I know that there is a current debate going on about the privatization of SS, so I’m going to try to keep this to a factual question.
I was listening to The Majority Report last night with Sam Seder. His guest on the show was Roger Hickey, of OurFuture.org. The topic was Social Security.
As one would expect on Air America, they were trashing President Bush’s plan to partially privatize Social Security. Mr. Hickey took the position that SS was perfectly solvent until at least 2055. When asked by Sam Seder about the potential financial impact of the twin “problems” of people living longer and the aging of the Baby Boom generation on Social Security, Mr. Hickey said “That’s why we’ve been paying extra taxes for the last thirty years.”
The way I read (heard) his statement was that there was a pile of money sitting somewhere that has been growing for the last 30 years due to extra monies being paid into it by taxpayers.
This, naturally, sent a red flag up in my mind. I don’t believe this to be so. Not having access to the government’s books, I, of course, can’t verify this. I’m not neccessarily expecting the Dopers here to be able to give me a 100% ironclad guarantee of anything either, but I was hoping that at least someone here could help me determine how factual Mr. Hickey’s statements are. They sould very dubious to me, but knowing very little about economics, taxes and Social Security, I turn to you for help.
The question, then, is this: Was Mr. Hickey correct in stating that the taxpayers of this country have been paying extra taxes for the last thirty years to finance the Social Security retirement guarantees of the Baby Boom generation (which is first beginning to retire now or in the near future)? Is this money sitting in an account somewhere? Or is Mr. Hickey completely off?
Zev Steinhardt (who is funding his 401k fully just to be on the safe side)
Extra taxes have been paid for years to fund the “bubble” when the boomers retire. Where is the money? Why, the government loaned it to itself, by buying treasury notes with it, thus guaranteeing that the money will still have to come from debt, as there is no surplus available to redeem the T-bills. So the answer to your question is, yes and no.
We have been paying more taxes but unfortunately the government has spent it on other thing. Instead of having a pile of money we have a pile of T-bills and other bonds. Its earning interest which is good except that tax payers are also paying for the interest.
So (to put this in layman’s terms), it’s as if I borrowed from my 401k. I’m paying interest on it, but I’m paying the interest to myself. But the money is not there to grow in the interim. Is that correct?
Can the government just set aside the money in the Social Security trust fund rather than buying T-bills? I think that buying T-bills is the way that the government sets aside money.
The debate is somewhat semantic. There is no huge pile of loot like you would find in Scrooge McDuck’s basement. The extra taxes over the past 20-30 years have purchased a large stack of non-negotiable treasury bonds. These are special bonds that no one else can own. The Social Security trust fund owns them and the US Treasury is obligated to repay the bonds in the future. The cash the treasury took in by selling the bonds has long since been spent.
Now if your 401(k) held treasury bonds, that would be an asset. You would think of the funds as real. If you retired holding a big stack of treasury bonds, you would live on the interest and feel quite secure. You have an asset and the government has a debt.
When the Social Security trust fund has the asset and the US Treasury has the debt, how would you see that? The fellow on Air America clearly sees the Social Security trust fund as flush with assets. His critics would see the trust fund and US Treasury as mere accounts within the US Government. From that perspective, there are no assets. The assets of the trust fund exactly nets with the debts of the treasury.
So (to revise my anaolgy), then it’s basically as if I took money from my piggy bank, wrote an IOU for it (which I would be obligated to pay when it came time to withdraw from the piggy bank) and claim that the money’s still there.
The bottom line then is that there really is no money at all - the people who are retired in 2020 will be paid by the people who are working in 2020; not by some money that they put aside in the 1990s.
That’s a pretty good understanding. Another way that I would look at it is if you borrowed from your 401(k) to pay the interest on your credit cards, continued to spend more than you earned, and made up the difference by continuing to use your credit cards. The people (or foreign governments) who purchase US loans are equivalent to the credit card companies willing to loan money.
To expand on other’s comments, it is part of the $7.56 trillion dollar national debt. National debt clock and it is kept track of by accounting.
The fact that our administrations haven’t done much in the past 20-35 years to pay down the loan principal worries me and many others. How do we pay back the Social Security part of the loan when baby boomers start retiring is droves when we haven’t shown any inclination to pay it down for other reasons?
No, no, no, Zev, you have to think like a politician. Social Security is completely funded for years to come! There is no problem. They have all these T-bills they can redeem for the cash it needs. So retiring Baby-boomers, vote for me!
On a completely unrelated note, the U.S. Government is swimming in debt due to the reckless spending of the other political party (does not matter which)! A day of reckoning will come and taxes will definitely go up if you keep them in office. Vote for me!
I’d say your analogy is pretty accurate. But keep in mind, unlike you, the Government has the power to tax and print money. There is no real risk the debt can’t be paid. There is some risk that repaying the debt could damange the value of the currency or the overall economy.
Just in case you weren’t aware, Social Security is a transfer. The money you pay into it is immediately disbursed to retirees. Unlike so many people seem to think, you do not pay your money into a retirement investment and then get your money back when you retire. Your money is transferred today and when you retire somebody else’s money will be paid to you then.
The problems with Social Security arise because the mass of baby boomers didn’t have many kids, because life expectancy has grown, and because soc. sec. benefits became relatively generous when the baby boomers were there en masse to pay into it.
The big piles of money that everybody talks about are the result of the Social Security Admin. taking a look at the demographics and realizing that the baby boomers didn’t have enough kids to maintain the (what is in some sense a) pyramid scheme in such a generous fashion. So they started putting some money aside to help out when crunch time comes.
