You think that might have more to do with everyone else’s reading comprehension or your writing?
Yeah, so?
That is true of ALL treasuries. They are backed by the full faith and credit of the United States government and its taxing power.
The question is whether those treasuries represent a claim on real assets or not. If they represent a real obligation to repay then they are assets.
I don’t think that anyone is saying or suggesting anything different. If I had a million dollars invested in US Treasury Bonds, you could say that I am financially very well off.
What we are saying is that this analogy breaks down when any entity lends money to ITSELF. If I had a million dollars invested in jtgain bonds, then I have an asset worth a million, but an offsetting liability of a million. I have zero net worth. It doesn’t matter if I am the greatest credit risk in the history of the universe and if Jesus Christ himself guarantees repayment of my bonds. My net worth is still zero.
That’s the very definition of an accounting trick. What if (to simply) instead of having a 25% income tax, we had a 20% income tax and a 5% NASA tax? Would it be honest to say that NASA is “self-supporting”?
We would have a much larger overall deficit, but damn, isn’t NASA doing well and being responsible?
[quote=“L. G. Butts, Ph.D., post:58, topic:572042”]
[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][/QUOTE]
That’s the part that I disagree with, because while it’s the law, I don’t think it’s what will actually happen, in practice. In 2037, if Social Security doesn’t have any money left, the feds will bail it out rather than cut benefits.
Well, it should never contribute to the deficit. According to the statue, if it does not have enough money or revenue to pay benefits, it has to reduce benefits to the point that it can pay them. It would require a re-write of the law for it to actually run in the red.
Meh. Maybe. Who knows. But that will not happen until 2037. Let’s agree to disagree on Social Security and leave it as is for the next decade or two and focus on where the problem really is: Uncontrolled government spending. We should reform Medicare (which would address the majority of the problem) and Medicaid. We should re-tool and purpose our military. We should simplify our tax code (eliminate corporate taxes, flatten and reduce the tax rates, and start taxing capital gains as income). Social security will not have to be bailed out for 25 years and will not add to the deficit until then, lets deal with it after we get the deficit under control now.
Well if we passed a law dedicating the taxes to NASA, and the taxes were structured differently than other taxes, and NASA was forbidden by law from using funds from the general fund, and NASA’s revenues were enough to cover its expenses for anther couple of decades with no changes, and capable of making small changes to be solvent for the next 75 years, then I guess it would, yeah.
So of all the problems we face currently, you want to focus on a program that is solvent for the next 25 years, because you think that some time in the future someone may ignore the law and “bail out” Social Security.
And of course by your logic if we did something now, like make some changes to the law, then that would prevent people making changes to the law in the future; because once laws are made they can’t be changed.
Wow, just wow.
No, no it’s not. I just looked it up, and it’s not.
You’re right as far as the statute goes. But Social Security can be cash flow negative without needing to reduce benefits; that’s the whole point of the trust fund. But when Social Security is not cash flow positive, it is no longer purchasing Treasury bonds. Purchases of bonds by SS has no effect on the general fund deficit (the point of this thread), but it does reduce the overall deficit of the government, since that is basically: (cash flow of SS + cash flow of general fund). It follows that when SS is cash flow negative, it does increase the overall federal deficit, even if SS’s books are still in balance allowing it to pay out full benefits.
It’s as idiotic a notion in large font. Debt varies directly with the government’s need for funds. There is not some set, immutable level of bonds that gets sold regardless of the government’s need. If you reduce the need to fund entitlements with debt, you reduce the volume of bonds issued. SS doesn’t purchase bonds. The instruments in the SSTF are non-marketable IOUs that as a rule will at some point trigger the issuance of marketable Treasury instruments to fund those obligations, which at the point SS is paid amazingly enough actually requires real money which will not be on hand (whoever the @#$% buys the bonds at that point, it won’t be the SSTF).
This has been pointed out to you multiple times. At this point, if you can’t grasp it and continue to cling with great affection to the thought that regardless of the deficit, the same amount of bonds will be bought and sold, and that the SSTF buys Treasury bonds, I’ll assume that it’s a lost cause. You can then happily select an even larger font to express your incoherent and unsupportable assertions.
