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    On The Looming Deficit Of Trust

    There may be many ways to improve Social Security, Medicare and Medicaid, but there is a looming question: can we trust the judgement of those who push to address the redesign of these programs in the crisis climate of talks about the budget deficit?

    One example: Social Security does not contribute to the national debt, yet it was a focus of the bipartisan National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) created by the President, and it is expected to be a focus of the bipartisan Joint Select Committee on Budget Deficit Reduction (the Super Congress), co-created by the President and Harry Reid. It is fair to ask why, and to be suspicious of any tinkering that is proposed by those august bodies. It is fair to ask why Democrats are so ready to put Social Security on the table in talks about emergency deficit reduction. It is also fair to ask whether anyone who thinks Social Security should be part of the deficit-crisis conversation can be trusted to make the right choices about its future.
    Here is an excerpt from a letter recently sent to Sen. Reid by Strengthen Social Security ( that succinctly lists reasons why it is inappropriate to have this discussion in the context of cutting deficits: 
    "...we believe Social Security should not even be considered for cuts by the committee because:
    • Social Security does not contribute a penny to the federal deficit.
    • Social Security already operates under its own spending cap as benefits will automatically be cut across-the-board, without any action by Congress, if Social Security ever does not have enough income to cover its costs.
    • Social Security is a pension plan with its own dedicated revenue stream that demands it be considered totally separate from deficit discussions. Doing otherwise will likely intensify the public’s suspicions that Congress is raiding Social Security. 
    • Social Security’s long-range funding shortfall, modest in size and still decades away, should be dealt with separately from the Super Committee’s crisis-oriented deficit-reduction negotiations, and after Congress has completed its deficit-reduction work. 
    • Agreeing on a long-term funding solution for Social Security is very challenging, but it is not urgent and should not be done in haste. 
    • Cutting Social Security will not reduce the public debt. 
    • Maintaining Social Security’s modest benefit levels, or, better yet, increasing them, is the right policy, especially in light of the sharp decline of traditional pensions in the private sector and the loss of individual savings as the result of the Great Recession."

    Read the entire letter here:

    If Social Security benefit payments were cut in half today, the deficit would not change. The Super Congress committee is charged with writing crisis legislation that will reduce the deficit over the next ten years, yet, during those same ten years, the Social Security Trust Fund will continue to grow, not decline. So, if paying benefits does not contribute to the deficit, and growing the Trust Fund does not contribute to the deficit, why is revising Social Security part of the discussion about deficits?
    The reason has to do with a long term conservative re-framing strategy, a Frank Luntz style propaganda campaign, designed to frighten the American people in order to either privatize Social Security or renege on repaying debt owed to the Trust Fund. Conservatives have long wanted to redefine that debt as mere "I.O.Us," which cannot now be honored because the money has already been spent. They never miss an opportunity to advance their agenda.
    As of July, 2011, the Social Security Trust Fund stood at $2.7 trillion, held in long-term special issue bonds which are securities issued by the U.S. Treasury, backed by the full faith and credit of the United States. The special issue securities made up 18.7% of the national debt, which stood at $14.3 trillion. (More facts about Social Security Trust Fund are available here and on related pages:
    It is very important to understand that the Trust Fund is not an additional debt owed by the government. The government regularly issues securities to fund its operations. Some of those securities are purchased by the Trust Fund with cash collected from payroll taxes. If the Trust Fund were not buying Treasury securities, then the Treasury would be borrowing the same amounts from private investors, or China, or the Fed, to make up the difference, so the total amount of the debt would be absolutely the same. No difference. The amount of debt owed to the Trust Fund does not affect the total national debt one way or the other.
    But the debt owed to the Trust Fund is vulnerable to the conservative propaganda campaign. That $2.7 trillion is part of the money borrowed and spent by Congress over the years that will someday need to be paid back, along with all of the other money the government has borrowed and spent over the years. If $2.7 had been borrowed from Goldman-Sachs or AIG, then, to conservatives, the debt would be an asset owned by investors and therefore its repayment would be an absolute obligation of the U.S. government. But since the money was borrowed mostly from workers, conservatives tend to think of it as either a) a tempting piece of change to privatize, or b) subordinate debt. 
    In conservative-think, if we cannot figure out how to turn a private profit on the Trust Fund, then we should at least try to figure out how not to repay the debt we owe it. Because the prospect of repaying the Trust Fund builds pressure to raise tax rates on the well-to-do.
    That is why conservatives want Social Security revisions to be on the table as part of the ten-year deficit reduction talks, even though changes to Social Security have nothing to do with deficits over the next ten years. They never miss an opportunity to press their agenda.
    There is no deficit crisis, by the way, except in the minds of those who want to use it to achieve long-held policy goals. George Bush was handed a golden opportunity to invade Iraq after 9/11, even though Iraq had nothing to do with it. Henry Paulson was handed a golden opportunity to boost bonuses on Wall Street after the collapse of 2008, even though Wall Street itself was the cause of the collapse. It should come as no surprise that conservatives have manufactured the deficit crisis, an opportunistic response to the Great Recession, as a means to reduce taxes on the well-to-do even further, and to once again attack Social Security.
    What is surprising, is how eager so many leading Democrats are to sell the idea that revisions to Social Security must be part of this make-believe crisis. That is the source of the real deficit we are experiencing.
    The looming deficit of trust in our own leadership.


