I hear that the government has borrowed money from the Social Security fund. Is that why it is said it is low, and, will it be paid back?
I tried Googling it but it just confused me; the government has always borrowed it, the fund is on T-bills (?), the money borrowed lowered the deficit numbers, etc.
What really happened and is it a bad thing?
I just don’t understand this stuff, so if someone can please explain it in simple terms (if possible) I would really appreciate it.
I’m sure someone will be along with more understanding than me. Never stopped me before.
The government borrows money by issuing Treasury bills. You and I can buy them if we want, sort of. It is one of the safest places on the earth to put your money because they are backed by the US government.
Social Security has a surplus - it takes in more than it spends - right now. They have to save this money somewhere so they put some (or all, I don’t know) into T-bills. In that sense the government has “borrowed” the money from the SSA. Or we might say the SSA has invested in US T-bills. Just like when China or Japan or you or me invests in T-bills.
When someone uses this idea to lump together the SS funds and the general federal funds and claims that the budget is balanced, they are playing fast and loose with the truth.
“Right now” means last year, not next year… We’ve passed the point at which SS was buying general government debt. From now on, they will be redeeming those T-Bills. This will cause a profound and growing change in the general budget.
I’m going to have to ask for a cite on this.
This doesn’t pass the sniff test. As of last year, the SSA announced that even under pessimistic projections, SS would be taking in more than it would be paying out until 2016.
I can (maybe) see a one year effect of the recession, but I haven’t seen anything about that.
It isn’t nearly as bad as people think. You have two situations. First, SS had a surplus, so lets say you have that money in a bank account. Bank accounts do not make much interest, so you will want to invest this somewhere so the money can be doing something useful and growing, but you want to make sure it is an extremely safe investment as people would not take kindly to the money being lost if (when) the market tanks.
Second, you have the government running a deficit, so you need to raise money for that somehow. The government sells monetary devices to fund itself at variable rates.
So, why not combine those two and sell those devices to the SS fund? That way the fund gets its safe investment and the government gets a buyer for its debt. It is sure as hell better than the Chinese funding our debt. Note that it does not “balance the budget” as people say. We are still running a deficit when we do this, we are just using the SS fund to finance it. It is a very reasonable idea.
This was my understanding. They went into the red for a few years during the recession, but are projected to return to surplus for a few years before they start permanently relying on T-bills.
The congressional budget office says it is permanently cash negative now according to NPR.
Keep in mind the SS tax was decreased by 2% for 2011 too.
I agree with you 100%. My problem is in the reporting.
The budgets/deficits/etc. the presidents and congress are selling to the public at large (who don’t read the fine print) don’t account for this relationship properly.
They just add the SS revenue to the general revenue and add the SS expenditure to general expenditure, making the deficit seem much nicer than it really has been (or have been for years).
A simple explanation:
[ul][li]Social Security is not a pay-as-you-go. Historically, more money has come in from Social Security tax (which is a separate tax) than is spent on paying benefits to SS retirees.[/li][li]The government puts the extra money into a fund.[/li][li]They then take it back out and spend it on everything else except Social Security benefits.[/li][li]The government promises to put the money back, later, with interest. It is this promise that people are talking about (misleadingly) when they claim that the Social Security fund “holds a surplus”. [/li][li]The catch is that all government revenue comes from the taxpayer. Thus, there is no surplus, unless you count the plan of tax-and-spend-and-then-tax-again as a “surplus”.[/ul]In essence, the government has taken tax money away from the American people, spent it, and promised to take more tax money away in the future and spend that too. [/li]
Regards,
Shodan
[quote=“Shodan, post:10, topic:570886”]
[li]The catch is that all government revenue comes from the taxpayer. Thus, there is no surplus, unless you count the plan of tax-and-spend-and-then-tax-again as a “surplus”.[/li][/QUOTE]
“The taxpayer” isn’t a person though. Different people pay different taxes at different rates, and in general the people that pay a lot of SS tax aren’t the same ones that pay a lot of taxes into the general fund. So the revenue that was used to build the fund will come from a different group of people then the ones who will pay it back.
Or put another way, the fund was built up by lower and middle class baby-boomers, and it will be paid back to those same people by the future middle and upper class.
