Is there "money" in the Social Security Trust Fund?

Great Debates
1

Recently, I’ve head Sean Hannity and other conservatives repeatedly say that the Social Security Trust Fund (SSTF) has no “money” in it. It’s been “looted, stolen, replaced with IOUs”.

This makes no sense to me. Using his definition of “money” every bank in the country and every bond fund is bankrupt. They have very little in actual paper money, instead the loan the money out. Earning interest. These are called LOANS or as he puts it, IOUs.

Another argument I’ve heard is that the government is “stealing” from the SSTF…ie “How would you like me to borrow money from you…and then when you want it back, I tax YOU and make you pay off your OWN LOAN (yuk, yuk, yuk)”. If you think that’s OK, then mail me a check!".

This is more idiocy to me. The government is borrowing money and YES, taxpayers DO have to pay back the money no matter where the money is borrowed from. The money the goverment borrows is spent on things for “the people” ie planes, salaries whatever. That is money the government was going to borrow anyway.

So a better analogy would be “how would you like it if I borrowed money from YOU and then spent it on YOU…on that roof YOU wanted, on schoolbooks for YOUR kids…and then when YOU wanted your money back, I taxed YOU to pay it back!”. Well, that would make sense, seeing that the money was spent on ME in the first place. Hannity acted like (with his analogy) that the money was “stolen” and stuffed into someone’s swiss bank account.

The debate reminds me of a 401K loan in a way. If you have 100K in a 401K and borrow 50K from it, the administrators mail you a check for 50K after they sell off 50K of your assets.

So you have 50K in cash and you OWE 50K to your own 401K fund.

The assets of the fund go from: 100K in assets to 50K in the original assets and 50K in a LOAN (to you).

The receiver of said loan has to pay the loan back over time. Thus “paying money to yourself”. Some people I’ve worked with find this baffling. “How could you repay money to yourself!?”.

Also of course there is a disconnect between “taxpayers” and “SS receivers”. Someone could pay a pittance in taxes and receive a great deal (relatively) in the other. Or you could pay huge federal taxes and receive little in SS.

So the taxpayers who pay back the loan are not exactly the same as the people whose fund is being paid back. At least in amount.

Also, note that as in the budget debate the amount OWED to the SSTF is listed as part of the debts the gov’t OWES. It counted against the debt limit for example. In that way, it’s no different from money owed anywhere else.

Since the gov’t runs SS it technically has this as an asset too. And it has SS’s liabilities also.

So the balance sheet looks like this:

Gov’t (without SS):
assets: 0
liabilities: 16T (including 3T to SSTF)

SS:
assets: 3T in SSTF
liabilities: amount owed to current and future retirees

Consolidated:
Assets: 0
Liabilities:
13T owed to nonSSTF
also amount owed to current and future retirees

Of course the government can change the amount owed by changing tax rates on SS and amounts paid out, eligibility ages etc.

Sorry about the length.

2

We have had this debate numerous times in the past year, but it always comes back to this critical point: the bonds in the Social Security Trust Fund are constitutionally guaranteed.

Describing them as mere IOUs, which implies that they can be discarded, is simply incorrect. The 14th Amendment guarantees that the bonds will be paid back from tax revenues; but of course that does not guarantee the solvency of the Social Security system. There will be more bills to pay many years from now after all the bonds are cashed in, which defines the solvency issue. The fact that the bonds are, in fact, very valuable is immaterial to that issue.

3

Yes. And here’s a hint: Don’t listen to Sean Hannity. :smack:

If you want a different answer, here are some previous threads. (This is just a small sample.)

Social Security and the Deficit

Let’s debate the future of Social Security and Medicare

Social Security is a Ponzi Scheme

Compare and contrast Bernie Matloff and Social Security

Santorum: not enough people to support Social Security, due to (drum roll) abortions!

Can you debunk these claims about Social Security?

Are Social Security & Medicare “Ponzi schemes” or not?