    Lock-Box, anyone?

    (Poor Al, to think of the shit he had to eat about that one...)

    Oh yeah, and also: "full faith and credit" ROTFLMAO

    reduce taxes on the well-to-do even further, and to once again attack Social Security.

    Why does Red Planet hate the job creators...?

    How do I hate the job creators?

    Let me count the ways...

    I don't get the SS attack either. Unless conservatives just wish to steal the amount the government owes to the fund!

    Medicare is in a mess because the providers are ripping it off including the drug companies.

    But explain this to the tea party? NFW

     Unless conservatives just wish to steal the amount the government owes to the fund!


    dingdingding  we have a winner.

    Because you can't, I am awarding you the dayley prize, etc. etc.

    They already stole it. Now they don't want to pay it back.

    Conservative Republican and Saddam Getter, George W. Bush, 4/5/2005:

    “A lot of people in America think there is a trust — that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you, There is no trust ‘fund’ — just IOUs that I saw firsthand,” Bush said.

    ...and conservatives don't believe in honoring IOU's of the federal government. Ronnie set it all up with the biggest bait and switch in history, in the '80s, raise SS taxes to 'save it', and spend the increased SS money on tax cuts for the wealthy. It worked so well they want to do it again...


    That speech about IOUs was priceless, wasn't it?

    Wonder why little Georgie didn't just walk over to Goldman-Sachs, open up their file cabinet on T-bills, and light them on fire?

    Oh, wait. If Goldman loans money to the USA, it's got to be paid back, man. But if Jane Doe down at the cut-n-sew loans money to the USA, all she gets is useless IOUs.

    You have to remember that when a Bush says "trust fund" he's thinkin' about what used to send him monthly checks when he was cavorting naked on the bar at the DEKE house at Yale (not that there's anything wrong....)


    He prob'ly thought there would be stacks of hundreds in file cabinets just wating to be mailed out...


    Yeah, so what? Only liberals would payoff a gov't IOU.

    Handling bricks of Benjamins is the way 'stuff' gets done for conservative Republicans, which happens to include all of them, destor and trope notwithstanding...aka the new breed of conservative Republicans, or the old breed of conservative Republicans from last year.

    Plane loads of cash can also work well during wars to make super sized tax free profits while spreadin' freedom!

    Plane loads of cash 

    There were pallets and pallets of hundreds shrink wrapped in bricks...I think there are still 8 billion or so unaccounted for from Iraq, not to mention a bunch of the Iraqi's money about which they remained sorely pissed...

    Explain it to the Tea Party? Wouldn't even try. Especially when it's so hard to explain to people who actually want to understand it.

    And, yes, you have to admit, DD, if you were a modern-day conservative you might be tempted like Duke in the old Doonesbury strip, who exclaimed, as they led him away in handcuffs, "But the pension fund was just sitting there!"

    Let us shed a tear for Hunter Thompson, (my mentor and exemplar) as we relish his cartoon doppelganger's antics...

