The government also borrow money in excess of the money it borrows from the SSTF which is then spent on government stuff.
If we were retiring public debt while increasing SSTF securities, thats one things but if we had not been borrowing that money from the SSTF, we would have been borrowing the money from someone else.
Pen.
Paper.
Fifteen minutes.
Get out a pen and paper and work through the steps.
Then work through the situation of the SSTF not existing.
Compare the results.
Just because Congress has created a legal distinction between two things does not mean it has created a practical distinction. This comes up all the time in tax incidence, and now I see the cognitive bias is even more pernicious in government budgeting. I’d be happy to work through the scenario of the SSTF “losing money” because of a deficit. I can do that. But so far, two lawyers have been shooting from their hip on this rather than reaching for a calculator. You will really understand this, bone deep, if you work through it yourself.
I’d hate for yet another economics debate to come down to different definitions of money. I’ll just use the term value from now on.
So what would you have done with all the excess funds collected over the years? There’s no question that taxes collected exceeded social security outlays. Are you saying we were right to have just spent it all, but we shouldn’t have the farce that it’s still in a trust fund waiting to be spent?
By the way I don’t actually think the trust fund should’ve been buying securities on the secondary market. That was just my way of trying to explain that that annual excess funds didn’t necessarily need to increase borrowing, but that in reality they did.
Primary dealers are not the only ones that can buy from the treasury and i would think that the SSTF would have acces to that primary market.
And I think the notion is that the SSTF in that hypo is buying loony bonds.
You seem to be implying that the money in the trust fund comes from the government writing itself checks. The money in the trust fund comes from the taxpayers paying their Social Security taxes and interest on the bonds bought with the money - interest which would be paid if the bonds were sold to the public at large.
Not to mention that the check I wrote myself, even in your incorrect example, would be worth a lot if I were CEO of a major company and could vote myself a bonus.
I understand that
The question isn’t “does the SSTF make a difference on the federal balance sheet?”
The question is “is there money in the SSTF?”
The argument has been that since the securities held by the SSTf is money owed by the government to itself, there is no money in the SSTF. But the SSTF is not simply a T account for the treeasury, it is a separate trust that has separate rights and obligations.
I understand that there would be little balance sheet difference for the federal government if the SSTF didn’t exist. This does not mean that the SSTF actually doesn’t exist. The SSTF holds US obligations and if the SSTF has to pay out more than they have to pay in, then they need to redeem some securities (or collect interest) to pay its obligations. The US government must actually pay on those securities, therefore those securities have value.
Do you have any evidence of this? I’ll agree that people in general are confused about the trust fund, but people in general don’t vote on budgets and spending bills. Are our representatives so ignorant of the reality of SS (I’m not assuming that their tirades are what they really think.)
Money is now flowing out of the trust fund. Under your model we should be reducing spending as a direct consequence of this. Are we? Has the deficit been exactly the trust fund surplus each year? Or do we go way beyond that?
At least you hit on a possible real issue. If Congress was spending the surplus because it is there, we’d have a problem. Resolved by getting a new Congress.
Here’s a research paper by the National Bureau of Economic Research that looked into the exact issue: http://www.nber.org/papers/w10953.pdf
This is a nice summary:
[QUOTE=NBER]
Overall, our results suggest that government saving has not increased despite the almost $3 trillion accumulated in trust funds since 1985. Future generations may have lower payroll taxes than they otherwise would have, but they will not have more resources. They themselves will have to finance their lower payroll taxes with higher income taxes (or lower government spending). The intergenerational burden sharing envisioned by the Greenspan Commission has been thwarted.
[/QUOTE]
I also think this section did a much better job of making the point I was attempting to, especially the last paragraph where they clarify that they’re not literally suggesting individual account, just illustrating an argument about how accounting for the excess funds effects how we budget.
[QUOTE=NBER]
The issue regarding whether the unified budget affected the legitimacy of the trust funds can be looked at another way. Consider a counterfactual situation where the excess payroll tax receipts were used to fund individual accounts rather than to purchase government bonds. In fact, to make the two cases almost identical, consider what would happen if the individual accounts were 100% invested in U.S. government bonds. At first glance, the money available to the rest of the government would be unchanged. However, the funding of individual accounts would almost certainly be treated as an expense. The interest payments on the government bonds in the individual accounts would also be treated as an expense. The budget surplus would be lower by the amount of the cash flow surplus in social security and the other trust funds (the new deposits into accounts) and the interest payments received on existing bonds. That is, the surplus would have switched from what we now calculate as the unified surplus to the much lower federal funds surplus. The saving in individual accounts would not be treated as part of the surplus and thus less likely spent by the rest of government.
