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

Great Debates
61

How do you think the government converts a government bond into cash? It does it by collecting taxes. There’s no money in the bond itself.

The situation would be different because right now we’re collecting more social security taxes than are needed to fund the current program. And we’re being told it’s okay because the excess money is being “set aside” to fund future needs.

But that’s not happening. When those future needs arrive, we’ll have to collect the exact same amount of taxes to pay for them as if we hadn’t set any money aside at all. Instead of collecting taxes to pay for the social security program, we’ll be collecting taxes to pay for the bonds that we’ll use to pay for the social security program. But it’ll be the same amount of money.

And when people finally realize this, a lot of them are probably going to retroactively wish that they hadn’t paid all those excess social security taxes that we’re paying now.

62

Except that, if they hadn’t paid that money by way of social security taxes, they would have paid it by way of higher general taxes; or they would have enjoyed less by way of government services; or the public debt would be higher; or some combination of all these.

63

And there is no money in your savings account, and definitely no money in your 401K, since all of those things would have to be converted to cash to get your money. And the risk of that not happening for stock is a lot higher for government bonds. The risk of it happening to your savings account is a bit lower because the government guarantees it. There is a reserve fund right? I wonder how they store the money they get from banks to fund it. Bonds perhaps?

I’ll ask again - if we didn’t buy bonds with the excess funds, and stored them under a mattress, would total government indebtedness be any different?
The market says that the risk of government default on bonds is very low - thus the low interest rates. Are you saying the bond market is stupid?
If the bonds hadn’t been sold to the trust fund they would have been sold to someone else, and we’d still be paying taxes to pay them off. What part of this don’t you get?

We’re getting very close to the point where I ask you to send me your worthless T-bills.

64

When I was a kid it was 65. It is 66 for me. So the two year increase has already happened. We’ve already raised the cap without the roof falling in. It would be a way to reduce income inequality, among other benefits. I wouldn’t mind - though I don’t have long before I’m a SS collecting parasite.

65

Perhaps. But people would have at least been aware of how much money was being spent and how much would have to be paid in the future to fund social security. As it is, most people are going to be shocked when they finally realize they still have to pay for the social security program they thought they had already paid for.

66

No, because if the money hadn’t been set aside, we’d still have a $17.6 trillion debt to deal with and we’d have to pay for Social Security. Revenue would have to be higher to deal with the debt and Social Security than it would be to deal with an identical debt that includes Social Security.

67

I gave the example earlier in this thread of getting a birthday check. If I gave you a check for $1000, you’d be a thousand dollars richer. If you gave yourself a check for $1000, would you also be a thousand dollars richer?

In fact, why limit yourself to just one check a year? Why not write yourself a check for a thousand dollars every week? That’ll give you $52,000 a year, which is a good income.

68

The Social Security Trust Fund is part of that $17.6 trillion debt. So the debt wouldn’t be $17.6 trillion if it didn’t include the trust fund.

Now maybe we would have just gone ahead and borrowed all that money anyway. But I don’t think so. As this thread shows, a lot of people don’t understand how the trust fund debt works and they think it isn’t a debt. So they’re happy to spend money now because they don’t understand how big a debt they’ll have to pay in the future.

69

I think the biggest problem people have who don’t understand that Social Security Trust Fund is that they are correctly realizing that the excess funds could have been used to increase our national savings / reduce net spending. For some reason they just can’t go the last mile and realize that in fact it did not do that.

We could’ve said that each year that this one area of government has excess funds that we want to save, we’re going to invest them in treasury bonds. But since we want to actually save it, we’re not going to buy special non-marketable bonds that are only issued to soak up the social security excess funds. Instead we’ll buy up marketable bonds from whoever is holding U.S. government debt. China, Goldman, CALPERS and other large pension funds.

That would be loosely analogous to a corporation doing a stock buyback, except with debt. Social Security would still have all its money in the safest security available, but it would’ve used its excess funds to reduce the public debt.