    Because the prospect of repaying the Trust Fund builds pressure to raise tax rates on the well-to-do.
    Keeping things more simple.  If your expenditure budget is $10 dollars, and the "revenue" which makes up that $10 includes $1 from the Social Security Trust Fund, then paying it back creates a sizeable gap.  Not only do you have to pay back $1.50 to the Trust Fund, thereby creating a new expenditure budget of $11.50, but your revenue is now only $9.  This means either cuts will need to be made in other areas in order to reduce the budget to $9, new tax increases will need to be incurred in order to generate an additional $2.50, or some mix of the two.
    It is not Social Security's fault that Reagan and Greenspan set in motion a plundering of the Trust Fund to avoid increasing taxes more than they were in order to match the rise of expenditures.  Nor is it Social Security's fault that neither the middle class nor the well-to-do in general buy into the notion of the redistribution of wealth in order to pay for the services, of which many of them the middle class and the well-to-do depend upon and expect to be there for them.
    The Commission stated from the outset of their proposal that any changes to Social Security should not be made based on the intent to balance budgets and deal with the debt.  Yet past and current utilization of the Trust Fund for budgetary expenditures, utilization which cannot be undone, means Social Security has major budgetary implications.  All of this is occurring in an environment where we cannot as a nation come to any consensus about budget priorities.  The closest we can come to is "cut nothing, increase no taxes, and balance the budget."
    Where my deepest deficit of trust is in the voters coming to terms with is before them.


    I don't think the math works that way, Trope. 

    If your budget is $10 and you have revenues of $8, you need to borrow $2 to make up the difference, so you sell securities. Workers, collectively, buy some of those securities to put in the Trust Fund, say 50¢ worth, for arguments sake. The other $1.50, you borrow from China, Japan, Goldman-Sachs, etc.

    The total is $10.00, not $11.50. And, yes, all of it has to be repaid with interest. But debt owed to the Trust Fund is no more burdensome than debt owed to China.

    Borrowing money from the people is no different from borrowing money from the bank.


    I was speaking about a budget down the road, which is why SS is an issue.  Right now SS is bringing in more than it spending.  No problem.  But there will come that day when that won't be the case.  So what I talking about is that moment when the Trust Fund says it needs it's money back at the 1.5 to 1 rate it was promised.  The year before the Trust Fund was a source on the revenue side.  Now it becomes a source of expenditures on the annual budget.

    The way I see it is that the "adjustments" to SS is to ensure that jolt of having to pay back those loans from the Trust Fund are minimized or avoided altogether because of the impact it would have on the bottom line created by the switch from revenue to expenditure. 

    Really it is like someone who owes some money to the bank, some money to car dealership and some family members.  Who are you going to first to look to put off to some later date?

    And while $1 from China is no more burdensome than $1 from Suzie at the craft store, there is a difference between China and Suzie. 

    But this is also starts to build the case that we shouldn't be borrowing from China or Suzie, or at least any more than we already have. 


    If you want to avoid the "jolt" of having to pay back those loans from the Trust Fund, better get ready for some pain right now. You won't have to wait until 2036.

    Last year, for the first time, payroll taxes did not fully cover SS benefits. The SS Trustees combined payroll taxes with interest on the Trust Fund securities to cover the bill. That combination will work until about 2022, after which the Trustees will dip into principal.

    There may be a couple of issues being mixed up here. One is the Trust Fund itself, which represents the accumulation of excess payroll taxes collected from working people since 1983 specifically for the purpose of building a buffer into the program. The other is, what happens when the Trust Fund is used up.

    By current estimate, the Trust Fund will be used up in 2036, after which payroll taxes will cover 75% of scheduled SS benefits. So we need to develop a plan for what happens starting in 2037. It is something we need to do, but it is not a crisis situation.

    However, if you are suggesting that the Trust Fund should not be repaid, then we don't have until 2036. We have to cut benefits today.

    I don't think that's what you intend.


    Not suggesting that it not be repaid.  I am suggesting that some would like to adjust it so that it doesn't have to be repaid in anyone's lifetime.  I am also suggesting that the repayment has budget implications.  As the current fight going on in DC indicates, we can't even get close to some agreement on cuts and revenue increases.  While the current debt is not quite at crisis levels, it is heading towards it with no indication we will go in the other direction.

