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View Diary: Hell, No! Social Security Contributes Nothing To Deficit (119 comments)

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  •  Not sure this is entirely true (1+ / 0-)
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    Roadbed Guy

    I'm not in favor of cutting Social Security, but the $2.6 trillion trust fund isn't a pile of money sitting somewhere, it is an IOU from the US Government, and paying it back will require taking money from the general fund, which will add to the deficit in any given year. It is true that SS will not add to the national debt until the SS trust fund is exhausted, but it is not true that it does not add to the deficit if SS itself is running a deficit.

    This is nitpicking, but only a little bit. SS and the Federal Budget are inextricably linked.

    When Republicans claim 47% don't pay Federal taxes, we scream bloody murder, because they aren't counting FICA, which we properly include as Federal taxes. If they have to count Social Security taxes as Federal Taxes, then to be fair, we have to count Social Security spending as Federal spending.

    The bottom line is, there is money that comes in, and money that goes out. If we cut Social Security payments, that reduces the amount of money that goes out and makes us more solvent.

    Again, I not only oppose cuts in SS, I think we should expand it, and raise or eliminate the FICA tax. But I don't think it is true that SS has nothing to do with deficits or Federal spending (at least going forward).

    "It is easier to fool people, than to convince them they've been fooled" - Mark Twain

    by Sarge in Seattle on Mon Apr 08, 2013 at 06:33:22 PM PDT

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    •  Boy if you WANT nitpicking (8+ / 0-)

      I am the guy to do it.

      If you back all the way out and then up to 30,000 feet then the effects of Trust Fund redemption are more or less what you identify. But if you drill down almost none of it is true.

      Because Federal accounting doesn't follow common sense understanding in part because the U.S. is a monetary sovereign.

      For example the Treasury doesn't not count redemptions of the Special Issues in the Trust Fund as 'cash transactions'. Similarly it doesn't regard interest paid on the assets in the Trust Funds as 'outlays'. And near as I can tell neither one shows up as expenditures to the General Fund. And so at the granular level are not financed dollar for dollar by borrowing from the Public. I may be wrong on the latter point but if so I need some guidance. Because I have been working my way through budget documents for years and not found those line items/fund numbers. (But am always willing to take instruction-backed by specific citations to data tables).

      This leads to some odd results. For example Social Security on a combined basis ran a $48 billion cash flow deficit last year. Now that money obviously came from SOMEWHERE. But it didn't come from the General Fund, not on paper anyway, and in fact Social Security for deficit calculation purposes ran a $68 billion surplus and so REDUCED the General Fund deficit by that much. That is supporters of Social Security who claim that it doesn't
      CONTRIBUTE to the deficit are only right if you define that as 'ADD', they have, can and do reduce it by precisely the amount that total income including interest exceeds cost.

      To which the alert reader will point out: "Bruce you dummy, Social Security is legally 'off budget', so it CAN'T add or subtract from 'budget deficit/surplus', there is no longer any such thing as the old 'unified budget". Well true enough in law, unfortunately the top line numbers used by CBO and OMB and so taken up by the MSM as being THE budget deficit still use that same combined number.

      Actually it all makes sense on its own terms, but it is very much like learning a foreign language, except in this case one that seems to have its own rules of arithmetic.

      I mean in the language you and I speak on a daily basis nothing could be more obvious that a $48 billion cash flow negative flow from Social Security equates to a $48 billion dollar deficit which has to be financed by $48 billion in borrowing. Nothing could be simpler. But it just isn't true, not in the language spoken by the CBO and the OMB and the U.S. Treasury and the SSA. At times reading through their various Reports is like navigating the Hall of Mirrors in the Funhouse.

      SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

      by Bruce Webb on Mon Apr 08, 2013 at 06:59:55 PM PDT

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      •  Where is the damn (1+ / 0-)
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        Roadbed Guy

        "lock box" when you need it!

        And your explanation reveals why I hedged and wrote stuff like "not sure it is entirely true", because it is very complex, convoluted, confusing stuff.