No, it’s not solvent, another point made several times in this thread. Here’s a cite:
“Solvent” does not equal “we’re running out of money, but we haven’t quite hit bottom yet.” As soon as SS is running at a deficit, which would be now, it is incapable of paying out its full obligations.
You said it, brother.
No. In a word, no. I didn’t say any of that. I don’t want to focus on Social Security to the exclusion of other problems, although there are some simple things that could be done to increase the Social Security surplus and keep it solvent for even longer, like raising the FICA tax back to the levels before it was cut and getting rid of the FICA cap. That’s not going to happen while the Republicans control the House, though, so it’s not really worth thinking about right now. If you’re concerned about the deficit, there are a whole bunch of things that would have a more immediate effect.
I’m also not sure where I said “once laws are made they can’t be changed”. In fact, my pessimism about Social Security and the deficit relies on the assumption that laws will be changed; that regardless of the provision in the law that says that SS payouts have to come from the trust fund, 20-25 years from now, when it works its way through all of its treasury bonds and has to start cutting back on benefits, Congress will decide that grandma probably shouldn’t starve to death after all, and make up the difference with the general fund. I’d very much like to see that day put off as long as possible, and I’d like to see Social Security run a surplus for as long as possible so that they don’t have to start cashing in their bonds (which would also disrupt the bond market).
But in your original post, you asked what’s the argument that Social Security affects the deficit. I gave it to you. I see no reason that you should postulate from that my attitudes about Social Security or my budget priorities.
Methinks some of us have lost track of what the debate is about.
This is the silly notion which we’re trying to disillusion you of. From Little Nemo’s change in tone, I think he may actually get it by now. Do you, Stratocaster? I thought MilTan took it slowly and clearly. Let me try again with very simple numbers.
Suppose that some Tuesday the U.S. needs an extra $3 billion (to buy guns, improve its parks, spend on Waste™, whatever, it doesn’t matter). That Tuesday, the SSTF happens to take in $1 billion more than it spends. Now there are two scenarios. I’ll take them slowly, step by step.
Scenario #1
[ul]
[li] The SSTF buys $1 billion of Treasury debt. (Yes, the pieces of paper documenting that debt have slightly different inscriptions than ordinary debt. I have no idea why you focus on this as though it were relevant.)[/li][li] The Treasury needed $3 billion in funds, and just got $1 billion. It issues $2 billion more debt and sells that. (For definiteness, suppose it sells to China.)[/li][li] The U.S. Treasury has borrowed $3 billion. The SSTF has invested $1 billion. Never mind whether the debt seems peculiar or not. Just see if you agree with the numbers.[/li][li] (The details of how T-bonds are issued and the resultant cash proceeds used to redeem “Tuesday’s” Treasury checks may be slightly more complicated than implied here.)[/li][/ul]
Scenario #2
[ul]
[li] The SSTF buys $1 billion of Canadian debt.[/li][li] The Treasury needed $3 billion in funds, and just got zero. It issues $3 billion more debt and sells that. For definiteness, suppose it sells to China.[/li][li] The U.S. Treasury has borrowed $3 billion. The SSTF has invested $1 billion. [/li][/ul]
In scenario #1, the Treasury borrowed $3 bill; SSTF invested $1 bill. In scenario #2, the Treasury borrowed $3 bill; SSTF invested $1 bill. (Because of supply and demand laws, U.S. government may be taking a slight interest-rate loss if it adopts #2, but that’s a secondary issue beyond our scope here.)
Is this clearer now? I didn’t realize this level of detail would be necessary; that’s why I just wrote
If S.S. hadn’t bought its bonds, U.S. Treasury would have sold them to someone else.
Criticise me if you will for the sarcastic font. It is not I, however, presenting idiotic ideas.
Yes, you are.
The folks in this discussion that actually understand the financial concepts correctly are Little Nemo, Shodan, jtgain, and Stratocaster. Interestingly, Mr L. G. Butts, Ph.D. is sort of an odd duck in this thread because although he is sympathetic to the SS-goodness, he at least intellectually understands the fundamental concept that an entity owing money to itself undermines the credibility of SS tax collection and its future effects on the financial health of the government.