    The current global economy doesn't give one much hope the US government can by itself stimulate it to the point the growth will have any significant impact on the deficit.  This is not 1936 in more ways than one.

    It is something we need to do, but it is not a crisis situation.

    There is a line of thinking that maybe we shouldn't wait for a crisis situation in order to deal with something we know is going to be eventually a crisis.  Especially when the entity that in charge of dealing with it hasn't shown itself to be able to approach such things in a rational and efficient manner.

    Just saying.

    Very good explanation. Posted to FB.

    Thank you, Peter. Pardon my ignorance. What is FB?

    Oh. Facebook.


    I can barely make sense of any of this discussion.  For example ...

    The amount of debt owed to the Trust Fund does not affect the total national debt one way or the other.

    ... is on it's face close to a logically incoherent sentence.  It's like saying the total number of bullets owned by the US Army does not affect the nation's bullet supply one way or another.  The debt owed to the trust fund is comprised of securities that are United States Government debt.  So of course the debt owed to the trust fund is part of part of the national debt.

    On the other hand, a lot of the politics of Social Security accounting obscures the main issue: The "trust funds" are not treasure chests full of non-monetary savings.  They are just glorified payment accounts, and these accounts happen to have some securities in them.  The securities are commitments the American people have made to pay themselves a certain amount of money for a certain designated purpose at some point in the future.  So if the Social Security funds must pay out X dollars in year Y, the American people in year Y will be responsible for producing the total amount X in that year.

    They will have to raise the X dollars by some combination of (a) taxing themselves a sufficient amount to pay off the special issue securities that reach maturity in that year, (b) taxing themselves any additional amounts necessary to meet all Social Security commitments, or (c) borrowing the money by issuing new debt instruments.

    When conservatives say that the securities in the trust fund are just IOUs, they are 100% right and we shouldn't try to avoid that fact, misrepresent it or dissemble around it.  All securities are just IOUs.  Big deal.

    Obviously if Social Security were partially replaced by additional private retirement plans, that would just be to replace US Government IOUs by IOUs issues by private financial entities.  No rational person could possibly think that IOUs issued by private companies are more secure than US government debt.   US government debt is backed by the entire body of US taxpayers, including financial corporations.  The United States government has survived for well over two centuries, and its ability to collect the taxes it needs to meet its debt obligations has never faltered.  The IOUs of private corporations, on the other hand, depend for their integrity and value on the solvency and profitability of private business ventures, and these ventures are in constant flux, with frequent bankruptcies and dissolutions.

    If the United States government ever did collapse and reach a point where it could not pay its debts, that event would be only the tip of an iceberg of spectacular economic devastation.  And so obviously a large proportions of whatever private retirement funds might exist prior to such a catastrophe would be go up in smoke at the same time.  In fact, without a powerful government around to enforce debt obligations, there are no debt obligations.  The government is the foundation of everything else.

    We have just seen in 2008 what happens to private savings and investments from time to time.  There is a financial crisis and a lot of the savings go up in smoke.  Mutual funds lose money; IRAs lose money; stocks go up in smoke.  And yet during that crisis the United States government easily made all of its Social Security payments.  So the superiority of Social Security as a retirement system is a no-brainer.

    Democrats should argue:

    1. Social Security is the most awesome and successful US government program ever devised.

    2. Social Security is so awesome that it should be expanded, not contracted.

    3. The best way to expand Social Security is to make the payroll tax more progressive.

    In addition, the US government could probably make even more money for its retirees - and other citizens - if it operated sovereign investment funds that invested in private ventures and paid out dividends to its citizens from the profits from these ventures.


