What's the Argument That SS Affects Deficit

Great Debates
41

The bolded statements are both true, in terms of typical government accounting. In calculating the figure commonly referred to as the deficit, the government takes the surplus from SS and offsets it against non-SS expenditures in the general fund. The SS surplus is considered governmental but off-budget, as discussed here.

This is the source of the disagreement in this thread. People on different sides are referring to different accounting concepts.

It would raise the figure commonly referred to as the deficit, because the government could no longer offset the SS surplus against it.

42

Who? Social Security? Social Security has not spent that money, they have not promised to pay it back BECAUSE THEY RAN A SURPLUS. There is nothing to pay back. Social Security still runs at a surplus as the proceeds from its investments and current receipts still exceed payments.

If it would make you feel better, Social Security could sell its T-Bills and buy notes from Canada. But what difference does that make to the deficit?

Now if you want to argue that Washington is full of stupid bastards who raised spending and cut taxes I agree 100%. But Social Security has done it’s job and paid for itself and will continue to do so unless folks like you let the stupid bastards in Washington take money set aside specifically for Social Security, collected through taxes specifically designated for Social Security, that were structured in a way that only makes sense if they are used for Social Security.

43

Thanks for being the only sane voice in this thread, me included.

I wasn’t clear. What I meant is that if we traded T-Bills held by Social Security for other, non-Govt securities, then no changes to Social Security would have any affect on the deficit. I know that having someone other than Social Security hold the T-Bills would change the accounting.

The point is, that the only way changes to Social Security can affect our actual, real budgetary problems is if the govt essentially defaults on the money it has borrowed from Social Security.

I have no idea why that would be the first place the US would default. Personally I’d rather see China left holding the bag than my 90 year old mother, but then again I am not pure evil like the current batch of conservatives.

44

Precisely. The point is, if Canada buying our bonds doesn’t increase our debt, and if Social Security buying Canadian bonds doesn’t increase our debt, how does Social Security buying our bonds increase our debt? Now, if we had a perfectly balanced and budget and no debt, and the government issued bonds just for SS, it would. But in reality SS buys some of the already existing debt, and does not increase it at all.

They were sufficient until the recession, and I am not disputing that the level of funding needs to change somewhat - like changing the cap.
Please give a cite about how SS creates debt, or demand for debt. That was created - in a time of prosperity - by Bush. If Congress was so damn sensitive to the debt that they would have reduced it if not for SS, why didn’t they reduce it given that most of it is not covered by SS? It is time for you to support your contention that SS “forced” Congress to increase the debt.

45

Are you talking about SS buying Canadian bonds? In that case, it would be the Canadian taxpayer who has to make good on the debt.

IOUs have to be repaid with interest. So the American taxpayer has to pay more than the original SS surplus amounted to - the amount, plus interest.

It is really odd - you claim that the government borrowing money from itself doesn’t affect the debt, even though they are borrowing money that has to be repaid.

Regards,
Shodan

46

Is your claim that if SS didn’t buy Treasury bonds, the Treasury would have issued less debt? That’s the only way your argument makes sense, but you haven’t exactly produced any evidence to support that claim.

47

No, I am arguing that a debt that must be repaid is a debt. The SS surplus has been spent, and must be repaid with interest by the US taxpayer. Do you really dispute this?

It goes back to the analogy that was made earlier - I take $100 out of my wallet, and replace it with an IOU that says I will put $110 back next payday. Y’all seem to be arguing that my wallet is running a surplus when I do that.

Like I say, this is surreal - do you really not understand where the government gets its money?

Regards,
Shodan

48

If Social Security had never bought a single T-Bill, do you think the current US Debt would be smaller? Or would we have just borrowed the money from somebody else?

The fact that the SSA invests it’s surpluses in T-Bills doesn’t increase the US deficit or debt by one penny - all it does is change the name of who we owe money to.

Your “my wallet” analogy is like this. You have two separate activities - let’s say you play poker really well but you also have living expenses beyond your “day job”'s income. Every month you earn $100 bucks playing poker (in excess of your poker expenses). Also, every month you have a $100 shortfall in your “general fund” (day job income minus living expenses).

