That’s exactly my point. If the government spends all revenue and still issues bonds then it is really in debt. How are the bonds held by the SS trust fund not considered debt? Those bonds have to be paid back, with interest, by the treasury.
Focus on the looming Soc Sec and Medicare deficits, which over the next fifteen centuries are estimated to total a Quadrillion dollars – that’s right $1,000,000,000,000,000.00 – has largely become a way for right-wingers to deflect attention from reality. Progressives point to simple statistics that show GWB’s tax cuts are costing the government trillions of dollars in revenue, yet Romney in debate mentioned only the few billions spent on CPB (Hi, Big Bird) as savings to offset tax cuts.
Afraid that numerate citizens would notice that trillions are more than billions, and that restoring 20th-century tax levels would save Big Bird(*), right-wingers adopt a different meme: The quadrillion dollar shortfall in Medicare (which becomes 20 quadrillion over 300 centuries if trends continue) lets them denounce the trillions of revenue derivable from restoring tax levels as “chump change” or “rounding error.”
Executive summary: If a right-winger says it, just ignore it.
(* - BTW, I know Big Bird pays for himself and Romney was actually targeting programs like Nova. I just wanted to make my comments “colorful.” 
)
No. You and ftg are still wrong, as I’ve tried patiently to explain to you every time the subject comes up. In order to argue specifics, I’d ask what you think Soc Sec “should” do, hypothetically, to reduce its holding of “worthless IOU’s.” (Ignore the easily-corrected detail that the Soc Sec bonds are non-negotiable.)
[ul][li] Sell $Trillion bonds to Japan and China for greenbacks; put the greenbacks under the mattress.[/li][li] Sell $Trillion bonds to Japan and China; use the proceeds to buy government bonds of strong economies like Japan, China, Germany, etc.[/li][li] Sell $Trillion bonds to Japan and Wall St. firms; turn the proceeds over to mutual funds for investment in stocks.[/li][/ul]
The question is sincere – it’s hard to argue against the meme that IOU’s to self are worthless without focusing on a specific alternative.
I suspect you’ll focus on option 3 – put the money into stocks – for its higher return. The pros and cons of that would be a subject for a different thread; in this context I’ll just ask: How much do you think American stocks would be worth if Treasury bonds became worthless?
But the bond holder and issuer are the same entity…the government. So an asset for the SS trust fund is a liability for Treasury. It would seem that breaking even is the best case scenario. More likely, future tax dollars will be needed to pay back the bond holder. That seems to equal debt to me.
Abraham Lincoln supposedly used to tell a story. He’d ask people “How many legs would a donkey have it you call its tail a leg?” The people would answer, “Well, if you call its tail a leg, then a donkey would have five legs.” And Lincoln would say, “No, the answer is four. You can call a tail anything you want but that doesn’t make it a leg.”
You can argue that Social Security payments aren’t a tax. But it’s money the government takes so it can pay for a government program. That’s close enough to a tax for all the purposes we’re discussing here. Even if I agreed that it isn’t a tax, calling it by a different name doesn’t invalidate any of the points I’ve made.
FICA is not the income tax. It literally is a separate source of revenue, even though it has similarities to the income tax.
I triple dog dare you to point to where I called government IOU’s worthless. I’ve repeatedly said the government will pay them off. Could you give me an idea of how many times I’m going to need to repeat myself? Will ten more be enough? Twenty? Fifty?
Here, once again, is what I said: when those bonds come due, they’ll be paid off. But they’ll be paid off by taxes that will be collected at the time the bonds come due. Because the money we’re supposedly collecting now to pay for future social security costs is being spent now and it won’t be there when those costs arrive. So we’ll have to pay for them again.
What do I think we should do about it? Acknowledge the situation exists. Stop living the illusion that we’re putting money aside for the future when we’re not. If we admitted we’re going to have to actually pay off all this money someday, we might start rethinking our current spending, borrowing, and taxing habits - all of which are out of whack.
If you want a general prescription, we need to raise taxes, cut spending, and reduce the deficit.
I never said it was income tax. I also didn’t say it was a sales tax or a property tax or a poll tax. I said it’s a tax.
I wasn’t responding to you. It’s clear in my post that I’m responding to ftg who is saying that the bonds are “worthless.” It can’t be a strawman if I’m arguing against the actual point that another poster is making.
What will happen to intragovernmental debt if we raise FICA taxes and cut Social Security benefits?