Keeping those funds as a pile, like Scrooge McDuck, would guarantee a significant loss of value for those funds. Buying treasury bonds is a way to invest the money in a nearly riskless asset.
Fundamentally, the only way to “fix” Social Security is to raise the age of eligebility and cut back the benefits to match the ability of the working people to pay into it. That means each generation, for lack of a better word, has a choice between having lots of kids and generous social security benefits, or having few kids and small social security benefits.
Social Security is not, as many imply, a federally-enforced 401K program. Privatizing the program would not mean “putting it into private hands,” it would mean a fundamental overhaul where it goes from a transfer to a federally-enforced 401K program. Suppose this were done today. Then you & I would still have to continue paying some amount into Social Security to fund the benefits of current retirees, and then pay another amount—in addition to the first payment—to put money into our federally-enforced 401Ks.
If it were an investment, yes. But its not really an investment. By replacing the cash with T-Bills, we have borrowed from future taxpayers, who will have to come up with the money to satisfy the T-Bills. So it’s more like taking out a mortgage in your children’s name, and then spending the money on some cool guns.
You often hear of the “Social Security Trust Fund”. I don’t believe there actually is such an animal.
There are two funds, the Old-Age and Survivors Insurance(OASI) fund and the Diasability Insurance(DI) fund.
The assets of OASI are entirely “special issues” and a very small amount of cash.
The assets of DI are almost entirely “special issues”, a small amount of marketable securities and a small amount of cash.
The “special issues” are special in two ways. These government debt securities can only be issued to one of the funds and the securities can only sold back to the government, not on the open market.
A fact few know - In 1982 the OASI fund came breathtakingly close to be fully depleted during one month of that year, like 30 days. This required the fund to borrow from the DI fund, which has been fully repaid. The amount was in the billions, but how much is virtually impossible to determine, as no one in government wants to reveal it.
NO. No such pile.
The “Trust Fund” is a book keeping fiction, ‘cooking the books’ if you will, to reassure SS recipients that ‘all is well.’
Beware of all BS floating around about how the proposed personal ss acconts will ruin the system.
It sure will for the politicians who can’t keep ther hands off your money.
(Forgive me for posting while drunk. I had some friends over for a ‘Will and Grace’ marathon.)
There is not, and cannot be a Big Pile of Money somewhere. Consider two real-life examples:
Panama keeps all its CSS (the local version of the SSA) money in the Banco National De Panama, a private bank. Heck, the national treasury is kept there. The BNP loans out the money around the world. When the CSS writes a check, the BNP forecloses on an orphanage somewhere and sends the money to a bunch of retirees.
When the (former) President tried to force the CSS to buy government bonds (IOUs, that is), the labor units went nuts and launched a series of nationwide strikes. They realized a government bond was just a promise to pay you Tuesday for a hamburger today.
Now consider the case of the US. The amount of money is freakin’ huge. If we gave it to the banks, it would flood the economy all to heck. The SSA instead buys the most secure of all investments with it. They buy US government bonds.
The bonds are just like really big savings bonds. You pay fifty bucks and in twenty years the government taxes you to pay you 100 bucks.
Social Security money goes into the general fund via the purchases of government bonds by the SSA.
What else could you do with so much money? Mattresses only come so large, there is an upper limit. The only borrower who can suck up so much money is the government itself.
I would write more, but I am really crocked on homemade wine.
You are using a bad analogy—it is not like that at all. If an individual buys a bond from the government, then it is an investment. It doesn’t stop being an investment because some subset of the government borrows from another subset. The money paid for the bonds is used for spending on the items worked out by the executive and legislature. The notion that the money can just sit in Scrooge McDuck’s basement is a non-starter. Investing it in private bonds entails more risk. Investing it in government bonds means that some of today’s money is going to fund things like schools, infrastructure, police & defense, and so on. While you may consider those to be the equivalent of “cool guns,” their equivalence is neither a fact nor a factual explanation of the Social Security system.
The situation is plain and requires no false analogies from the “rightwing news” to make it more clear. The Social Security administration sets aside a portion of the payroll tax to fund future projected shortfalls. Since hoarding means a guaranteed loss, and since private investment vehicles are risky, it buys bonds from the Treasury. These bonds pay back to the Social Security administration according to a set schedule and set amounts—because they provide a reliable future income stream they are investments. That is very simple to understand.
What is apparently difficult to understand is the fact that it is so simple. I suspect that many people are consternated by their ability to grasp what they think must be very difficult, that they construct elaborate conspiracies and shell games to ease the dissonance between their expectations and their beliefs.
First off, I’d like to thank Og that Paul was not harmed in the assault on the US compound (or any other assaults that may have happened) in Jeddah this week. Then I’d like us to all speculate what the Muslim fundamentalists would think of him for drinking homemade wine and watching Will and Grace. Godless heathen!
Secondly, I’d like to paraphrase a quick anecdote that my boss used to tell me:
“I knew it was all over a few weeks after Social Security started. They had a big article in the paper about the first lady to get her check - she lived out in West Virginia. The program had been going for a week and she turned 55 and got her first check without ever paying a dime into the fund. Right then I realized something wasn’t quite right; she was stealing from my dad, from me, and from my grandchildren, and now I’m pissed off every time I see how much they’re taking from my checks. That money’s gone now, and we’re never going to get it back.”
I don’t know if it’s true or not, but there’s a story about FDR a few days before the vote to establish social security.
His number’s guy showed him a projection that the propsed system would go under in 20-30 years, FDR throw a fit, made him go back and change the numbers to show the proposal would last forever and showed the new report to the congressmen to get it passed.
