The Government Pension Investment Fund of Japan owns about a half trillion dollars worth of Japanese government bonds — is this debt also “legally and economically meaningless”?
If Japan’s Government Pension Fund sold these bonds to the SocSec Trust Fund, and the U.S. Treasury reissued the SocSec-held bonds for sale to Japan’s Pension Fund — IOW, the two big Funds swapped part of their investments so that the SSTF was now holding “meaningful” Japanese debt — would this partly assuage your concerns?
They do, because the law requires them to have significance.
Let me use an absurd comparison. Congress passes a law that allows marble statues to obtain bank accounts, be the head of corporations, and so forth. Marble statues are vested with economic personhood according to this bizarre law.
People may waive their hands and say, “But they are just inanimate objects! It makes no sense! That law doesn’t do anything!” Well, to the extent that the law allows marble statues to conduct business, hold wealth, and whatever else you find absurd, then the law DOES have an impact.
Lesson: just because you find a law to be absurd does not translate into its being meaningless.
The social security “fund” is exactly the same as if I had a savings account and a checking account, and I transfered money from the savings account to the checking account and spent it, but wrote myself an IOU saying exactly how much I needed to return to the savings account, and counted that IOU as part of my savings account.
Sure, we can pay back the IOU. But we’ll have to raise taxes to do so. Or rather, the total amount of taxes raised by payroll taxes and income taxes are fungible. We’ve had higher payroll taxes than were needed to pay for current social security payments, and that money was lent to the government to pay for current spending. And when payroll taxes are no longer enough to pay for current social security payments, we’ll have to raise income taxes to “pay back” the social security fund for all that money we “borrowed” from it.
What really matters is the total amount of money raised and the total amount of money spent. Yes, it’s interesting how that money is raised, who has to pay what taxes at what rates, and it’s interesting how that money is spent and who gets paid from it.
But imagining that it will be easy to continue to fund social security because we’ve committed to paying that money out of general revenues ignores the fact that we’ll have to actually do it, which means less money for everything else, which means higher taxes or spending cuts.
What do you mean, “pay off the debt?” You mean redeem debt that has been lawfully issued? Of course the government is required to do so. But debt is rolled over all. the. time.
But from your sentence, it seems you could also mean that the government is obligated to reduce the national debt. It is not obligated to do so. And the total debt of the U.S. can be reduced without spending cuts or higher tax – for example, if economic growth takes off, revenue increases without tax rates increasing. For example, the surpluses of the late Clinton years are primarily (but not exclusively) due to huge economic growth, not major tax increases.
No, I was not implying the government is obligated to be debt-free. But it is obligated to pay off every debt it acquires. You don’t avoid paying off a debt by rolling it over into a bigger debt. You just obligate yourself to pay off the bigger debt. If you don’t pay the higher taxes or make the spending cuts this year, you’re just committing yourself to higher taxes or spending cuts in the future.
While economic growth was a factor, I think the main cause of debt reduction during the Clinton administration was the “peace dividend”. The Cold War ended with the collapse of the Soviet Union and the American government was able to significantly reduce defense spending.
Indeed. This is why conservative support of deficit spending is so maddening. Generally speaking, conservative philosophy is such that those who have the most money - which ideally means they earned it - should get to keep it, and they should get the best of everything as they are the most valuable members of society. I don’t entirely disagree with this in principle, it does make sense and it is part of the reason the US won the cold war. “To those who produce the most shall go the most” is a much more practical philosophy than “to each according to his abilities, to each according to his needs” as the former encourages people to both work hard and do whatever they have to to make that paper. Inherited wealth is a big fly in the ointment, but that’s a discussion for another thread.
Conservatives are generally for tax cuts, and since programs like Medicare and Social Security pay out per person, it makes sense to limit the taxes for those to a cap. That’s why you stop paying those taxes at a little over 100k earned per year - you’re now paying in enough that the government will be able to pay you back with the average benefits you will collect when you are elderly.
Except…by racking up vast debts, the government is incurring an obligation that will cause it to be forced to raise vast amounts of money to pay them back. (or just keep up with the minimum payments)
And guess who is going to have to pay those debts? The people who have the money to tax. This means that ultimately, the upper tax brackets will need to be much *higher *(you can’t practically force a guy making 10k a year to pay 50% taxes if you don’t want mass civil unrest, but you can make a person making 1 million a year to pay 60% in principle) than if they just set the tax rates today such that they equal federal spending + enough to pay down the national debt over 30-50 years.
Let’s take a step back here. You are using terms that denote sacrifice, and I don’t think you’re being technically correct. For example, you’re using the term “higher taxes” when I think you mean “more revenue.” Raising taxes is one manner of generating more revenue, but I’m saying it isn’t the only way. And I’m saying this as a complete economic liberal who would gladly vote for higher taxes, including on myself, and including to support Social Security.
The fact is that there are three fiscal options available for redeeming trust fund bonds: more revenue to produce surpluses, lower spending to produce surpluses, or borrow funds. The total national debt would not change from borrowing additional funds, as I’m sure you will agree. It is simply a swap of intragovernmental debt for debt held by the public. So I fail to see how we are making a “bigger debt” (with the caveat that the service payments would be higher).
I think what you are saying is that out of the three options - revenue, spending, borrowing - you think borrowing is not optimal, but in reality, it is an option and it’s nearly guaranteed that we will do so for at least some of the bond redemptions. But saying “I don’t like it” doesn’t mean it isn’t a valid option, and from where I sit it is far less harmful than others, like cutting Social Security benefits.
This is incorrect. In 1990, military spending was a bit over $400 billion. The deficit was a little over $300 billion. By 2000, defense spending was about $300 billion, and the surplus was $80 billion. The math doesn’t work. Not by a long shot.