    Apologies, Dan, for my unclear writing. I tried to make the point that the amounts owed to the Trust Fund are part of the national debt. But most people assume they represent additional debt, over and above that which the government would have borrowed had the Trust Fund not existed. That is just not the case.
    I couldn't agree more with your statement that "All securities are just IOUs." That's another point I hoped to make, but apparently didn't do a good enough job.
    Debt is an IOU, an IOU is debt. As far as the debtor (that's us) is concerned, it doesn't matter who the money is owed to. Unless one believes that some lenders deserve repayment while others do not.
    When the government needs money it sells securities (IOUs). The Trust fund bought some of them. China and Goldman-Sachs bought some of them. 
    There is no difference between a dollar owed to the Trust Fund and a dollar owed to China or Goldman-Sachs. All of those dollars have to be paid back, with interest. 
    Why did I say that "The amount of debt owed to the Trust Fund does not affect the total national debt one way or another?" Because if that $2.7 trillion had not been borrowed from the Trust Fund, it would have had to have been borrowed from China or Goldman-Sachs.
    You're right that we will have to figure out how to pay back the Trust Fund, just as we will have to figure out how to repay China and Goldman-Sachs. But surely you don't think these are two different kinds of debt, one of which must be paid, the other, not so much?
    By the way, I agree with everything else in your post, except the closing paragraph, which would be an interesting topic for a different post.

    China has Lucca Brazi in charge of collections.  The Social Security fund has...  Fredo

    Roger, you are indeed jolly.

    Well done.

    Grazie, nice little bizness ya got here....dose mirrors, pretty fragile, huh?

    I am obliged by way of family history to mention that my father, growing up on the Lower East Side, used to shoot pool with Benny Siegel and Meyer Lansky.  He said he could beat Benny, but not Meyer, who was the oldest of the three.

    Red Planet,

    I don't understand this statement:

    If Social Security benefit payments were cut in half today, the deficit would not change.

    How could that be true?   The deficit is the difference between expenditures and revenues.  Social security payouts are one category of government expenditure.  If you cut expenditures, then the difference between expenditures and revenues goes down.


    Every month the Social Security component of payroll taxes is invested in Treasury securities to be held in the Trust Fund. The Trust Fund grows a bit.

    Every month, the Trustees redeem some of the securities, with interest, and use those funds to pay SS benefits. The Trust Fund shrinks a bit.

    SS taxes are not paid into the General Fund*, and SS benefits are not paid out of the General Fund.

    See the Trust Fund Data FAQ at Social Security Online for more:

    * SS taxes are used to purchase Treasury securities. The proceeds of the sale of all securities, whether they are sold to the Trust Fund, or to China or Goldman-Sachs, all go to the General Fund, because that is how the government finances its operations. But the thing to remember is that SS taxes and benefit payments do not flow through the General Fund. Trust Fund monies cannot be used for other purposes, so a reduction in benefit payments would not make more money available to the General Fund.

    This doesn't matter, Red Planet.  The federal deficit (or surplus) is not just based only on activity in the general fund, but on the unified budget.  The government maintains many separate accounts for the processing of various kinds of receipts and payments, and the Social Security Trust Fund is just one of them.  There are over 200 trust funds that process earmarked revenue streams and payments, but they are all just components of the unified budget.

    Social Security is primarily a government program by which, at any given time, taxes on the population of Americans who are working at that time are used to support the retirement of older Americans who are no longer working.  It's a great program, and I think progressives should focus on defending the Social Security program itself, rather than try to dress it up as some kind of special budgetary animal that occupies a special status that renders it exempt from the general budgetary discussion.

    Don't try to convince people that cutting Social Security payments wouldn't reduce government expenditures and wouldn't reduce the deficit.  That would be false, and most people can see through the accounting doubletalk to see that it is false.  Instead just focus of reminding people that cutting Social Security would be a bad and stupid way of addressing budgetary concerns.

    The biggest problem with Social Security is that the most well-off are exempt from paying the taxes that support the program.  That's crazy.  Even modest progressive changes to the payroll tax would make the program flush, and support better retirements.


    I didn't set out to defend Social Security as a program to the audience here, because it would be preaching to the choir. So let's agree that SS is awesome, the payroll tax cap should be raised, benefits expanded. Even better, let's put everyone back to work, sit back and watch Social Security's financial prospects improve.

    The point is that Social Security does not contribute to the deficit and does not increase the national debt, so we shouldn't be discussing "adjustments" to the program in the context of a trumped-up short-term deficit crisis.

    But you believe that SS benefit payments do contribute to the deficit. Apparently, because the Trust Fund is a chimera. 