However, this accounting change could be adopted without individual accounts; what would be required is separating the trust fund accounts from the rest of the budget and reporting the federal funds budget as the primary assessment of the government budget and the target for balancing at full employment.
[/QUOTE]
There IS a practical distinction. Only FICA funds the SS retirement program, only surpluses from FICA collections provide assets for the Trust Fund, and so on.
You can’t just ignore the law and say it has no meaning because you can put an Excel table together on the overall government budget. The Social Security system does not have access to the funding streams available to the general government (whether from income taxes, fee collections, or excise taxes), and the general government does not have access to the FICA funding stream. You can’t simply pretend that isn’t the case because 10 plus 1 does indeed equal 11.
ETA: let me say this another way. If there was no practical distinction between the SS system and the rest of the government budget, there would be no need to adjust FICA or benefits when the Trust Fund runs dry. But that isn’t true, so there is a practical (as well as legal) distinction, QED.
If the world were filled with clones of me, I can think of a million things we’d do differently.
But having done what we did, the most honest way to express the way the federal budget actually works, as it’s currently instituted, is to acknowledge that the SSTF doesn’t actually change the budget situation.
There’s a flip side to this. Anyone who has complaints about the real substance of Social Security shouldn’t be talking much about the Trust Fund, either. It’s one thing to acknowledge a mirage as a mirage. It’s something else to criticize the mirage on its own terms, as if fictional faults can somehow be a real detriment. At least some of criticisms of Social Security fall into that camp.
That is not entirely or substantially accurate. The social security system does have de facto access to those funding streams through its nearly $3 trillion worth of treasury bonds. It’s true that US Treasury bonds are virtually without default risk. That’s ultimately because they’re backed by the federal government’s ability to tax. If you believe the social security administration can count on its $3 trillion investment then you must also believe they’ll ultimately be paid through non-payroll taxes, like income tax.
When the trust fund is exhausted social security will need access to new income. Much sooner than that it’ll need to rely on the federal government to come up with ways to pay back the trust fund. That’ll either require more borrowing or raising non-payroll taxes.
The one bona fide advantage I see to the trust fund is that if you’re a Democratic congressman, who wants to prolong social security, you’re slightly better off having the federal government “owe” the $3 trillion to the social security trust fund when negotiating with Republicans.
Defaulting on our debt isn’t a realistic option, so we have to do something about it. Since it’s debt the federal government owes, they have easy access to any funding source. If the trust fund is gone and its social security itself that’s insolvent then you can only fiddle with the payroll tax.
I admit it’s an awfully minor distinction and if you had a less adversarial congress that actually wanted to find a compromise it wouldn’t matter much at all.
Can Social Security retirement programs use general revenues to address the solvency issue? Of course not. Why? Because Social Security cannot legally access those funds. It’s a vast overstatement to say that the SSTF has access to general revenues on the basis that securities are paid for with general revenues.
If you went out and bought a mess of government securities, I would not say that you have access to the general revenue of the United States Government. It’s therefore consistent to say that the SSTF is in the same position.
If I bought $3 trillion worth of government debt, would you agree I have access to about $3 trillion worth of government revenue? Most people who understand government finance would. Obviously I’m being a little poetic about my use of the idea of having access to funds, but my meaning is a lot more correct than your useless nitpicking.
Obviously some social security clerk isn’t going to barge into congress and state they’re taking over.
Respectfully, you’re putting too much weight on names of things, and down that road lies magic-words tax-protester thinking. Yes, the assets in the SSTF are called bonds and are constitutionally guaranteed. But that has no practical significance for bonds that the government owes to itself.
Congress could abrogate the SSTF in a few sentences if it chose to, completely in keeping with the Constitution:
Thus, the bonds are retired without constitutional difficulty, the trust fund is defunded and bypassed, Treasury’s balance sheet is unaffected, and the individual citizen’s taxes and benefits stay the same. In other words, the SSTF is taken out of the system in a day’s work, and nothing changes. That’s why we’re saying that the SSTF has no financial significance.
