I've seen the Trust Fund and it is

    By Flavius on Tue, 12/21/2010 - 9:59pm |

    not very impressive.

    Some years ago, probably around the start of W's second term, PBS did a program on his brief campaign to privatize Social Security--just in time for us to have diverted our payroll withholdings into securitized sub primes.

    At one point in the program they tried to make things more visual by showing the Fund. It was easy. It wasn't a room full of gold bars, or thousand dollar bills. Just a couple of filing cabinets about 4 feet by two feet.

    There were lots of small drawers and the guide obligingly opened one so we could see what was inside. It was full of index cards. You know, about 3 inches by 2 inches.Someone, either the narrator or the guide said that each card represented a promise by the US Treasury to pay X, amount to the Social Security Administration. That is to say, it was the record that SS had paid over to the Treasury some sum of money withheld from our pay checks.

    Judging from the size of the cabinets,maybe there was an index card reflecting each week's worth of withholdings. Who knows, maybe the oldest card was for the first week of May 1937 (I made that up) and was signed by Henry Morgenthau.

    That was the Social Security Trust Fund. As I say, not a room full of gold bars or currency just a few thousand index cards.

    The cash inflow recorded on some of those cards came in long ago. And more importantly, and went out long ago. To pay the Government's bills. For whatever: the WPA, the Civilian Conservation Corps, my uncle Bob's pay as one of the first draftees. Even social security benefits...But whatever, that money is long gone.

    For whatever reason, to the extent some of that cash outflow was paid for social security benefits the Treasury has kept a record. And the difference between the cumulative social security payroll taxes turned over to the Treasury, and the cumulative amount it later paid in SS benefits represents the net amount owed by the Govt to the SS Administration: (There's some interest too but let's keep it simple.)it is.......

    The Trust Fund.

    That's the system. Withholding taxes are paid over to the Treasury, along with lots of other funds it receives : for income taxes, estate taxes, import duties, whatever. And in parallel, the Treasury writes checks to pay its bills. (and since the outgo is greater than the inflow--except under Clinton- there's a deficit and it has to borrow some money but that's another story).

    It's only in the case of Social Security that the Government makes a record of the difference between the receipts and pay outs and calls it a Trust Fund. You won't hear of a DOD Trust Fund for example, the Treasury just pays the DOD's bills,just as it pays social security benefits.But in the case of the DOD without trying to keep a record of any money the DOD has earned--I suppose there is some--vs the amount it spends..

    Right now there's a positive balance. But if at some future point ( I think 40 years away is the guess) if the outflow has finally passed the cumulative inflow,horrors, the Trust Fund will be broke.

    And it won't make any difference. There will still be payroll withholdings coming in and they'll be almost as large as the social security benefits going out.

    But in fact that too will be irrelevant...

    Accepting that there's some requirement for the overall Government to generate enough overall cash to pay its overall bills, there is absolutely no need for any individual part of it: to take in more money than its spends.

    The grave warnings that the Social Security Trust Fund will go broke in 20whatever is, frankly part of a conspiracy. For various reasons conservative economists, republican congressman and assorted media allies are trying to convince us that some future catastrophe will occur when we finally reach that point when the Trust Fund no longer has a positive balance

    It's nonsense. Don't fall for it.

    Comments

    You may understand this better than I, flavius, given your poking around and the great primers people offered on your yesterday's diary, but Bruce Webb thinks it's no coincidence about the 2% SS tax holiday, and that it will never sunst:

    "In Part Two I want to discuss a quite different threat. In this scenario the employee share of the payroll tax is allowed to reset to it 6.2% but as a seeming sweetener taxpayers will be allowed or perhaps required to divert it into a Personal Savings Account with the explanation that it really wasn't a tax increase at all! Nope the money is still 'yours', just tucked away for your own future use rather than being co-mingled in the Trust Funds where you don't have an ownership interest at all, why the Supreme Court said so in Flemming .v. Nestor. Well a visit to the link shows that this doesn't mean what opponents often take it to mean, but the idea that the PRAs would be in any fundamental sense different is illusory, but before getting to that I want to point out a curious coincidence (or not). The 2% payroll tax holiday is the same amount of diversion proposed in most straight PRA proposals out there. Cynical people might suggest that this number was not just plucked out of the air, or back computed to approximate the typical effect of the expiring Make Work Pay tax credit which it is replacing, but instead to put in place elements of say Obama advisor Jeff Liebman's Liebman-MacGuineas-Samwick Non-Partisan Social Security Reform Plan or even the more recent Galston-MacGuineas Plan which has a mandatory diversion of exactly this amount.

    As I have said in other contexts, I don't much believe in coincidences. This 2% cut is somewhat under-motivated in policy terms, there were other, simpler, and more targetted ways of putting dollars in workers' pockets. But as part of a co-ordinated plan to sell some sort of PRA carve out as part of a larger Social Security 'reform' it makes all too much sense."

    http://www.angrybearblog.com/2010/12/2-non-solution-part-two.html

    Oddly enough, the roast I left you on my Cek]lestial blog was that once you realized that part of the plan heralded some percentage being dedicated to a private plan, your head exploded.  ;o)


    by we are stardust on Tue, 12/21/2010 - 10:22pm

    Useful and interesting.