Does it make any difference whether you loan yourself the $100 bucks or borrow the $100 from the bank and then invest the poker $100 in a savings account?

Did the fact that you used your poker money to fund your extravagant living expenses mean that you are actually bad at poker?

49

Bond markets don’t work by someone coming along with money and the company or government then issuing bonds for them. Bond markets work by the company or government deciding how much debt is required, and then selling it on the open market. For SS, some amount of the debt to be issued anyway is steered to the special SS bonds. No net increase in debt versus the case where we sold the bonds to the Chinese.

For the Canada case, you omitted the part where the Canadians buy our debt. The situation is utterly symmetrical, and no different from each of us buying our own debt. (Except perhaps in an accounting sense, depending on where the new asset of Canadian bonds are held.)
As for taxpayers paying interest - quite right, but here the taxpayers are also getting the interest, unlike the case of bonds sold to China. Part of our home mortgage is held by my father-in-law. We pay interest, we report everything on our taxes. but, since my wife is an only child, we will eventually get everything back. From his point of view, is lending money to us different from lending it to a bank? From our point of view, is borrowing from him different from borrowing it from a bank? Our net family debt is decreased by this arrangement, but our debt is the same as if we had borrowed from the bank.

50

I had a surplus in my paycheck this month, and I used it to buy a T-bill for $1,000. Has that money been spent? Your hatred for SS seems to have blinded you to the difference between spending and saving.

51

Let’s try it this way. The government needs to borrow $1 billion. SS has a surplus to invest of $500 million. The two cases are:

Government issues $1 billion in bonds. $500 million go to China.
$500 million are bought with the surplus

Government issues $1 billion in bonds. $1 billion goes to China.
SS buys $500 million of Canadian bonds.

The non SS part of the government has increased its debt by $1 billion in both cases.
SS now has $500 million in assets in both cases.

Taken as a whole in the first case the government (both SS and non-SS parts) has $500 million in new debt. In the second case the government as a whole has $1 billion in new debt, but also $500 million in new assets, for a net of $500 million.

In both cases the $500 million in surplus has to be put in reserve since it involves an obligation to SS recipients in the future, so the increase in indebtedness is really $1 billion, just as you’d expect.

The real difference here is where the government puts the surplus. Do you seriously content that a corporate bond, say, is safer than a T-bill. If so, the market disagrees with you. It is really simple arithmetic.

52

If there’s no difference, how come I can’t loan myself $150,000 and pay off my mortgage?

And, for the umpteenth time, the $100 in your analogy that you borrowed has not been invested - it was spent, and replaced with an IOU.

We aren’t going to be able to repay the SS surplus with an inheritance from a rich father-in-law.

Look - it doesn’t make any difference that this debt is owed to one part of government, or another. It is going to be repaid, by the taxpayer. The money isn’t going to come from anywhere else.

The government took a big whack of money away from the private sector, and spent all of it. While they were spending it, they made a promise that they were going to take even more away from the private sector in the future and spend that too.

Maybe the smoke and mirrors make you feel better, but it makes no difference to the bottom line.

Regards,
Shodan

53

There’s an old saying that if someone owes you a thousand bucks, he has a problem, but that if someone owes you a million dollars, you have a problem.
As we’ve recently learned, you can issue a no-deposit $200k mortgage to a guy making $25k a year and already up to his eyeballs in credit-card debt, and then claim his promise to pay you as an asset. And, by the rules of accounting, including the ones at use here, it is.

By common sense, it is not. The dude is going to default, to the ruin of everyone. The bank should have never made the loan in the first place; but once it is made and the guy is on the verge of bankruptcy, the bank’s best bet is to refinance the mortgage and get as much as they can, when they can.
It would have been better if we had never let the politicians borrow from SS in the first place. It was very, very stupid. But we did it, and now the general fund is up to its eyeballs in debt. In order for the general fund NOT to cut back on SS, the cuts elsewhere will have to be truly massive, with medicaid and medicare being the hardest hit. Giving money to middle-class elderly now means not giving it to poor people tomorrow.
And no, “just default on the Chinese” is not a viable option. Defaulting on the general fund’s debt would have dramatic, devastating effects on the economy.

