But if the bonds are retired, then there’s about $3 trillion less in intragovernmental debt. There has to be some offsetting transaction for that $3 trillion. What is it?
There’s also $3 trillion less in intragovernmental assets.
That’s the nature of debt owed to oneself. If I write a check to myself for $100, I have created an intra-Tildrum debt of $100, but I’m also holding an intra-Tildrum asset of $100. If I deposit the check, I both retire the debt and release the asset. Note that the same result obtains if I tear up the check.
As Hellestal has noted, you are correct that the SSTF’s bonds have political and legal properties that require that certain procedures be followed in how the bonds are handled. Financially, though, they are simply placeholders.
Governmental assets do not count against the national debt as authorized by law. Therefore, tearing up $3 trillion in bonds as you propose would be eliminating $3 trillion worth of debt. The authorized debt of the United States includes an accounting of intragovernmental debt (whether it is Social Security or the civil service retirement funds), and Congress is constitutionally prohibited from passing a law that simply invalidates some portion of the debt.
Some transaction has to occur to retire the credit that the United States has extended to the trust fund, and it would almost certainly have to be that additional debt is sold to the public to offset the intragovernmental debt that is to be retired. Tearing up a bond and declaring it null can only happen if the bond is worthless in the first place, which is obviously not the case because Congress passed a law saying that the debt was valid when it was issued. Congress is specifically prohibited from voiding lawful debts.
I opened up a GQ thread on this 14th amendment question.
The trustees are appointed by the president and congress wrote the law. So?
You still can’t pretend that its all in one big pot with the general fund.
Yeah, I said they were bureaucrats. I never said that social security trustees are not government employees. I said that the social security trust is not the same thing as the general treasury. Sure it could be if congress CHANGES THE LAW but a lot of things could be different if congress changed the law.
If the identity of the issuer and the holder of debt is the same, by common law, the debt is extinguished. The reason government securities held by the SSTF are not extinguished is because the SSTF is not the same as the government. They would have to change the law and dissolve the SSTF or something to make that happen.
You claimed that the Social Security Trust Fund, which was set up by the government, run by the government, whose trustees are appointed by, confirmed by, and work for the government, whose debts are carried on the government ledger, is somehow not part of the government. That claim is false.
Regards,
Shodan
Come on, you should know damn well that common law doesn’t apply when there are statutes and constitutional provisions on how the United States Government handles debt.
That seems like a unnecessary characterization. Social security is simply owed $3 trillion dollars, SSTF doesn’t care where the money comes from. Whether it comes from debt, selling assets or tax revenue. It doesn’t matter to them.
So can I ignore the distinction between me the US government because I own treasury notes and they will only be paying me back with my own tax dollars?
If you read a little closer you would see that I said its not a part of the general treasury. It is separate and apart and you can’t consolidate it with the general treasury no matter how much it fits into your narrative.
So where is the statute that says that the general treasury can hold its own debt?
Presumably, if Congress were to direct the general fund to accept intragovernmental debt from the trust fund, that would be the authorization for the general fund to hold debt. However, simply holding those bonds does not vaporize them as you assert common law would allow, because Federal law (not common law) regulates the formation and disposition of legally issued debt.
To be perfectly clear, in case there’s even a smidge of ambiguity, I think the idea of eliminating the trust funds and moving everything into the general fund (and in essence making the entire Social Security system on-budget in a way that totally guts the entire concept of an income insurance program) is completely and totally whacko. It’s just a plain stupid idea, so please don’t ask me to defend it, in the previous paragraph I’m just explaining it.
[QUOTE=Damuri Ajashi]
If you read a little closer you would see that I said its not a part of the general treasury.
[/QUOTE]
You claimed that the securities in the Social Security Trust Fund are not owned by the government at all.
Do you recognize that this statement was false?
Regards,
Shodan
How would the program change? What would be different about the way Congress sets the FICA and determines benefits?
It’s the essence of the issue. The $3 trillion can only come from tax revenue. The only way my social security benefits can be paid is social security redeeming from its trust fund. The only way the trust fund can be redeemed is through tax revenue. The only place to get taxes is from the American people.
This is why people object to the idea of the trust fund. It’s a $3 trillion dollar IOU to the American people that can only be paid by the American people.
