Thanks for the post. 2 comments.
You are making perfect sense, as always.
You are wasting your time trying to explain this.
I’m confused about your position. There are three possibilities
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Increase income taxes now to make up for a decrease in Social Security taxes now. But, why not keep social security the way it is, increase income taxes, reduce the number of bonds that have to be issued, and benefit down the road? I agree that this is a good idea, when the recovery kicks in. If you want to do this to make it more progressive, we can make the social security system more progressive also. What you get back in SS payments is somewhat related to what you pay in - would you keep this principle?
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Decrease SS now, and increase income taxes later when it runs out of money. Bad idea, since it will be unfair to those taxed to pay my SS.
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(and you didn’t advocate this, but I’m including it for completeness.) Cut the number of T-bills SS purchases, and hope spending will be cut a like amount, which will reduce the debt load in the future. As if. Bush cut taxes and they didn’t cut spending. Not likely to happen now.
If you are as likely to repay as the government, and you kid has a big chunk of money in the college account, and you are paying an equivalent amount of interest - or more - then it is a good thing to do. Why not? Clearly, you only go this for something you’d borrow for anyway, like a car.
People borrow like this all the time - there is a company which used to sponsor NPR programs, that sets it up. Part of my mortgage comes from my father in law. He gets a better rate of return than he can from a bond, I’ve been as reliable as a T-bill, and we saved closing costs. I actually pay more in interest to him than I do to the mortgage company, but my wife is an only child so I’ll get it back.
I contend again - the only reason you have a problem with this situation is the fear that the government won’t be able to make good on its obligations when they become due. Am I right?
Aren’t we leaving out demographics?
Mostly, old people are living longer and there are less workers replacing them. Also, I’m not sure what you mean by “20 years from now.” 1946 + 65 = Right freakin’ now. Our economy is stretched pretty thin and this is another problem we have to deal with immediately.
Old people vote, so no-one can touch SS benefits. Expect inflation like we’ve never seen before.
Well, that’s just raising income taxes. If you think raising income taxes is a good idea, then fine.
No, the option is decrease SS taxes now and increase SS taxes later when it “runs out of money”. Meaning, SS taxes pay for SS payouts and we levy SS taxes based on how much we need to pay.
My preferred option is to get rid of the fiction that SS taxes and income taxes aren’t the same thing. Which means, get rid of the SS payroll tax, and increase income taxes generate the exact amount that SS payroll taxes were cut. Or higher, since we’re running a gigantic deficit right now. Or lower since we’re borrowing money to stimulate the economy out of recession.
The point is that when I get my paycheck every two weeks and see that $X have been taken out for SS and Y have been taken out for income tax, that doesn't mean a damn thing. What matters is that I've had to pay (X+Y). I pay 15% of my income as social security tax. If you increased income tax by 15% of income I’d pay just as much, the only people who would pay more are those that make over the limit.
Social Security is welfare for old and disabled people. There’s nothing wrong with welfare for old and disabled people, I’m for it.
Kind of. I have a problem because people have the idea that SS is just safely sitting there, and we can “fix” social security now by paying more now so we can get more later. But we can’t get more later unless we pay ourselves more later. The government doesn’t save any of the SS taxes it takes in, it spends all of it. Whatever we call the taxes that will pay for SS, current government revenues (both SS and income tax) pay for current government expenditures (both SS and general). And future government revenues (both SS and income tax) will pay or future government expenditures, both SS and general. We have relatively low SS expenditures now relative to the high SS tax, that means we are able to collect relatively low income taxes relative to high general expenditures. When the expenditure situation reverse, the revenue situation will also reverse.
Meaning, your kids won’t pay lower taxes in the future just because your SS payments are high now, because your income taxes (and government borrowing) are lower now than they would have to be if SS weren’t so high. Since your kids are borrowing your current SS payments, they’ll have to pay you back with future income taxes.
There are so many flaws in logic in your reply that I’m having serious doubts that you fully understand how the government works regarding taxation of productivity, interest rates, t-bills, fiat currency adjustments, “real wealth” as “purchasing power”, debt defaults, etc.
It seems that you believe (in a roundabout way via writing lots of words) that “money grows on trees.”
I can only suggest you re-read Lemur866’s explanation 100 more times or until the phrase “you cannot get something for nothing” becomes second nature.
You think?
Thanks for the post. Unfortunately you’re wasting your time too, I’m afraid.
Back to the OP - are we “bankrupting” our kids?", well that is hard to say.