(Warning; some of the comments in these threads will make you doubt SDMB’s reputation for intelligence.)

4

OP, you have it exactly right.

And having been involved in at least a few of the threads linked to by septimus, that is all I’m going to say on the matter in this one.

5

The money has been moved to a lockbox in the banana stand.

6

I must admit that I was expecting the worst when I saw the title of the OP. What a relief that it is sane.

Challenge to anyone that thinks SS has no assets - mail me all your T-bills. I won’t pay you for them since you are clearly convinced they have no value. PM me and I will take these worthless scraps of electrons off your hands.

BTW, welcome to the SDMB KenBerthiaume Hope you stick around.

7

You’re missing the point, unless you’re also requesting that the government mails you the obligation to pay them. As pointed out previously in this thread, the government’s promise to pay these obligations are NOT valueless. That said, the government collectively has a debt and an asset that are exactly equal to each other. I’ll leave it to you to do the math as to the net worth.

What is factual is that excess SS revenue (those were the days) is used to purchase special Treasury instruments that fund the trust fund. That means that the excess revenue goes into the general account and is (drum roll please) spent. What remains is the government’s promise to pay back the debt, which occurs in one of 2 ways. First the fanciful one: We pay it out of a future surplus. Now the likeliest one: We have to issue new debt or raise taxes, since we will likely be in a deficit situation for, well, who the hell knows how long. Forever, I guess.

That’s the issue. We’re $17 or 18 trillion in debt, and on top of that is the likelihood that we’ll need to add to that debt.

This is the cue for the normal shouting match over how this is a matter of no concern versus this is a Ponzi scheme. But the fact remains, the $$$ gets spent, and what remains is the promise to pay it back. Use whatever semantics you prefer to describe that. But there is no money in the Trust Fund.

8

No it doesn’t. It’s all the same government. Congress could pass a law tomorrow transferring all bonds in the SS trust fund to the general fund. Then, since the owner of debt and the organization paying them are one in the same, those bonds effectively go poof.

9

Who gets the bond returns from SS? Investors? Or is it money the government essentially owes itself?

10

The returns from the interest on the bonds is paid out to Social Security recipients, just like the principal on the bonds will be.

11

This is all correct.

This is all true enough. This is how the current system is set up.

(It could work differently. All the money could stay in the Trust Fund, and Treasury would still spend according to its legal obligations. The accounting would work differently, but the end effect could potentially be exactly the same after several more steps are worked out.)

“What remains” is the bonds in the Trust Fund. As you already described them, they are assets and debts together. In your words: “the government collectively has a debt and an asset that are exactly equal to each other. I’ll leave it to you to do the math as to the net worth.”

Another way of saying this is that any debt owed to yourself doesn’t count. If I owe the government a billion bucks, I’m going to have trouble paying that. But I owe myself a billion bucks, there is no burden. That debt toward myself is also an asset for myself, and it cancels out. I happen to be many quadrillions of dollars in debt to myself at this very moment, but I have no concerns. I know I’m good for it.

Debt held by the public is the stuff that the government owes to other people, as opposed to owing to itself. When we’re talking about the real burden of the debt, this is the only stuff that actually counts. You have already done the math on this. Debt held by the public is around 13 trillion.

When someone points out that the Trust Fund is an asset, it’s perfectly valid and correct to note that it’s a debt also. They’re talking about some huge asset, and it’s good to know that the asset is perfectly balanced by an equivalent debt.

But to reverse the case, and start counting all that debt as debt while simultaneously ignoring the corresponding asset that cancels out part of the total would be an outrageous double-standard.

12

That’s not the issue and never has been. The issue is whether the money for future SS payments has already been collected or will be collected in the future. And that’s not an insignificant distinction.

13

Again, this is not the issue being discussed. Nobody is disputing that if I owe you money then you have a genuine asset. And if the government owes you money, you have a real asset.