It’s true that if you went back in time and excluded all the non-marketable trust fund debt that Treasury has issued, they almost certainly would’ve issued more regular debt to offset the lost borrowing, rather than actually spend less or raise taxes. The difference is it would’ve been perfectly clear to people that we were indeed borrowing more, without the confusion about assets and liabilities that most people don’t get.

70

Hunh!?!?

You say that the bonds are not valueless but there is no money in the trust fund?

71

I suppose they could do that (they could do a LOT of things) but they haven’t and until they do, the social security trust fund has trillions of dollars worth of securities in it.

72

A better analogy would be:

You deposit $10 with a bank. The bank lends the money out and puts an IOU for in your account. Does the bank’s promise to pay you have value?

Now assume that the bank has the full faith and credit of the US government.

73

Thanks for the very thorough post, and please don’t be disappointed if I do not respond point by point, as that would be an unreadable post. However, let me raise a few issues:

First, and again, one cannot compare a legally unenforcable IOU to one’s self with a bond backed by the full faith and credit of the United States. The bulk of your post did not deal with this issue, of course, other than your opening statement that you do not concede the point. I’m sure that nearly everyone else understands that there is a fundamental difference between a legally worthless piece of paper and one that is guaranteed to have value under the Constitution, even if some posters here quibble with that obvious distinction.

Second, you say that money is fungible. As a general principle, and in most applications, that is entirely true. But the difference in this case is that the fungibility of money is limited by law. At the very basic level, no matter how much is collected in income tax, none of those funds may be used for Social Security retirement benefits. Similarly, funds appropriated to the Department of Interior may not be used for military salaries, even though both agencies are part of the Federal government.

This is important because the SSTF is, in fact, practice and law, a system designed to limit fungibility. The whole intent is that FICA revenues over time dictate the solvency of the SS retirement system. If money were truly fungible from a government-wide perspective, this would not be the case. But if my mother had four wheels and a transmission, she would be a car.

Finally, all the numbers that you presented about whether the SSTF makes a difference in the overall Federal budget are pretty much on-target. But the point of the SSTF is not to make a difference in the overall budget, it is to insulate the SS system from the budget dynamics of the rest of the government. Just like how corporations often own subsidiaries that have an independent legal identity from the parent (like how Otis Elevators and Sikorsky Helicopters are owned by the same corporation, but function independently of each other) the Social Security system has its own identity in order to achieve various policy objectives. Your arithmetic, while pretty much on the mark, does not address this fact, which is the central issue in this discussion.

74

He’s right. If I have a closet full of gold, I don’t have a closet full of “money.” I have a closet full of stuff that is worth a lot of money.

75

What if the social security trustee wanted the money to make social security benefit payments instead of to lend the money right back to the treasury?

76

what!?!:confused:

Those securities don’t belong to the government. They belong to the trust fund.

77

Its not really your wallet, you’re holding the money for someone else.

78

…I can’t even remotely agree with this. No one would have noticed anything.

Literally the only people on earth who would care are the primary dealers who earned a commission from buying directly from Treasury and then immediately reselling to the fund. They’d be making a penny or two, buying from the government and then reselling to the government. That penny would be multiplied a few gazillion times. Debt held by the public would remain relatively steady after all transactions were complete (except for those pennies), and anyone looking at the markets would notice nothing. It would be completely invisible.

The only thing that would splash cold water on the faces of anyone who thinks the fund is important would be to eliminate it entirely and see how absolutely nothing about our budget situation has changed. And yeah, that ain’t gonna happen. As another poster said, it’s a great “marketing tool”. It’s way too useful politically for the government to admit that it’s meaningless.

79

But the SSTF isn’t growing so when they ask for interest or redeem securities, they aren’t turning around and putting more net money into the fund. The money is leaaving the fund.

So if SSTF has $100 coming in and $15 going out and needs to redeem some of those securities to make up the difference, Treasury’s willingness and ability to redeem the seucrities makes a difference.

80

Or we could just remove the social security cap and the entire problem goes away.