stayed out of the ideologic back and forths here.You cannot solve the problem with the same mind that caused it.
Dan, need some clarification with your statement: “Hmmm…lots of other issues involved here corev. The government potentially has a lot more flexibility than a family or company budget. It cannot be reduced to that level. ”
Are you denying the truth to Goss’s statement? Are you confirming that the Treasury could pay interest to itself out of thin air? Or that the Federal government has more options than raise taxes, lower spending (benefits for SS), and or borrow?
Help me out here so that we may discuss.
The bounced check was a metaphor..
As for the TF going to zero; it could happen right now, and it wouldn’t change anything.. as pointed out ad nauseum , it’s a wash. The SS shortfalls are comin’ out of the GF, either way.
Before you go off on a tangent about me doubting the value of the bonds, or ignoring the “full faith and credit” reference… I’m not. I told you’d I purchase them from the TF without hesitaion.. and the TF could use that money toward SS payouts.. but as soon as I redeem that bond, the GF has to part with the cash. I’d just be a middle-man to the deficit spending.
And again, as you accuse me of being lost in a verbalism, you list the possible solutions that highlight the problem I’m pointing to.. it’s getting bizarre.
Bruce said: “Less words. More arithmetic.” OK! Using your numbers “ $2.4 trillion – $300-500 billion in redemptions” still = $300-500 billion increases in the deficit for the foreseable future.
The SSTF has no meaning at all in the equation. The $300-$500B is the shortfalls from SS revenues to outlays. Flowing them through the TF has no meaning.
Bruce said: “Less words. More arithmetic.” OK! Using your numbers “ $2.4 trillion – $300-500 billion in redemptions” still = $300-500 billion increases in the deficit for the foreseable future.
The SSTF has no meaning at all in the equation. It is actually (Total SS revenues – total SS outlays = $300-$500B) The $300-$500B is the sum of shortfalls from SS revenues to outlays. Flowing them through the TF has no meaning because the totals still are redeeemed via Treasury borrowing (adding to the deficit but not adding to total debt) in today’s world and the foreseable future.
Bruce, really? “ hijacking just about everything…? Everything?, No! But, many Open Threads had early entries of mine regarding GW. Of course that is totally different from ILSM’s military spending which actually does hijack nearly every article, and yours and Dale’s multiple articles and hijacks of Open Threads with “protect SS” at any cost inputs.
Maybe you consider having a dedicated Open Thread as a put down. I certainly did/do not. It recognized a current hot topic. Maybe we can do the same with “protect SS” at all costs.
Nah, we do not need that. You have enough rights to put up inane “protect SS” at all costs articles any time. No need to wait for an Open Thread.
Oh, Bruce, why do you persist? Forgetting the most obvious answer, and the issue with Dale’s inept comment, Treasury would continue to pay benefits as if there were no SSTF. That would continue until congress accomplished one of your four options. BTW, that authority change would occur in one of the Authority/Appropriations Bills prior to the event happening while Congress debated the final resolution.
We’ve finally stumbled onto a use for the SSTF. It protects Congress from making political decisions re: SS benefit outlays.