As the boomers age the age profile of the US is going to change - I have read that at the inception of SS there were 9 workers for every beneficiary. Now it is 3:1 (? no cite - the numbers may be wrong, the trend is accurate). If things go as expected we will eventually get to less than 2:1, and it does not matter what kinda money we have, if every retired person is being supported by 2 working people, those 2 working people are gonna have to give up a lot of their earnings. It will not matter that the checks that they get are drawn from the SS owned t-bills or the receipts from the SS tax, or from the general fund, the fact that the govt is supporting so many people is going to be a strain on the working population.
There are solutions to these problems:
- Raise the retirement age
- lower benefits
- end the system
- allow the US economy suffer as we spend all of our resources on non-productive retired people.
So, we might be bankrupting our kids, or we may put them into a situation where they end up shafting the boomers in one way or another in order to save themselves, and if a solution to that dilemma comes up, then we will just have high inflation, and the debt problem will solve itself.
Since you want to consider SS taxes as income taxes, this is pretty much equivalent to what I said. And it has the same problem - my kids will pay more to finance me. The outgo in both situations is exactly the same, but in yours the income now is decreased. That has to be made up somehow, and the only way is by increasing taxes later.
My father fought the UN 10 years to prove that Social Security was a tax,. for reasons I won’t get into here. If the increased income tax were put into the trust fund, then I am fine with it. It makes the system more progressive. Would you keep the link to earnings? If you don’t put the income in a trust fund, my objection above still holds.
You’re taking away the tiny bit of joy I get when my check increases when I go over the limit. 
The difference between it and other welfare systems is that many people who get welfare never pay anything into the system, while most people who get Social Security do. It is a tax increase, but since it is a targeted one, that most of us will benefit from directly (unlike income taxes) it is a bit more palatable.
BTW - would your switch to income tax include an increase in corporate taxes to make up for the loss of employer contributions to the system?
If only that were true. The last eight years should have shown us that the level of income tax is disconnected from the level of spending much of the time.
I’m not an accountant, but it sounds like you are incurring an unfunded future liability in your system, and would need to sock away some of the increased income tax revenue in reserves to take it into account. What would you use for a reserve? T-bills, of course, so you are in the same place. You can’t make the need for reserves go away, unless you want to play Wall Street Banker, of course. Filling those reserves from an income tax instead of a Social Security tax is not going against good accounting principles. I don’t see it, but there is a case for it.
My lack of debt would indicate that I understand that you don’t get something for nothing very well.
My question is whether you understand the fundamentals of accounting. We have incurred an obligation to pay Social Security to baby boomers who reach retirement age. That means we need a reserve. We are taxing current employees more than is required to pay current SS obligations to fill that reserve. We have to park the money in that reserve somewhere. Since we don’t have a mattress big enough, we use the next best thing, a t-bill, which is the safest investment around. (And clearly pays less interest because of this.)
This does not increase the national debt, since the amount the government borrows is not affected by Social Security, but by the real budget. Are you claiming that if SS stopped buying t-bills, the Congress would rush to cut spending or increase taxes to keep the total amount of borrowing from other sources constant? (As if.)
Obviously we will have to raise money to pay off the t-bills in the future. But the amount of money we raise is a function of today’s debt, and is totally independent of where SS sticks the money. The deficit is what you are really worried about, not SS, and like I said I’m all for raising taxes after the crisis is over, the way Bush should have done during prosperity.
BTW, economics 101 vocab words do not a logical argument make. Taxation of productivity? You’re in favor of taxation on non-productive things then? The scandalously high Clinton era tax rates on the wealthy didn’t seem to hurt productivity one bit. I can personally testify that the year or two I made enough to be in the highest bracket back then I did not experience a feeling of lassitude and a desire to give up my job because of my awful tax burden. I was actually motivated to make some more.
OK, I’ll try one more time.
The US government collects money today.
That money is earmarked for future social security payments.
Therefore, the US government saves that money by investing in T-bills.
Investing in T-bills is a method of loaning money to the US government.
Investors loan the US government the money because the US government promises to repay the loan in the future, plus interest.
Future repayments of T-bills plus interest will be paid for by the income taxes of future taxpayers.
Therefore, when Voyager buys a T-bill he loans the US government money for 20 years, and the US government promises to repay him his money plus interest 20 years from now.
That repayment will have to come either from future taxpayers, or from future borrowing.
Therefore, when the SS administration buys a T-bill they loan the US government money for 20 years, and the repayment will have to come either from future taxpayers or from future borrowing.