You would be paid back with government revenue, but I don’t think that’s what anyone understands as “access.” I get my paycheck from Uncle Sam, yet I don’t believe that I have access to government funds on that basis.
You’re way off base here. The tax protester line of thought is to use nonsensical terms out of context to create legal fictions. I’m using the words “bonds” or “securities” perfectly in line with the actual legal definition of those terms: I’m doing the exact opposite of using magic words. What you’re doing is trying to obfuscate the fact that the law has definitions for these terms, and that those definitions mean something. I’m afraid that you are actually taking the tax protester tactics of trying to confuse the plain reading of laws in order to suit one’s own interpretation of “the way things really are/should be.” The laws on the books do have practical significance because the bonds bought by SS revenues are, in fact, guaranteed by the full faith and credit of the United States. You might as well be arguing that Republicans are liberals and Democrats are conservatives: you’re just simply wrong on the bolded portion, and it is a cold, hard fact that you are in error.
Congress is equally free to disestablish the SSTF and require the repayment of the bonds in a fully constitutional matter. Congress is equally free to eliminate Federal criminal law, but that doesn’t mean that the law against robbing banks doesn’t exist (either legally or in practicality).
But even still, with the law that you proposed, you’re still acknowledging that the SSTF has value. That’s exactly what #1 in your amendment does, and what the OP asked about: does the SSTF have value? Yes, of course it does. If you bought into the Shodan refrain of the SSTF having no more value than a legally unenforceable IOU one might write to themselves, you’d have left out both #1 and #2 in your bill and just gone with #3. So, why did you write your law that way? The only possible answer is that the SSTF has assets, and it is worth something, and has to be dealt with in a way that satisfies the 14th Amendment.
No, that is a bad analogy because it does not correspond to the circumstances.
A better analogy is:
I deposit $10 with a bank. The bank spends the money on new carpets. A year later I want to withdraw my $10. The bank says “Sure. Give us $11 and you can have your $10 back.” Do I have money in the bank in that scenario?
Regards,
Shodan
Every one of your analogies are awful because none of them have any relation to reality. Whether it’s trying to make people thinks that a legally unenforceable IOU is the same thing as a government security backed by the full faith and credit of the United States, or this absurd scenario which doesn’t even match up with Hellestal’s simplified, but generally accurate, scenarios presented earlier; every gotcha question or nonsense scenario you have presented has no more accuracy than flinging anti-government poo against a wall to see what sticks.
I urge you to stop presenting these bizarre “the government is a ripoff” hypotheticals. Please.
Do you understand that Social Security is a government program?
Look, I will explain what happened.
The government took money away from the taxpayer in order to fund Social Security benefits. But they took away a lot more money than they needed to pay Social Security benefits. So they spent the rest of the money on everything else the federal government spends its money on - health care, defense, interest on the national debt, $200 hammers, guns for Mexican drug lords, etc. In order to keep track, the government put a special kind of IOU on its books.
The IOU says that the government spent the Social Security money on non-Social Security things, and that the government will pay the money back when it is needed for Social Security benefits.
OK, now the government wants to send Aunt Bertha her Social Security check. So they go to the taxpayers, who sent the money in to pay Social Security benefits, and say, "You sent us money to pay for Aunt Bertha. Instead, we bought knee pads for Monica Lewinsky. Remember how you sent us $X? Now you have to send us $X plus interest. Because now we really are going to give it to Aunt Bertha. Really. "
That’s why there is no money in the Social Security trust fund. The money that the taxpayer sent in was spent, and not on Social Security. It was spent on other things. If there were money in the SSTF, then the taxpayer would not have to send in more money to pay for Social Security benefits - the Social Security benefits could be paid with money from the SSTF.
But there isn’t any money in the SSTF. All the money to pay for Social Security benefits has to come from the taxpayer again, to make up for the fact that all the money the taxpayer sent in earlier to pay for Social Security was spent on things other than Social Security.
When people ask “is there money in the SSTF?”, what they are asking is “is there a source of funding for future Social Security benefits other than future taxes?” No there isn’t.
[QUOTE=Ravenman]
Every one of your analogies are awful because none of them have any relation to reality.
[/QUOTE]
No, in fact they are exactly on point.
Do you believe there is money in the SSTF?
Regards,
Shodan