I understand that there is a societal need for some type of SS. At the moment, we don’t put an expiration date on people once they turn 67 such that we euthanize them and dump their bodies into mass graves. Since we don’t do that (yet), we need to keep the seniors around – and hopefully do so in some compassionate manner (“safety net”). Therefore, the ideals of SS are worthy. However, that shouldn’t blind us to creative financial accounting tricks. A creative accounting fiction that disguises the true financial health of the government is still an accounting trick even if it is wrapped up in the robes of a worthy goal.
True enough by itself but SS isn’t the system playing the accounting trick. When the SS surplus is lumped into the general budget to create the fiction that the whole system is balanced, that is not correct accounting. I don’t think anyone here disagrees with this, do they? Whether SS is a worthy program or not is not part of the debate.
Moving goal posts. That statement is correct. There was creative accounting that allowed the surplus of Social Security to hide an even larger deficit. That does not mean SS makes the deficit worse, just that it made lieing about the deficit easier. I don’t think you’d find anyone to disagree about that.
It’s completely different to say that Social Security, a program that has been running surpluses, and that has its own dedicated tax with a cap because it is designed for a specific purpose that also caps benefits, and that now is drawing from its investments, is adding to the deficit.
One can’t have it both ways: Social Security was bad because it hid the true deficit while it was creating a surplus and now it is bad because it is exposing the true deficit while drawing on its surplus.
That just shows one don’t like Social Security and are not engaging in honest debate.
Thanks, Ruminator. The problem with this topic is that it automatically pushes the buttons of certain people, they immediately don their team’s jerseys, and it turns into the standard “It’s a Ponzi scheme!” “No, it’s a dessert topping!” tennis match. And that’s even when it’s a slam-dunk question like the OP’s, which requires no one to abandon their opinions or beliefs regarding SS. Remember, the OP’s questions was NOT, “Is SS a good program?” Or, “Does SS manage its obligations optimally?” Or, “Did SS single-handedly create the debt crisis?” Or, “Is there a better alternative to how it’s funded?”
Remember, the OP was, essentially, “Why do I keep hearing SS mentioned in the debt crisis conversation? What does SS have to do with the deficit?” That’s a no brainer, an answer-in-one-post question. One could believe whatever one likes about SS, and the facts to answer that question are simple and straightforward. They’ve been provided again and again and again in this thread. But that matters not on this topic. Anything other than “SS is a flawless program that has nothing important to do with the level of U.S. debt” is seen as an all-out assault by some people.
SS contributions are spent as they are received. Future obligations will be funded, for the most part, by debt. Our level of debt is crushing at this point. Non-defense agency expenses (and, by the way, I think defense spending needs to be on the table) is only 18% of the budget. 40% of every government dollar spent must be borrowed. Think about that for a second. That is chilling. So, hard decisions MUST be made regarding the other 82%, which includes entitlements, which in turn includes SS. The level of debt we assume increases with our need for funds. That’s not the only reason we issue Treasury instruments, but it’s the main reason: we need to spend money. If that need is reduced, we will issue less debt.
Every sane congressperson, Democratic and Republican, and our President as well, realizes this. That’s what they’re losing sleep over. How will we curb debt when entitlements as they currently exist (whether or not any individual entitlement is a fine concept) are both huge and unsustainable? Only in this thread, apparently, is that seen as a ludicrous notion, and the idea of there being a connection between SS and debt some odd hallucination. Then we get an endless string of incoherent non sequiturs, delivered in oh-so-clever large font.
Anyway, that answers the OP. Future SS obligations will likely be funded by debt, and those obligations are huge. Asked and answered.
OK I have it figured out
- We have to realize that any surpluses collected by SS are just part of the general fund and not put aside for SS
- We are using current SS taxes to pay current retiree benefits, and those benefits exceed current receipts
- We need to fix SS be raising SS taxes and or cutting benefits
- Then we can take that surplus and put it aside to pay for future obligations
- See step 1