Here’s a simple way of looking at it. Imagine this is the social security budget for the next twenty years
year - annual cost - SS taxes coll - “surplus”
2013 - 100,000,000 - 150,000,000 - 50,000,000
2014 - 105,000,000 - 150,000,000 - 45,000,000
2015 - 110,000,000 - 150,000,000 - 40,000,000
2016 - 115,000,000 - 150,000,000 - 35,000,000
2017 - 120,000,000 - 150,000,000 - 30,000,000
2018 - 125,000,000 - 150,000,000 - 25,000,000
2019 - 130,000,000 - 150,000,000 - 20,000,000
2020 - 135,000,000 - 150,000,000 - 15,000,000
2021 - 140,000,000 - 150,000,000 - 10,000,000
2022 - 145,000,000 - 150,000,000 - 5,000,000
2023 - 150,000,000 - 150,000,000 - 0
Now up to this point, we’ve collected $275,000,000 in “surplus” and that surplus was used to buy treasury bonds. Let’s continue.
year - annual cost - SS taxes coll - deficit - bonds US pays for
2024 - 155,000,000 - 150,000,000 - 5,000,000 - 5,000,000
2025 - 160,000,000 - 150,000,000 - 10,000,000 - 10,000,000
2026 - 165,000,000 - 150,000,000 - 15,000,000 - 15,000,000
2027 - 170,000,000 - 150,000,000 - 20,000,000 - 20,000,000
2028 - 175,000,000 - 150,000,000 - 25,000,000 - 25,000,000
2029 - 180,000,000 - 150,000,000 - 30,000,000 - 30,000,000
2030 - 185,000,000 - 150,000,000 - 35,000,000 - 35,000,000
2031 - 190,000,000 - 150,000,000 - 40,000,000 - 40,000,000
2032 - 195,000,000 - 150,000,000 - 45,000,000 - 45,000,000
2033 - 200,000,000 - 150,000,000 - 50,000,000 - 50,000,000
In 2033, the government had to pay $200,000,000 for Social Security. It collected $150,000,000 in Social Security taxes and it collected $50,000,000 in other taxes to pay for the bonds it sold itself back in 2013. The government needed to collect $200,000,000 in 2033.
If we had a real surplus and real savings, shouldn’t we have been able to spend $200,000,000 while only collecting $150,000,000? What happened to our $275,000,000 surplus? The answer is we spend it. It’s not out there waiting for us.
Here’s what a more honest social security budget would look like:
year - annual cost - SS taxes coll
2013 - 100,000,000 - 100,000,000
2014 - 105,000,000 - 105,000,000
2015 - 110,000,000 - 110,000,000
2016 - 115,000,000 - 115,000,000
2017 - 120,000,000 - 120,000,000
2018 - 125,000,000 - 125,000,000
2019 - 130,000,000 - 130,000,000
2020 - 135,000,000 - 135,000,000
2021 - 140,000,000 - 140,000,000
2022 - 145,000,000 - 145,000,000
2023 - 150,000,000 - 150,000,000
2024 - 155,000,000 - 155,000,000
2025 - 160,000,000 - 160,000,000
2026 - 165,000,000 - 165,000,000
2027 - 170,000,000 - 170,000,000
2028 - 175,000,000 - 175,000,000
2029 - 180,000,000 - 180,000,000
2030 - 185,000,000 - 185,000,000
2031 - 190,000,000 - 190,000,000
2032 - 195,000,000 - 195,000,000
2033 - 200,000,000 - 200,000,000
By 2033, the Trust Fund in this scenario is exhausted. In 2034, without any change in law, there would be a $55 billion shortfall in the program and benefits would have to be cut by about a quarter… no matter how much income taxes are collected. You should include a column in your tables showing the total amount in the trust fund, then it will be apparent where the $275 billion went.
In your preferred scenario, are you just suggesting we get rid of FICA and have the SS program funded entirely by increasing the income tax?
Call me pusilannimous if you wish, but I’d not accept even a double dog dare! What I do contend is that you’ve repeatedly contended that the IOU’s have some (poorly-defined but bad) special status because they are debts to oneself. To guide your thinking I asked specifically how you would replace them (stocks? Japanese bonds? banknotes under the mattress?) and, for the umpteenth time, you declined to answer.
Look:
Independent of Soc Sec, is deficit financing of the government dangerous in the long-term? Yes.
Independent of the rest of government, do demographics mean the financing of Medicare (and, to a much smaller degree, Soc Sec) need to be reconsidered? Yes.
All I ask is that we stop conflating these real issues with the silly useless and ignorant meme that Soc Sec investments are ill-founded because they’re “debts to self.”