        "It is easier to fool people, than to convince them they've been fooled" - Mark Twain

        by Sarge in Seattle on Mon Apr 08, 2013 at 07:12:54 PM PDT

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        •  The Lock Box wasn't One either (3+ / 0-)
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          Puddytat, Roadbed Guy, Catte Nappe

          Gore wasn't actually proposing to do anything different than Clinton's 'Save Social Security First' and neither was going to make any operational changes in how Social Security handled its surpluses.

          Instead Lock Box was a metaphor or at best a proposal to change budget rules in regards to SS surpluses in an effort to fight off Republican attempts to do what Bush immediately proceeded to do-use Social Security surpluses to sell a "it's your money" tax cut.

          Which would have been fine absent a certain Supreme Court decision. As it was it just fed into the Phony IOU and Reagan stole the Trust Fund narratives that ironically allowed Bush to actually 'raid' it to cover his tax cuts.

          In reality there is no stronger legal lock box than the current Trust Fund allows. I mean either Full Faith and Credit exists or it doesn't and no Congress can protect the Trust Fund in a way not reversible by a future one.

          SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

          by Bruce Webb on Mon Apr 08, 2013 at 09:39:21 PM PDT

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      •  There is a disconnect between what you write (0+ / 0-)

        and what I understand , so help me out here please because I'm sure I'm not the only one that doesn't get it.

        I think you and I are in agreement when it comes to what happens when the SS system generates an excess over what is required to pay current beneficiaries.  In your words the excess

        can and do(es) reduce (the deficit) by precisely the amount that total income including interest exceeds cost.
        I phrase it slightly differently but it basically amounts to the same thing.  I tend to say that the SS surpluses are used to pay for then-current spending.  Since much of our spending is deficit spending in essence we just have to borrow less money and thus the SS excess reduces the deficit in the short run.

        Are we in agreement on that point?  It seems that we are in agreement even though we phrase it slightly differently.

        The point where we seem to disagree is when the SS system is running a deficit.  I do take the common sense approach which you describe thusly:  

        that a $48 billion cash flow negative flow from Social Security equates to a $48 billion dollar deficit which has to be financed by $48 billion in borrowing. Nothing could be simpler.
          That is exactly the net result.  Now, how the government technically conducts the transactions (which is what you are trying to track down) is interesting to a point, in much the same way as it is interesting how to accurately (according to GAAP) create a new balance sheet when you merge two companies.   The point is, there are rules about how to do each but they really don't change the result.  In the case of SS they need to come up with an additional $48 billion and that will come from the general fund or via new debt and for the company they will now be operating as one new entity.

        To cut to the chase, let's say that for each of the next ten years we knew that the SS system was going to run a $100 billion deficit per year.  "Fortunately" we have the "trust fund" to dip into that shows a couple of trillion dollars worth of assets.  While they are an asset to the SS system they are a liability on the government's books and the government will end up paying an extra $100 billion into the SS system to pay out the promised benefits.  Is that correct?  And, if so, where does the government get that $100 billion?

        You seem to be looking at the technical aspects of how the transactions occur on a monthly or weekly basis to make up the short fall.  I look at it on the macro-level and it seems the easy, correct answer is that the government will simply borrow that money.  Is that wrong?

        We cannot solve our problems with the same thinking we used when we created them. Albert Einstein

        by theotherside on Tue Apr 09, 2013 at 10:28:33 AM PDT

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    •  OK, Sarge, I get what you're saying (3+ / 0-)
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      ichibon, rivercard, Sarge in Seattle

      Would you have preferred us borrowing that money from China or the banks?  I prefer that we loaned it out as Treasury Bonds, payable with the full faith and credit of this country.  

      Like this countrys other obligations, this is due and payable.

      There already is class warfare in America. Unfortunately, the rich are winning.

      by Puddytat on Mon Apr 08, 2013 at 08:33:00 PM PDT

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    •  Paying down the Social Security 3% Notes (1+ / 0-)
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      Puddytat

      paying the social security trust fund down with cheaper money reduces the total debt which is all anyone looks at.