That’s one factor. A few others -
[ul][li]Most people age into higher income brackets, so in at least some cases it is going to be the same people.[/li][li]Social Security benefits are taxable. So to some degree you are not only robbing Peter to pay Paul, but robbing Paul too.[/ul]Although you are certainly correct that Social Security taxes are about as regressive as can be found in the US tax code. [/li]
Regards,
Shodan
Unfortunately, often the implication of 'Social Security has a trust fund sufficient to pay obligations for umpty ump years" is read to mean that We the People have nothing to worry about re SS for umpty ump years. SS invested in government securities and we have to redeem them and will do so from general revenues or by borrowing from someone else.
To say SS is solvent because of the investments is true, but rather meaningless.
What happens to this very “reasonable” approach when the government can’t pull the money it ‘invested’ to pay the people who have entrusted the money to the government?
What is the alternative to putting the Social Security surplus in government bonds or T-bills? How else can the government stockpile surplus money?
Well, by definition that is a very bad scenario. Now, how likely is it? - vanishingly small. Worrying about this outcome would be like worrying about 2012 Mayan calendar predictions.
Given that this question is very explosive politically, and demagogues love to lie about it, I was pleasantly surprised to see responses that were rational, sober and correct. 
But then this showed up:
I’m sure the brilliant Mr. Shodan realizes(*) his “point” is completely unresponsive to OP’s question, but lest the naive get confused, let me help straighten this out.
One can treat the Social Security as separate from the rest of the Federal Government, or one can treat them as a combined entity, and get meaningful answers either way. What we mustn’t do (though demagogues love to do it :dubious: ) is treat them as separate in one clause, and then combine them for a misleading punchline in the same sentence!
To start with, U.S. debt held by the public is less than 9.5 trillion dollars. Sure, that’s a lot of money, but much less than the 14.1 trillion dollar scare figure that’s increasing and soon to push up to the Congressional-set ceiling. The 4.5 trill difference includes 2.5 trillion of S.S. money and about 2 trillion for other trust funds (e.g. Federal employee retirement). The point is that this debt is treated as a solemn obligation, at least as far as the ceiling is concerned. Oh, and by the way, if S.S. Trust Fund weren’t buying T-bills to fund Iraq War and Wall Street bailout, someone else would be. To pretend the Feds spend that money only because “it’s there” is silly.
Either treat S.S. separately or don’t. Either approach works. But demagogues like to be inconsistent so they can scare citizens with gibberish as in the quote above.
(* - If I’m wrong and shodan thinks his post is responsive, that implies he thinks the S.S. Trust Fund should do something else with the money rather than buy T-bills. If so, shodan, I hope you’ll tell us how you think the Trust Fund should invest its surplus? Prop up the stock market temporarily? Buy Canadian T-bills, as L.N. preferred in a recent, similar thread? Banknotes under the mattress? Gold bullion? I’m less interested in your answer than in learning whether you’re capable of answering without snark or gibberish.)
One question I have is, are T-bills the best place for the SSA to put its money? Is this the best return on the investment or are T-bills the only place that can handle the sums in question? Or does the SSA even have a choice?
[QUOTE=shiftless]
One question I have is, are T-bills the best place for the SSA to put its money? Is this the best return on the investment or are T-bills the only place that can handle the sums in question? Or does the SSA even have a choice?
[/QUOTE]
No, it’s accounting fraud plain and simple.
Let’s say you have $100,000 in the bank. You write yourself an IOU for $100,000 and go have a really nice time spending the money.
The IOU is worthless. Saying “I’ve always paid back every dime I ever borrowed.” is a waste of breath. That in no way shape or form matters in the least. People get really hung up on this point but it has no real meaning at all.
The $100,000 is gone. It is no more. It is spent. The IOU is worthless.
Repeat over and over: An IOU from yourself to yourself is always worthless.
This is exactly what has happened with the SS trust fund. The money was spent. It is gone. No more. It was poured in Star Wars, a 600 ship navy, two bomber systems, etc.
The T-notes are worthless for a simple reason: It’s an IOU from an entity to itself.
The SSA could have just kept the money in a simple interest-free account. It wouldn’t have made money, but then the dollars would still be in the account.
Other investments like stocks, land, etc. would have been possible but subject to all sorts of shady dealings.
Many people of all sorts of political leanings have pointed this out over the years. Daniel Patrick Moynihan crusaded against spending the SS money when he was a senator. Many others since then.
Face facts: Taxes were raised to build the SS fund. The money was spent. Taxes will be raised to put the money back.
If the money is “still there” somewhere why do we have to pay it twice?
See post #11, the “we” who pays the first time is different then the “we” who pays the second time.