If I wrote you a check for $1000 and gave it to you as a birthday present, you are now a thousand dollars richer. But if I write a check to myself for $1000 and give it to myself on my birthday, I’m not a thousand dollars richer. A T-bill owned by me or you is like a check from the government. A T-bill owned by the government is like a check to yourself.

14

If you don’t want to think of the trust fund as separate, that’s a perfectly valid way of looking at it. But all that means is that Social Security is just another government program funded from the total revenues that the government takes in. If there’s no “money” in the Social Security trust fund, then there’s no money in the "millitary ‘trust fund’’ or the “Library of Congress ‘trust fund’” or anything else. It’s just a question of do we want to raise enough taxes or finance enough deficit to fund whatever level of Social Security payments are being proposed.

15

As I understand it, the trust fund was never intended to hold enough assets to secure the accrued obligations of the social security system; it was - and is - a buffering or smoothing device to ensure that social security tax rates didn’t have to fluctuate up and down with the year-by-year cost of social security payments, the exact level of which is vulnerable to a variety of economic and demographic variables.

So, in answer to the issue raised in post #12, the money for future SS payments has, in substance, not yet been collected. Those future payments will be largely funded by future social security (and, if necessary, other) taxes. That’s how it was always supposed to work. The whole point of a social security system is to provide an efficient way of transferring assets from citizens who are producers to citizens who, for reasons of age or infirmity, are consumers.

16

Wrong. The solvency of SSTF is a completely separate question from how SSTF should invest its surpluses. The demographic change leading to SSTF deficits would be there whether the lockbox had U.S. bonds, Canadian bonds, gold bullion, or Beanie babies.

Around and around and around we go, with you insisting on the same half-truth. Did you ever answer the simple question I posed for you:

Would the SSTF be $1 trillion richer if it had bought a terabuck of Canadian bonds instead of U.S. bonds?

If you answer No, one wonders what you think all your rhetoric implies. If you answer Yes, you must think SSTF performs magic tricks unequalled in history. (IIRC, you refuse to answer the question. :dubious: )

17

Its entire debt is subject to interest. So, I’m not sure we’re in disagreement at all, but I’ll clarify. Debt that requires future debt to take care of it, including interest, is a model that leads to an ever-increasing debt load, not simply a mathematical wash. That’s our likeliest scenario: we spend the money with no hope of a future revenue stream to offset the debt payments (with interest). So we add more debt. It’s the equivalent of paying off one credit card with an advance on another. Even if you stopped buying stuff completely, your debt is rising.

But regardless, the money was spent. The Trust has a real accounting asset. The Feds also have a real liability. In the aggregate, there is nothing there but the assurance that the debt will be paid to offset the fact that we spent the dough as soon as we got it.

18

This.

As ever -

You have $10 in your wallet. You take the $10 out and replace it with an IOU promising to put $11 back into your wallet next payday. You then spend the $10.

If you think there’s money in the Social Security trust fund, then you think you have $11 in your wallet.

Regards,
Shodan

19

Exactly. The SSTF is simply a marketing tool without any financial significance. It was created to bolster the appeal of Social Security by trying to convince people that by paying Social Security tax, they are somehow funding their own retirements, rather than in fact paying into the general day-to-day operations of the government.

The amount of funds nominally held by the SSTF has no relevance to the amount of SS tax assessed or the amount of benefits paid in any given year, and it never will. It is a superfluous accounting convention.

20

I’m sure others have already told you that there is no difference between SS loaning the government money and me loaning the government money. The surplus from Social Security did not create the deficit or the debt - Congress did. Whether or not it is too big is another problem entirely. Would you really rather we borrow from China versus ourselves?
Yes the bonds will come due. Same as the bonds in the funds I own. Do you think that the government will default on them?
If you want to complain about the debt complain about the debt. Those complaining about SS are really saying that the bonds are risky if not worthless. The market says otherwise.