“First, any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1983 to 2011, it collected more Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.”
Concurrent Resolution on the Budget— Fiscal Year 2013 (aka The Ryan Budget)
The House Budget Committee Chairman, Rep. Paul Ryan, has been keeping a low profile lately. His absence is conspicuous. Ryan will have the Budget Committee chair for two more years but he’s quiet for now. His House web pages are full of stale outdated articles. The only recent update doesn’t say anything new.
“In an exclusive statement to Breitbart News, Ryan specified that new revenues should come through economic growth and tax reform, not tax hikes.”Obviously there's no shame in giving an exclusive statement to Breitbart and announcing it on a taxpayer funded official government webpage. Ryan’s statement illustrates why negotiating with Republicans about fiscal matters is so awkward. The famous Ryan Budget is the Republican default position on fiscal matters. What it proposes is indefensible and can hardly be mentioned in public by Republicans. The Ryan Budget’s defects have already been thoroughly inspected and analyzed. I still decided to take another look at it because it is where the Republicans will land when the circus reaches its finale.
Ryan’s budget, The Path to Prosperity, has its own webpage. I downloaded the “Full Report,” which is a copy of the “Concurrent Resolution” that was actually passed in the House of Representatives on March 29, 2012. It isn’t law because the Senate didn’t pass it and a budget resolution isn’t binding even when passed by both chambers of Congress. This is Paul Ryan’s masterpiece, a fantasy/nightmare of what the world would be if he could remake it.
There’s nothing unexpected in the first hundred pages. On page 104, in the section titled, “Facing Social Security’s Fiscal Problem” the document takes a detour into a rabbit hole where facts and reason don’t matter, and logic is turned inside out. A reasonable person, using her intellect would pause and protest against Ryan’s claims about Social Security here. I'm referring to the annoying excerpt at the start of this diary. Dwell on it for a moment. To me, it sounds a little bit too much like, "Your Social Security savings have already been spent to fund tax cuts for the rich, which I, Paul Ryan voted for. Sorry bro."
The 2012 Social Security trustees report says, “The Trustees project that the OASI Trust Fund . . . will have sufficient assets to pay full benefits on time until 2035.” The revenue collected from payroll taxes, combined with the interest earned on the trust fund’s assets have been more than adequate to pay benefits. The government borrowed the surpluses. Between now and 2035, the OASI Trust Fund will lose its ability to fund itself under current law because the growing number of beneficiaries will outpace revenues. To make up the difference, current law could be changed in a number of ways. The government could also begin to repay the $2.5 trillion it borrowed. But Ryan's language in the paragraph I cited above suggests that there might be some difficulty doing it.
Ryan seems to contradict the OASI Trust Fund trustees report. The fund either has sufficient assets or it doesn't ('dubious government accounting') or the assets are questionable. Using a few carefully chosen words, he introduces a hint of doubt about the Treasury securities that the fund holds and/or the Treasury’s ability to redeem them. How did this find its way into a wannabe concurrent budget resolution.
1. With a sleight of hand, could $2.5 trillion in OASI Trust Fund assets be gone?
2. Would Treasury have to raise money through taxes or borrowing to repay Social Security?
3. If it did, would the public debt increase from the current level of $16.3 trillion to $18.5 trillion?
4. What about the public debt statutory limit, aka the debt ceiling, currently set at $16.394 trillion?
These may be brain teaser questions for the public who shouldn’t have to second-guess their elected officials. The answers are:
4. It doesn’t matter.
Where would the government get the money to repay its loan? If it can’t repay, as Ryan almost implies, then the Treasury securities held in the trust fund would be worthless. The US Treasury would be in default of its obligation to repay the principal amount of its bonds. That would be a very big deal with repercussions around the globe. What does Treasury say about the securities it issued to Social Security?
The current debt consists of two parts, Public and Intragovernmental. Combined they equal an amount most Americans recognize, just over $16 trillion. The Intragovernmental Holdings are in a separate bucket where debt issued to the OASI Trust Fund and numerous other Trust Funds is kept. The $2.5 trillion borrowed from Social Security is part of the $4.8 trillion in Intragovernmental Holdings.
The Treasury also keeps track of the interest it owes on the debt.
I have no explanation for Ryan’s nonsense: ” The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.” I'm probably reading too much into his words. The impression I get is that he's trying to create a misleading picture of more debt piling on top of debt. Perhaps the transaction I described is what he considers “dubious government accounting.”
Reading more of Ryan’s Budget, there’s another puzzle in the next paragraph:
Beginning in 2011, Social Security started paying out more in benefits than it collected in taxes—in other words, running cash deficits—a trend that will worsen as the baby boomers continue to retire. To pay full benefits, the government must pay back the money it owes Social Security. [ I guess it can be done, after all.] Those who wish to solve this problem by raising taxes ignore the profound economic damage that such large tax increases would entail. Just lifting the cap on income subject to Social Security taxes, as some have proposed, would, when combined with the Obama administration’s other preferred tax policies, lift the top marginal tax rate above 50 percent. Most economists agree that raising marginal tax rates that high would create a significant drag on economic growth, job creation, productivity and wages.Lifting the cap to remove the exemption from payroll tax on income over $110,100 wouldn’t change the top marginal rate. It would change the taxpayer's effective rate. I’d love to see the Arithmetic Ryan used to calculate a rate of 50%. Instead of raising more revenue to fund future benefit payments, Ryan proposes a reduction in benefits and changes in qualifications like raising the age of eligibility. He's always consistent in his protection of upper income from taxation while burdening those who can least afford it.
This graph shows the relative impact of his budget on taxpayers at different income levels. The blue bars extending to the right represent the federal income tax reduction he proposes. Incomes over a million would be taxed about $270,000 less, relative to current policy in effect today. The orange bars extending to the left represent additional tax liability if all deductions were repealed. The net effect labels indicate the resulting amounts when the blue and orange bars offset each other. The result is clear and it results in an overall reduction in the amount of revenue that would be collected. Disastrous spending cuts would be necessary to reduce the deficit, which is where it all started. As Barbara Boxer said on the floor of the Senate, "It's a recipe for a third world nation."
10:13 PM PT: Thank you for the Spotlight.