    If I may quote, you say "…at any given time, taxes on the population of Americans who are working at that time are used to support the retirement of older Americans who are no longer working." No, that changed with the Greenspan Commission in 1983, when the Trust Fund was implemented. Since then, payroll taxes have exceeded benefits by the cumulative amount of $2.7 trillion (including interest), and the surplus has been invested in government securities.

    The SS Trustees treat those government securities as assets, and go to great lengths to protect them and increase their value. From time to time, the Trustees redeem some of the securities to pay benefits. 

    What happens when the Trustees redeem securities? Typically, Treasury sells a like amount of securities to someone else in order to cover the redemption. In other words, Treasury takes out a new loan to pay off the old loan. How does trading one loan for another loan add to the deficit? Or the debt?

    The Trust Fund is not a fake or a falsehood. It is not double-talk. It is not subordinate debt, unreliable IOUs or just a bunch of paper. It is as real as the Treasury securities held by China and Goldman-Sachs.

    Here are some references you might find interesting, and pretty good reads, to boot:

    Dean Baker:

    Nancy Altman:

    William Greider:

    Paul Krugman:

    The Economic Policy Institute:

    And the 276 distinguished men and women who signed this letter:

    Red Planet, I don't believe the Trust Fund is a chimera or that the securities in the Trust Fund are chimeras.  But those securities effectively consist in promises we have made ourselves to collect taxes or borrow money in the future.  You say:

    No, that changed with the Greenspan Commission in 1983, when the Trust Fund was implemented. Since then, payroll taxes have exceeded benefits by the cumulative amount of $2.7 trillion (including interest), and the surplus has been invested in government securities.

    It is true that the funds to make annual Social Security payments are not raised purely through the payroll tax, but also from redeeming bonds that have reached maturity.  But how are these government bonds paid off?   Partly through additional borrowing, but mainly through taxes.  The Trust Fund contains securities that represent promises that one part of the government has made to pay another part of the government.  And since Americans are responsible for all government payment obligations one way or another, we are the ones making those bond payments.

    It is certainly appropriate for the SS Security trustees to treat the securities as assets, since they only administer the Social Security funds.  But security assets are always someone's liabilities at the same time, and in this case they are liabilities of the US Treasury.  But that just means that they are our liabilities.  So in terms of the unified budget and the overall picture for the US taxpayer, the special issue securities held by the trust fund represent assets and liabilities at the same time.

    Social Security is fundamentally a pay-as-you-go system, a continual transfer of funds from from the present workforce to present retirees, and the accounting maneuver of buying securities from ourselves does nothing to alter that fact.

    That doesn't mean it isn't a good idea to use Social Security surpluses to purchase bonds from our Treasury.  When we do that, we augment the promises we have already made to future Social Security recipients with an additional layer of formal promises in the form of legal debt we owe those recipients.  Since this debt "shall not be questioned", and even radical Republican debt limit cowboys will cut other stuff before defaulting on debts, the existence of the bonds gives people planning their retirements an extra level of present security, which is part of the program's purpose.

    Also, the people receiving Social Security are not quite the same people as those providing the funds to make the bond payments.   The bond payments are continually made by the taxpayer, either through taxes collected or additional borrowing, and thus each taxpayer's share of that bond obligation is effectively proportional to their share of taxes collected and new debt obligations incurred.  That includes wealthy people who do not have to pay the payroll tax.  So turning payroll tax surpluses into government securities is a way of shifting the burden away from payroll tax payers toward all taxpayers.  That is a progressive form of redistributing the burden to fund Social Security.

    I think there are a few things going on with the SS discussion, not just this one, but the general one:

    1) Originally, SS was meant to be a separate fund, like a savings account, which people paid into. The money you paid in, stayed there until you needed it and then it was paid out. A lot of people still think of it this way, even though it's been a pay as you go system almost from the beginning.

    2) So, to these people, it comes as a big shock that, in fact, there is no pot of money waiting for them. They have to "trust" that the government will pay their benefits once they need them. And there's no guarantee the government will do that. It all depends on who's in charge at the time.

    3) Even when you realize there is no pot of money, there is the trust fund, which is mostly an accounting idea, since all the money that comes in goes into the general fund and benefits are paid by the taxpayers, either through taxes or borrowing.