      “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

      by Dburn on Mon Apr 08, 2013 at 09:31:04 PM PDT

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      •  Okay this is interesting (1+ / 0-)
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        Dburn

        Because there is an argument lurking here. Amidst some very confusing language.

        For example what "3% bills"? Because while that is close to the yield of currently issued Special Treasuries it is not fixed as such, the yields vary. On the other hand in the very earliest years of Social Security excess revenues were invested in fixed rate 3% note. So this didn't come out of nowhere but doesn't make sense in its abbreviated form.

        And I am baffled by "paying down the Trust Fund with cheaper money" thing. Because there is no decision process involved with paying down the Trust Fund, it just happens as needed. On the other hand most of the maturing debt has yields higher than current yields, so rolling over Trust Fund assets (the bulk of such current transactions) does result in higher yielding bonds being replaced by lower ones. Equally the current redemption of the DI Trust Fund (going on since 2008) to the extent that it is financed by new borrowing from the Public also results in higher yielding Specials being 'replaced' by lower yielding Regulars, but once again this is not the result of any kind of plan.

        So once again a sensible argument seems to be hidden behind surface meaninglessness.

        Can you expand a little here?

        SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

        by Bruce Webb on Tue Apr 09, 2013 at 12:24:13 AM PDT

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        •  Probably better to err on the side of stupidity (0+ / 0-)

          After I started getting into the math to try to prove my point , it seemed futile and would probably have been blown away by you in a instant.

          The best I can say is that at a 50 billion dollar negative cash flow, we are starting to service the annual interest costs but we probably won't get into the principal for another year.

          I based the cheaper money on the annual interest bill for all 16.5 Billion dollars in debt at 425 billion or somewhere in the neighborhood of 0.25%.  Any increase in the consolidated interest on the Fund and the Public and other intergovernmental debt would make any one of us rich as but in the context of the govt debt and deficit it doesn't even move the needle.  

          “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

          by Dburn on Tue Apr 09, 2013 at 11:41:58 AM PDT

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          •  Well just a couple of notes here (0+ / 0-)

            One although we talk for convenience of THE Social Security Trust Fund it is actually two different funds, OAS and DI and each in a very different financial state.

            DI had income excluding interest exceed cost starting in 2005 and started tapping a portion of its interest to pay benefits at that point. This resulted in a cash flow negative position for the Trust fund as Treasury essentially wrote checks to cover the difference and deducted the amount from accrued interest. During 2008 cost expanded to the point that it absorbed all interest requiring that certain maturing Treasuries be redeemed for 'cash' instead of being rolled over. At that point the DI Trust Fund started depleting its principal and by that same token started contributing to deficits.

            That is for DI both the cash flow and deficit started some years back.

            Now OASs income excluding interest served to cover cost until 2012 when a small portion of interest had to be tapped to pay benefits. But since the rest of the interest counts as income for deficit calculation purposes the OAS Trust Fund still ran substantial surpluses.

            But normally we talk about a combined (and to some degree theoretical) OASDI Trust Fund. And on a combined basis there has been no net redemption of Treasuries, the combined principal balance increasing each year and so scoring as a surplus. That is we have a simplified situation where $48 billion of negative cash flow can be REPRESENTED as simply deducting from the $120 billion in combined interest and so leaving a $68 billion surplus.

            But the reality is that we have different movements along different tracks:
            DI is expending all income including interest and rapidly drawing down its principal.
            OAS is expending all its tax income plus a small portion of its interest with the rest serving to build up its principal.

            Which unfortunately combines to make the following a little confused:

            "The best I can say is that at a 50 billion dollar negative cash flow, we are starting to service the annual interest costs but we probably won't get into the principal for another year."

            Well no. Because we got into DI principal five years ago and won't get into OAS principal for maybe another five years so there is no particular inflection point coming up in 'another year', just a continuing shift of income and outlays on the two different tracks that are DI and OAS.

            We get a similar confusion here:
            "I based the cheaper money on the annual interest bill for all 16.5 Billion dollars in debt at 425 billion or somewhere in the neighborhood of 0.25%."