54

But the thread wasn’t about whether SS has invested its surplus safely; it’s about whether SS adds to the deficit. Historically, SS has decreased the (nominal) deficit by investing its surplus in T-bills.

When SS taxes no longer yield an ongoing surplus every year and instead fall short of year-to-year SS payment obligations, SS will have to start to sell its holdings of T-bills. Strictly speaking, this won’t be directly adding to the deficit, but it will decrease the amount by which the SS surplus reduces the nominal deficit, so it will look like it is increasing the deficit.

If and when SS has sold all of its T-bills, it will have to be funded by some other means. If by general revenue, then that will directly add to the deficit.

55

If you had a fully owned business, and if it was legal, you could borrow $150K from the business to pay off your mortgage. Hell, you could borrow from your 401K to pay off your mortgage. Bad idea, but possible. Does this increase, decrease your total worth, or leave it unchanged?

Other examples of IOUs are savings accounts, corporate bonds, and IOUs from George Soros. Are these not assets in your world?

I wish he were rich. The point is, if we didn’t pay him the interest he’d be taking an equivalent amount of money from his savings. We don’t owe any less by lending it to him - but we also don’t owe any more, since the price we decided to pay for our house did not depend on the availability of his money.

Indeed, your friend Mr. Bush ran a deficit, and didn’t even try to get money from the private sector to protect America from that awful WMD threat. Take it up with him. But even he didn’t decide to send in more troops and more naive just graduated Republicans to the Green Zone because there was a Social Security surplus.
Again, with SS, the money is coming from the taxpayer and going to the taxpayer. Without SS, the money would be going to the Chinese. Are you actually a Chinese Communist or something, since you seem awfully concerned about them losing their share of the debt.
And still again, please demonstrate that the availability of SS money has had any impact on the deficits run in the non-SS part of the budget.

56

I think I said exactly this in the GQ thread.
I bow to your superior knowledge of government accounting, but ask how they account for the obligation to pay out SS in future years. The surplus is good for cash flow this year, but in an ideal world it should be exactly balanced by future obligations, and thus be neutral. I don’t know how that is represented on the books.

As for the bonds, we keep asking how to invest the surplus and get no answers. I was just wondering if the anti T-bill crowd would prefer corporate bonds. Cutting SS taxes so there is no surplus today would be fiscally irresponsible, of course. Not that this has ever seemed to stop a Republican.

57

The arguments here demonstrate how the politicians get away with their nonsense. It doesn’t matter what the other debts and expenditures are. The SS system has a specific tax to pay for its costs, and that tax can be adjusted so that it is always paid for. Much of everything else is paid for by general taxes that don’t specify where they go or what they pay for. They are the problem, not SS. We do not have to borrow any money to maintain SS. It is a very low rate for a program that supplies such an enormous benefit.

Why don’t we start a Military Tax? Let’s see what happens when we compare the cost of SS to the cost of paying for our military, and where the debts are being racked up? That’s an easy target though, the same could be said for any other government program that isn’t paid for through revenue.

58

I really am having a difficult time understanding what the problem is with Social Security. Medicare, I understand. Medicaid I understand. Municapal bonds I understand, but Social Security looks fine to me for the most part.

Here are the facts as I understand them, please point out where my reasoning is incorrect:

[ol]
[li]The federal government can and does run deficits. When the government wants to spend money it does not have, it issues bonds and borrows the money from whoever buys the bonds. In return for the money, it pays interest on the debt at a rate essentially set by market demand for the bonds. For the last several years, this return rate has been at all time lows as US Government bonds have been in high demand as they are deemed a very safe investment, especially during the current financial crises.[/li][li]US Government bonds are considered to be one of the safest, if not the safest, investment in the world. The reason for this is that the dollar is the common currency of the world markets. If the US were to default on its debt, the value of the dollar would plummet taking the entire world economy with it. Because of this fact, the world would work hard to bail out the US Government rather than seeing it default on its debt (think about Greece here) and letting the world economy implode. [/li][li]The proceeding point about the world bailing out the US is only true while commodities like oil are priced in dollars and currencies like the Yuan are pegged to the dollar. If the world someday started pricing oil in Euros or Yuans, then the US would potentially be in serious trouble (only if it continued to run the types of deficits it is running). While this possibility is important to keep in mind, we are far from this being the case; the US dollar is much more stable than the Euro (due to the PIIGS Portugal, Italy, Ireland and Greece, and Spain and their debt), the Yuan or the Yen (as our economy is soooo much larger, more diversified, and sounder than Chinas and Japans).[/li][li]Of the debt issued by the government, about 1/4 or it is held by the SS trust fund, another 1/4 is held by the Federal reserve bank (they buy and sell chunks of it regularly to control inflation, interest rates, and the value of the dollar), 1/4 is held by foreign governments (20% by China, 20% by Japan, 15% by The UK, etc…) and the rest is held by banks, companies, individuals, etc…[/li][li]Social Security cannot run a deficit. By law, if it does not have the funds to pay benefits, it cannot borrow money. It has to either cut benefits or raise the amount it collects in social security taxes, but it CANNOT run a deficit.[/li][li]Social Security has been running a surplus for years. The amount it has collected in SS taxes has far exceeded the amount that it was paying out. Rather than just storing this excess money in a warehouse somewhere, it invested the money.[/li][li]As the aforementioned government bonds are considered one of the safest, if not THE SAFEST, investment in the entire world (much safer than stocks, corporate bonds, Greek bonds, Mutual fund stocks, etc…), it bought the government bonds and has made a modest return of ~4% or so on its investment. [/li][li]If the Social Security Trust Fund had invested is something different (Greek Government Bonds say), the US Federal Government would still have sold the bonds, but would have sold them to someone else (like China). It is conceivable however that the rate of the bonds would have gone up (to 5 or 6% say) if the Social Security Trust fund did not buy them as this would be a decrease in the demand for the bonds.[/li][li]The US bonds held by the SS Trust fund are indistinguishable from those held by China, the Fed, or my 401k. Because of this, it would be difficult for the US Government to selectively default on just the bonds held by the trust fund. If they did however default on just those bonds, the world economy would descend into chaos as the value of the dollar plummeted and the rating of all the bonds held by the Fed and various world governments deteriorated… The pressure on the US government not to default by these parties guarantees that this will NEVER EVER happen (at least while the dollar is default world currency).[/li][li] The US government debt is the sum of all the bonds it has issued. This includes the bonds sold to the SS trust, the Federal reserve, and China. The fact that social security has been running a surplus has NO EFFECT on the debt calculation. If social security operated hand to mouth and the government instead sold the bonds to Saudi Arabia, the debt would be exactly the same.[/li][li] In 2015, Social Security will stop running surpluses; the amount collected in taxes will fall below the amount that it is paying in benefits. This is not too much of a problem as the bonds that the social security trust fund holds is enough to keep it solvent (with no raise in taxes or decrease in benefits) until 2037 at which point it will have sold all of the Treasury bonds it holds or had them paid off and it will either have to raise Social Security Taxes or lower benefits. It cannot run a deficit as it is illegal for it to borrow money.[/li][li] Social Security having to raise taxes or cut benefits in 2037 is completely independent of what happens with the rest of the government. If the current crop of legislators manages to eliminate the deficit and run surpluses for the next 27 years, Social Security will STILL have to raise taxes or cut benefits in 2037.[/li][/ol]

What exactly is the problem? I am not seeing it. Please Shodan, Captain Amazing, NotreDame05, whoever, point to the part you don’t agree with, the part where I am wrong, or the part that is the problem with Social Security.

59

Up until this point I was with you, but… are you seriously suggesting that Social Security is what’s preventing China from getting more US money? That’s a puzzler.

60

We’ve “done something” about SS at least a dozen times to maintain its solvency, there’s no reason to stop now.