    4) But SS DOES have a separate revenue stream, and this revenue stream still exceeds the amount being paid out, AFAIK. In this sense, it doesn't contribute to the deficit. It has a dedicated revenue stream, and even when this stream empties out into the great ocean known as the general budget, there are marks in a ledger that say, "This stream has contributed X amount to the great ocean."

    5) I think it's fair to say that SS doesn't contribute to the deficit in the sense that its dedicated revenue stream is larger than current payments. Once this is no longer the case, it will contribute to the deficit.

    6) Beyond this, there is the issue of the number of workers to number of benefits receivers. As fewer and fewer pay into the system and more and more people take benefits, then there is a larger tax burden on those who are paying in. Some people think this is "unsustainable," or even "unfair." They say, "Why saddle the young with this big burden, when they need this money to build their lives? The old have had their chance and shouldn't be a burden." I know one guy who, back in his youth when he was making $8 an hour, deeply resented his FICA payments feathering the nest of some (as he imagined it) well-off person who'd already made his way.

    7) If SS really were a pot of money saved by the people who had paid into it, this problem wouldn't exist. The pot's size would be commensurate with the size and wealth of the population that had created it.

    But if you take an MMT perspective (I think), none of this matters. The government makes promises to pay certain amounts to certain people, and it doesn't need to take in a certain amount of money to fulfill those obligations.

    8) Underlying a lot of this controversy are the notions that the government isn't "us" and that this program merely transfers money from the haves to the have-nots, or have-lesses. There is no underlying sense that "we" are making a promise to pay "us" because, in this view, there is no "us." The government is in opposition to "the people," and various classes are in opposition to each other. No sense of belonging to one body politic.

    Here is the summary of the 2011 Trustees Report:

    The fact is, there is no pot of money existing in your bank savings account either.  The whole financial world is based on promises.  Banks are only required to keep a small portion of their deposits as reserves.  Most of the money you give them they then give to other people.  When you give your money to a bank, you receive from them only a promise to pay you that amount of money at some point in the future, along with some interest depending on when you ask for the money.  Banks are pretty good at managing their cash flows and keeping their promises.  But they are not perfect.

    You wouldn't want the government to simply save your money in a pot, or under a mattress, and then give it back to you upon retirement, because the money would be worth much less due to inflation, and would be unable to support your retirement decently.

    So one approach is to retirement plans is to go with a 100% private investment system.  That's the Republican approach.  Whether the government administers such a plan or the leaves it entirely up to individuals to invest savings themselves, your retirement is supported by the proceeds from funds that have been invested in the private economy.  It works most of the time, but isn't as secure as Social Security, given the ever-present risks of collapses and defaults in the private sector.

    Social Security doesn't invest money in any direct way.  The money you pay in taxes - either in payroll taxes or in revenues used to pay off trust fund securities -  goes to support those who are already retired, and in return you get a commitment by the government to support your retirement in the very same way.  And of course the commitment by the government just means that the current generation of Americans are committing future generations of Americans to support your retirement.  The security comes from the confidence that the public as a whole - the American people as a body politic - will always honor their commitments, and are more reliable in honoring their commitments than are - say - companies who issue stocks.

    The socialized aspect of Social Security is the real genius of the plan.  Of course, it was invented at a time when people were willing to defend programs with the word "social" in their names, without getting embarrassed.

    Thanks for that.

    The right wing don't like fractional banking either.

    You've seen those Milton Friedman videos where he talks about how you're "creating money" every time you write a check, and someone else cashes it.

    The right wing never had any problem with fraction-reserve banking in the past that I can recall.  This is a new obsession of what used to be the the radical libertarian fringe, gone mainstream.

    As I recall, somewhat dimly, SS was MEANT to be one leg of a three-legged stool. One legal was your company pension. Another leg was your savings. And the third legal, your backstop, was SS.

    With the demise of defined benefit pensions and their replacement with 401ks, we see how the first two legs have become one, less steady, leg. The only "saving" grace here is that many employees contribute to 401ks or match.

    But the system does depend on individuals becoming reasonably savvy investors. And even savvy investors can't totally avoid the fall-out from crashes like the one in 2008. Especially if they don't have a lot of time left. The market still hasn't recovered to 2007 levels.

    So if SS becomes a private plan, then folks will only have one leg.