    I don't put anything past the unholy allliance which wants to attack social security.


    by Flavius on Tue, 12/21/2010 - 11:29pm

    A fact filled page on the history of SS rates, balances, income and outlays year by year since 1940 is at this link. The payroll tax was started in 1937, and the first monthly payout was in 1940. Not all jobs or ethnic groups were initially covered in SS.

    The first link above also has good graphs like the one below.

     


    by NCD on Tue, 12/21/2010 - 10:42pm

     Accepting that there's some requirement for the overall Government  to generate enough overall  cash to  pay its overall  bills, there is absolutely no need for any  individual part of it: to  take in more money than its spends.

    I think you're treading into some dangerous territory.  I would say that the reason that SS has been able to last as long as it has is because people don't see as just another individual part of the government, like the DOD.  Once one accepts the premise that it is just another individual part, there is nothing one can do should the legislators do some 10% cut in expenditures across the board, or whatever little maneuver they want to do.  The only thing keeping the legislators mitts off of SS are those index cards, so to say.  Without those index cards, one can imagine (unfortunately) what would have happened to SS during the 2000-2006 years.


    by Elusive Trope on Tue, 12/21/2010 - 11:13pm

    As with the post above, useful and interesting.

    It sometimes appears to me  there's an alliance that is maddened by the existence of this one piece of popular, effective,  progressive legislation.What's behind this powerful desire to do needless  harm.? I have a quote from Auden's Billy Budd that would be appropriate here but I'm too tired to look it up. .


    by Flavius on Tue, 12/21/2010 - 11:37pm

    Freud might have a few thoughts on what's behind this powerful desire to do needless harm?


    by Elusive Trope on Tue, 12/21/2010 - 11:48pm

    Flavius Before the 2% payroll deduction came into being I think the operational figure for when the fund stops meeting it's demands was 2037, stemming from a recent CBO projection. It's not as if the "Fund" completely runs out, it could still meet the lion's share of its payments from then on.

    All of the SS projections are so far into the future that the argument of "fix it now' is absurd. Now if the 2% isn't reinstated, that's paints a different picture, and I havn't seen any amendments to the 2037 projection in that regard.

    Again, all of this is so far into the future that it is almost impossible to project and small changes in assumptions matter. For example, a small improvement in the "productivity" assumptions used in the 2037 projections could dramtically reduce the need for future funds, as could overall GDP assumptions.

    Frankly, I think the whole "fix it now" movement is bogus.


    by Oxy Mora on Wed, 12/22/2010 - 12:54am

    or...fix it now, as in removing the cap on collections.  That'd be a good place to start.


    by kyle flynn on Wed, 12/22/2010 - 1:23am

    I believe that surveys show resounding suppport for "lifting" the cap.  


    by Oxy Mora on Wed, 12/22/2010 - 7:23am

    The real kicker here is who is the Social Security Administration protecting...the people who contribute (unwillfully by some remarks) or to the government? If it's the people's trust then the public has a right to know exactly how much their trust is worth as well as who's hands are in its' cookie jar, for what reason, how much and when will their loan be repaid with interest. Without that simple knowledge, if the fund were to be dismantled, the public wouldn't have the slightest clue how much money was siphoned off...kinda like water under the bridge. Dismantling social security would be like the government not paying bond holders their due on the treasury notes they purchased in good faith expecting the government to honor their commitment to payback the loan at an agreed interest rate. It makes me wonder why GOPer's are so intent on pulling the plug on it, especially if they use it to shore up their cash flow because taxes they take in aren't enough to meet the governments spending habits. Now the trust fund was substantially increased under Reagan because projections at that time indicated it would go broke once us baby boomer started to draw on it. Could it be that all those tax cuts since Reagan was why they needed to create it instead? Claim an insolvency issue so as to increase individual taxes, but not on businesses,  for a social payment program then rape the fund to cover for the lack of government operating expenses the tax cuts he gave created? It makes me wonder how much money is suppose to be in there and how much money was lended to whom and if any loans have ever been repaid and if any interest was paid. Unfortunately, the people we have to rely upon to answer the questions are the same ones who are responsible for the internal government shadow bank.


    by Beetlejuice on Wed, 12/22/2010 - 1:31am

    ugh. i love when the word conspiracy is thrown around. there's no conspiracy - there are people who believe social security is an unworthy expenditure and those that believe it is the least a country as wealthy as America can do for its citizens. Unlike with the DOD, or most other government expenses, Social Security was designed to be a program paid for by its citizens, though it didn't take long for the budget magicians to bastardize the intent of the program by using the 'Trust Funds' to pay for current costs. And there is no denying the fact that at some point in the not-too-distant future, the demographics will become such so that covering for the liabilities of the program will be a significant drain on our GDP. 


    by Deadman on Wed, 12/22/2010 - 1:04pm

     And there is no denying the fact that at some point in the not-too-distant future, the demographics will become such so that covering for the liabilities of the program will be a significant drain on our GDP. 