OK?
I have answered it. I’ve said what I think will happen - when social security costs rise, the government will increase taxes to pay those costs. I don’t know if the government will raise social security taxes specifically or raise other taxes and transfer money into the social security program.
The only “special status” that the IOU’s have is that they are creating an illusion that too many people apparently believe: that we are currently putting money aside for future use.
Whether or not we should be trying to put money aside for future use and what program would best accomplish that are separate issues.
We’ve gone around and around on this; you do seem to be withdrawing from the alarmist “debt to self” meme, a hopeful sign of decreasing ignorance. And I do think you’re aware that The National Debt does include funds owed to the Soc Sec Trust Fund.
BTW, did you ever finally comprehend the roulette “martingale”?
Of course it is a tax - but it is a different tax, which goes to a different place, than the income tax. Just like California tax on my paystub goes to a different place from federal tax.
Of course they are debt, but the need for bonds to cover the debt is from the federal budget, and has nothing to do with Social Security. Say we raise the payment ceiling and SS then has a massive surplus. What do we do with that money. Buy more bonds of course, as is legally required. But does that raise the deficit? Not at all - it just means that the government has to sell fewer bonds to other people. If you think Congress would all of a sudden balance the budget if the SS money went away, or even reduce the deficit, you have a much warmer view of them than I do.
I read the first 20-30 posts so I think I have an idea of what’s at issue and would like to raise the following issue. What if there were an SSTF surplus and the money were simply put aside? I think that is the idea a lot of people have of how it should work. The problem though is that this would be virtually identical to systematic reduction of the money supply.
To see why, just look at how things work now. Money comes into the fund, it goes out to buy bonds and is eventually spent by the govt. IOW, it’s first taken out of the economy in the form of a tax, but it is then put back in via govt spending. No effect on the money supply. Actually, there is or can be, but that’s not relevant here.
So what other options are there? Honestly, I’m not sure there are any. For an individual trying to save for a future expense, the common advice would be to invest in assets that had the right combination of risk and return for your needs. For the SSTF though, wouldn’t that mean buying entire countries or something of that magnitude? Not to be flippant, but I’m not really sure that any suitable asset classes even exist that would be appropriate.
edit: if it’s not immediately obvious why simply reducing the money supply in the short term would mean anything, or is even something govt (i.e., other than the fed) should even be involved in, let me know.
You’re not wrong. But there’s widespread confusion about how money works and widespread confusion about Soc Sec. Combine the two and you get some far-out ideas.
In earlier threads, one Doper wanted the SSTF to keep actual greenbacks (“real money”) rather than invest in risky gov’t IOU’s. :rolleyes: Though he seems to be backtracking from the position now, another Doper thought that buying Canadian bonds rather than U.S. bonds would be a “real” investment in a sense that “loans to one’s self” would not be. :smack:
Since the SSTF’s size (about 2 teradollars) is dwarfed by total American stocks (30+ teradollars), putting the funds into stocks might seem plausible. But there are so many flaws associated with that idea, one wouldn’t know where to begin in debunking it. GWB proposed it of course and, silly as it may seem, I’d guess many right-wing Americans think he was advocating in their interests rather than in the interests of Wall St. and present stockholders.
The idea would probably never fly, but I think you could make a plausible argument for using the SSTF to finance basic research, and not just biomedical or health related. The idea being investment and return have to be interpreted differently in this context. The “return” you really want is the means to efficiently care for an elderly population while giving them a desirable quality of life.
Is money really the most important component in realizing a satisfactory return when you look at that way? Probably not. You want things like effective medications with no side effects, cost effective therapies and delivery systems, ways of extending the period of time people can live independently, etc.
And a lot of those answers aren’t going come from asking those questions. They’re going to come from entirely unexpected sources some of which probably can’t even be imagined right now. So the investment you really want to make to get the “return” you need is probably the last thing anyone will even suggest.
An IOU from yourself to yourself is always worthless. It in no way shape or form matters who you are.
This is incredibly simple and trivial. I have no idea why people think that the government is somehow exempt from such a simple property.
The money from the Reagan era SS tax increase was spent. Gone. That is why we have to pay it back a second time to continue funding SS.
No investment works that way. You don’t put money into an IRA, and then 20 years later have to put the money back again in order to restore it’s value. Ergo, it obviously was never invested in the first place! It was spent.
The argument that government notes are really safe, etc. is purely a sidetrack. A government cannot invest in it’s own securities. That’s accounting fraud.