            Because not all and not even a majority of that $16.5 TRILLION (not billion) is is lent out at 0.25%. Because much of it is in the form of 10 year and longer maturity Treasuries that were issued with higher yields in years past and if held to maturity pays out interest at that yield. And the same for Social Security. Although the yield curve for the Special Issues is obviously shifting to cheaper money there are still Special Issues yielding over 7% with average yields somewhere in the 3-4% range. Moreover newly issued Special Issues bear interest rates that are the average of 10 years maturing in the (I think) next five years and so still currently maintain a premium to newly issued Regular Treasuries.

            The whole thing is complicated but does seem to converge on the 3% figure you presented, perhaps inadvertently. Hence 'interesting'.

            And I must say I still don't quite get your last sentence. I mean I can make it make sense and even place it in context but I am not at all clear that my sense and context is the same as your implied sense and context. So I still am unsure what you are getting at. Not rejecting it out of hand mind you, just not quite getting your point and its policy implications if any.

            SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

            by Bruce Webb on Tue Apr 09, 2013 at 02:15:11 PM PDT

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            •  Better said (0+ / 0-)

              The total amount we are talking about , deficit or surplus, is gnat size. Even though we have a crap load of treasuries out there with coupons of 3-7%, we still have overwhelmed that debt in the last 4 years with almost zero interest coupon treasuries which is the only reason the over-all bill is down around 0.25% . Correct or incorrect?  I just can't get this granular otherwise. Sorry.

              We have much bigger problems than this to worry about. But our attention is being diverted to this which I think, rough political calculations are, the GOP will never take Obama up on cutting Social Security.

               I don't want to call it 11th dimensional chess. I want to call it gambling with the futures of a lot of people that can't afford living even a bare bones life now.

              The GOP is still very weak. Their political strategists may like the idea of cutting social security and saying they played a part in that, but then they do the numbers on the Baby Boomers who are retiring and those who have already retired and then it starts to look real bad near term.

              Obama doesn't really care because he's pretty much thrown in with the evil 1%.  So putting something as revered and needed like Social Security on the table probably gives him more of a rush than anything else. He seems like a high stakes gambler that has been awful lucky and we all know what happen when the bets get bigger and bigger. So naturally we are all concerned.

              Always with this crew, look someplace else because the real damage is never happening in front of us.  Right now I am looking at the sudden devaluation of the Yen, and that China just announced a trade deficit for March. The market is marching higher as is the Nisei which has gone up almost 10% in the last few weeks.

              Yet all the economic indicators of importance are on a downslope.

              There is a bad moon rising, but I can't pin it down just yet.

              “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

              by Dburn on Tue Apr 09, 2013 at 08:26:20 PM PDT

              [ Parent ]

              •  Average rate on existing treasuries (0+ / 0-)

                March 2013
                http://www.treasurydirect.gov/...

                You ask "correct or incorrect" as to 0.25%

                Those crazy guys at Treasury put it at 2.7%

                Or right in line with your "interesting" 3%. Now you may actually be talking 'real interest' rate, that is ex inflation, or you might be talking about effective rates given elevated prices for existing Treasuries in the bond markets and so there still may be a path towards "correct". But it is almost impossible to make that match up with the language in your opening paragraph whicH suggests that face yields on the portfolio have over the last four years trended down to 0.25% on average. Per the link this is off by 10X.

                I am willing to work with you here because we seem to be on the same sides of the economic justice barricades. But your deployment of numbers is making this hard. At the granular level you are asking for.

                SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

                by Bruce Webb on Tue Apr 09, 2013 at 09:46:20 PM PDT

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                •  I looked again (1+ / 0-)
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                  Bruce Webb

                  Decimal point problem. I looked at the consolidated debt and it comes to 2.5% ( estimated) instead of 0.25 as I Mistakenly said before.

                  I also looked at the entire consolidated public and intragovernmental debt instead of just the public debt and the total amount of interest paid on it. I'm also using old numbers.

                  My mistake

                  “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

                  by Dburn on Wed Apr 10, 2013 at 08:15:46 AM PDT

                  [ Parent ]

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