     I question whether those liabilities should become so significantly more a drain  than  now.

    There are at least a couple of intellectually disreputable arguments which are sometimes trotted out to substantiate that thesis.

    One, poplular among at least among some sub section of the 'viewer with alarm'community is that  this putative  increase in the SS burden is   somehow connected with the erosion of the Trust Fund. But that potemkin Trust Fund has never been used to defray Social Security's  current costs since has  never been  a store of value, but merely an historical record. So we're not going to miss something we never had. academic. .  

    Another is that SS benefits for the retired are have to be borne by a declining work force. More slight of hand. They have to be borne by the economy. And no one predicts a declining econmy. At the worst they predict it will increase less rapidly than the SS benefits. That seems to me like a problem whose solution is not beyond the wit of man.

     


    by Flavius on Wed, 12/22/2010 - 2:22pm

    Excellent point about work force vs. economy.  And, of course, if number of workers becomes a problem we can import them.  Just open the borders.


    by Michael Maiello on Wed, 12/22/2010 - 3:44pm

    Providing for the aged  combines existential  importance with an astonishing  paucity of  objective  academic comment . Seems to me it's a  bad sign when I'm considered  any sort of an authority on any subject. And  a really terrible one  when it's on a subject of such importance.


    by Flavius on Wed, 12/22/2010 - 5:17pm

    One of the reasons I always chuckle (or cringe, if its Lou Dobbs) when the right wing rails on about illegal immigration and border security - not only do most illegals do jobs most Americans consider beneath them, but the fact that we are a nation open to immigration (at least for most of our history) and attractive to immigrants (at least of most of our history) is the one possible savior for what will most certainly be a demographic crisis as the Baby Boomer generation retires en masse. 

    And um, there's no way the economy will be able to do much to help but on the margin with that demographic crisis. Even the healthiest developed economies can't probably grow much more than 5-6% a year, and while I don't have the demo stats in front of me, I'm pretty certain the change in Americans retiring from the work force vs those entering will be significantly greater than that. 


    by Deadman on Wed, 12/22/2010 - 11:24pm

    The retiring of the Baby Boomers will certainly be a demographic factor . Using the word crisis may be crying wolf.

    Whatever the growth of the economy -and I agree 5-6% might be the best we should expect- it will only be loosely linked to the growth or even decline of the work force. It will also reflect the growth in productivity.

    But since for 80 years our working population has been contributing to the  Social Security Administration enough to not only pay retiree benefits  but also provide a sweetheart loan to the Treasury it seems  it would be a fair exchange if the Treasury for a while subsidizes enough  of the  retiree cost to ensure it's not an unacceptable burden on the current working population. Turn about is fair play.

    For decades the Right has complained about the burden of entitlements when in fact it was the Treasury that was entitled  helping itself to the excess withholdings of the current workers..

    BTW I'm aware that there might have been an actuarial basis for that excess . But factually more money was being withheld than was required to be paid out as benefits.  

     

     

     


    by Flavius on Thu, 12/23/2010 - 8:34am

    Flavius, this is from Angry Bear:

    Posted by Ken Houghton | 12/22/2010 05:27:00 PM

    I'm late to seeing this, and Bruce has probably already covered it, but Doug Elmendorg at the CBO inadvertently gives away the game on the Administration's approach to—let alone opinion of—the Social Security "Trust Fund":

    The balances in trust funds have accrued because income associated with those programs has exceeded the expenses; when that happens, the surplus cash flow is used to finance the government’s ongoing activities, and the trust fund is credited with a corresponding amount of Treasury securities. Although trust funds have an important legal meaning, in that they may constrain the amount a program can spend, they are essentially an accounting mechanism and have little relevance in an economic or budgetary sense. The value of Treasury securities held by trust funds and other government accounts measures only some of the commitments the government has made, and it includes some amounts that may not represent future obligations at all. [emphases mine]

    Pay particular attention to that last; it's the closest you'll find to an acknowledgement from a government official that There is No Crisis.

    As Bruce has noted, only by distorting the worst-case and median cases does the Administration produce scenarios under which the Social Security Trust Fund—if credited with its accruals as the Greenspan Commission intended (see "Off-Budget" Again-"; h/t PGL here)—does not have the funds to pay its obligations in perpetuity. (As Dean Baker once observed, if you take those scenarios and apply them to the equity markets, the case for privatization disappears even more quickly.)

    Doug Elmendorf's admission that there may well be a perpetual Social Security surplus, even if it is phrased as "some amounts that may not represent future obligations, stands in stark relief of the most notable "unforced error" of the Obama Administration.

    He called it "CBO sleight-of-hand".

     


    by we are stardust on Thu, 12/23/2010 - 10:53am

    Thanks. Some of the following comments were also interesting.


    by Flavius on Thu, 12/23/2010 - 12:39pm

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