And to comment on your point about the ambivalence of where the money comes from - 1) we’re not selling assets to pay off $3 trillion. That’s so ridiculous I won’t comment on it. 2) All government debt is ultimately backed by tax revenue. Lenders today buy bonds because they know the government will pay them back in the future with either tax revenue or more borrowing. In the future those new borrowers will buy bonds because they know the government will pay them back in the future with either tax revenue or more borrowing. Taken to perpetuity, the only “real” funding source for repaying debt is tax revenue. Borrowing is just delaying the payees of the tax revenue.
Absolutely. That’s the only thing that makes any sense. You should do the same thing with respect to social security. We’re talking about the American people’s ability to meet the obligations we’ve made to ourselves. We already spent that $3 trillion. The only way to pay it back is by taxing ourselves. Yes, we can borrow more to avoid taxing ourselves until later. No, we’re not going to sell Nevada to China.
If FICA revenues are indistinguishable from other revenues, in that they are both commingled in the general fund, then Social Security is no longer a system that can claim to be self-funding, as it is and should be.
OK, so there would be a political change in that respect. The tax and the benefits would not change, though, right? There would be no financial effect from eliminating the trust fund?
I’ve struggled on how to answer this, and I think the most honest answer is, “Probably no financial effects, BUT…”
Let me try to answer it a different way: if we eliminated the trust fund and moved the whole Social Security system into the regular budget, the top effects would be:
-
the issue of solvency of the Social Security matter would be irrelevant, since FICA would cease being the funding mechanism for the system. FICA would be just another revenue, like any other income or excise tax. FICA would simply bring in whatever money it raises to the treasury, and Social Security would cost whatever it costs: there would be no more expectation that Social Security should pay for itself.
-
However, this could also lead to future political debates that could force Social Security to compete against all other Federal programs, such as the Department of Defense. With the firewall broken down between SS and the rest of the budget, it could all be fair game, and who knows what that means.
I think this is an unwise policy, because no American would have a very good handle on what his future benefits may be. Under the current system, with the trust fund and whatnot, if the system remains solvent, or there is confidence that the system will be tweaked to remain solvent, everyone has a pretty good idea that they can count on Social Security in the future. That’s because everyone understands, at some level, that the program is basically run like an insurance program: you pay your premiums (FICA), the premiums go into paying current liabilities (current retirees), and the leftover gets invested (in the Trust Fund) for future retirees.
If Social Security is no longer run like an insurance program, where its books are kept separate from the rest of the government budget, (in other words, not like an insurance program), there will surely be additional concern that some future Congress and President will view defense, transportation, or environmental programs as competing against Social Security revenues and spending. If it is all in one big pot, paid for out of the general fund, it is only natural for an American to question whether Social Security is an income insurance program (which it is today), or a welfare program (which it is not today). I think this has potentially (but not certainly) profound effects on the long-term health of the most wildly effective government program the U.S. has ever created.
That’s why I think the idea of moving Social Security on-budget is plain dumb. If you have ever believed that the Social Security budget has been raided (which is patently untrue), then moving it all on-budget probably guarantees that the program will literally be raided… or, conversely, that other government programs will be made to pay for Social Security programs, which is a whole 'nuther problem.
Ravenman, that’s a good post. It’s a nice summary of your point.
Now let me summarize as well.
If I want to describe the financial effects of the current system as they have existed for nearly eight decades, then using the no-fund system is perfectly equivalent to our present system. For the last eighty years, the alternative no-fund system (properly calibrated) would have taken in the same taxes, paid the same benefits, and had the same debt to the public. To an outside observor, it would have made no difference. Which means if I’m focusing on describing the financial effects of our system, using a calibrated no-fund example has been completely valid for the entire existence of the fund to date. I stand completely by that.
BUT it might not remain valid in the future. There is a (low) possibility of a divergence (like my own example of debt ceiling differences, or your example of the fund running out.)
IN ADDITION, when dealing with the politics of the whole thing, the two systems will naturally lead to vastly different debates in Congress. A no-fund system has to be specially tuned to create the equivalence, and this tuning would not be the result of any natural political process if we genuinely had a no-fund system. This is especially obvious when we’re talking about the possibility of the fund running out, which would be a wholly different discussion from the no-fund general budget discussion. Without our present framework guiding our future political expectations – largely by giving strict future deadlines not present in the no-fund system – the purpose of the system, as you see it, could suffer some major changes.
You’re saying that the political debate is much healthier with the fund existing in the way it does now. I’m not going to argue against that.