Therefore, high social security taxes today that are intended to fund high social security payments are actually spent today, and future higher social security payments will actually be made through future higher taxes.
There’s no way around this if the US government invests money in itself. Unless that investment results in a greater ability to generate revenue in the future it’s meaningless. If you borrow money from your kids college fund and use it to improve your business and that causes your business to make more money, then you can repay the college fund and your kids get to go to college. This is why businesses take loans. It can make sense to borrow from your savings, even if that savings is intended for future spending, if that money today increases your ability to make money tomorrow.
I like it. Good explanation.
One minor edit might be to exchange your words ‘money’ with ‘wealth’, and phrases like ‘make more money’ with ‘create more wealth’.
It seems simple, I know, but I think that is also a very basic source of confusion amongst those who wish to participate in this debate.
If the government establishes fiat money as the only legal currency, and the currency in which it’s citizens must collect and pay for their bills, it can always print more money later on to (supposedly) pay back government debts.
That does not mean it is creating more wealth. In fact, it is destroying wealth when it does so.
But you didn’t address my fundamental point - would the total level of borrowing by the government today, and thus the need to pay it back tomorrow, be affected in the slightest if Social Security didn’t buy some of the T-bills?
Or is the problem that you don’t see the need for a reserve to address future obligations?
Say we decided to spin off Social Security, and kept its policies exactly the same as they are today. They still buy t-bills with their surplus. Would you still say the money is being spent today? Every dollar they would spend on a t-bill would go to exactly the same place in the old government that it would go today. If I invest $10,000 of my money in T-bills, am I spending it or investing it?
You are correct. One solution to the problem of funding SS in the future without establishing a reserve today would be to inflate the currency to reduce the value of the obligation. You’d have to eliminate the inflation adjuster for payments, though, since that would increase the obligation. I think we both would agree that it is a bad idea, but it is one solution.
It’s just political/partisan fear mongering. “We’re all DOOMED” gets ratings.
I think this is an excellent question. Who decides how many t-bills are issued? Are they simply issued to meet any deficit in the federal budget? (In which case I guess the deciding party is Congress). I suppose new t-bills also need to be issued to cover existing t-bills + interest if that is not budgeted for as well.
If federal spending policy sets the number of t-bills, I think that an argument could be made that by default investing Social Security funds in t-bills enables more deficit spending - Congress receives more negative feedback if public debt is held by foreign parties than by domestic.
Anyone have any ideas about this?
I think they may also be issued to cover short term gaps in revenue, since not all tax revenue is spread evenly across the year. But basically they aren’t issued just for the fun of it. I believe there are auctions, so there is a certain degree of granularity - they don’t issue a T-bill whenever Air Force 1 buys gas, for instance.
I mentioned this somewhere upthread. I’d think SS might exacerbate the problem if there was significant resistance in the private market to the issuance of T-bills, which would be measured by their issued interest rate increasing. I think SS’s purchase of T-bills is a small enough percentage, though, as to not assuage this very much. If debt owed to SS was not considered as part of the national debt, and so the debt limit wouldn’t have to be raised as often, there might be an impact. I hope it is (it should be) and Congress seems to have no problem raising the debt ceiling or going further into deficit, so I can’t imagine removing purchases by SS would make much of a difference. I’d be happy to hear evidence to the contrary, though.
Sorry for my extended absence from this thread and the boards, often real life pulls me away for weeks to months… I hope it hasn’t been so long that this would be considered a zombie.
Odd, isn’t it? We agree - and I’ve read your reply, and it seems that you agree. Yet we do not share the same assumptions about economics. It appears to me that you have some connection to an Objectivist/Libertarian school of economic thought? I reject completely most of the assumptions such a school makes (e.g. that a medium of exchange should also be a store of value) and hence our disagreement, even though we agree on the situation.
I don’t want to reply in detail since it’s been such a long time, but if you would like to, let me know, and we can continue here or in a new thread. I enjoy the discussion, and regret that I haven’t been able to converse with you in a timely manner. 
Werewolf congress? Doom bunkers? What on earth are you guys talking about? I’m lost here.
There is nothing inherently wrong with borrowing money to fund governement spending depending what exactly it is being spent on. Capital spent on roads brudges, military equipment, etc. ideally should be paid for by several generations as their benefits accrue over several generations. It is not just capital spending, but any kind of spending that produces long-term benefits that will be consumed by several generations rightfully should be paid for by several generations. I am not saying all spending is that way, but it is not necessarily the case that borrowing money is wrong.
If you think you’ve never been scammed, you’re living in a dream world.