    Republicans find this level of self-reliance to be morally bracing. But the question shouldn't be about morals; it should be about economics and the financial benefits and disadvantages of each way.


    Dan, how do the securities in the Trust Fund represent "promises we have made to ourselves to collect taxes in the future or borrow money in the future." 

    Don't they represent taxes already collected and loaned to the government. The securities are held in trust for the American worker. Why does no one want to give us credit for this investment? 

    Maybe the Trust Fund should have loaned the money to China, instead. That would at least make the situation easier to comprehend, and we would have no trouble expecting China to honor its debt.

    So American workers loaned money to the government. Why in the world would the government accept a loan from workers? No one held a gun to Treasury's head. Quite the contrary. The government was in the business of looking for loans to fund operations. The government is always borrowing money. Since 1983 it has borrowed some of the money it needed from the Trust Fund. 

    When the government borrows money it creates a debt obligation. You can say that interest payments on the debt are helping to drive the deficit and I won't disagree. But the fact that those payments are made to the Trust Fund, rather than to China and Goldman-Sachs, has nothing to do with it.

    The debt holder is not the cause of the indebtedness. 

    Don't they represent taxes already collected and loaned to the government.

    What is the government, Red Planet?  It's you and me.  If the Trust Fund has loaned money to the rest of the government, then that means that the rest of the government has borrowed money from the Trust Fund, with a promise to repay that money.  And the payment promises the government makes are promises that you and I have made.

    When the same entity just shifts assets and liabilities around from one of its accounts to another it doesn't make that entity any richer.  And moving the money is not in itself an investment.  Suppose you have two jobs, one full-time and one part time.  And suppose you have two bank accounts, your food account and your general expenses account.   Suppose you scrupulously deposit all of your part-time income into your food account and all of your full-time income into the general expenses account, and suppose you scrupulously make all your food purchases by checks written on your food account.

    Now suppose you get a raise in your part-time job, and find your food account is accumulating a surplus.  To dispose of the $100 surplus, you decide to write a check on September 1st on the food account and deposit it in the general expenses account.  And suppose for some reason you then decide to write a post-dated check for $110 dollars on your general expenses account, a check that can be cashed after September 15th,  and deposit it in the food account.  After September 15th, when both checks have cleared, are you any richer?  Of course not.   The food account had been debited $100 and credited $110; the general expenses account has been debited $110 dollars and credited $100.  The net change in your combined balances is $0.  But there has been an overall shift of resources from general expenses to food.

    But that's really all a Treasury security is: It's like a post-dated check written by the Treasury Department that can only be cashed after some determined date in the future.

    Now why in the world would you waste your time moving your money around between your accounts in the way described above, if your net overall balance doesn't change at all?  If you want to buy a new $100 cell phone, for example, and have $100 extra in your food account, why not just write a check on your food account for the cell phone?   Well maybe you are a bit of a fanatic about bookkeeping and personal management.  You want to keep rigorous track of the money you are spending on food, and make sure that you don't spend anything on food beyond the income that comes from your part-time job.  And keeping the separate accounts helps you do that.

    The government is a fanatic about Social Security in that way.  It regards some of its revenues as special, only to be used for Social Security, and it maintains a special account -  the Social Security Trust Fund - for processing the revenues and payments that are budgeted for Social Security.   Sometimes it collects more revenue than it needs to make its Social Security payments.  Now we could have laws that say that when such a surplus exists, we can spend the extra money on whatever we want - a new bridge for example.  But our actual laws require that we first move money around in our accounts, just so we can keep track of what is happening with Social Security.   The Social Security Trust Fund first has to send money to the general fund - let's say $1 billion.  In exchange it receives a formal promise from the general fund - i.e. a Treasury bond - to send $1 billion plus some interest to the Trust Fund at some date in the future.

    Suppose the interest amount is $100 million.  Then what is the total impact on the US government accounts once the bond has been redeemed?  Well, the Social Security Trust Fund was first debited $1 billion, and later credited $1.1 billion.  The general fund was first credited $1 billion and later debited $1.1 billion.  But these accounts are both our accounts.  The net overall change is zero.  Note that the arithmetic here does not depend on the size of the interest payment.  The total transaction is an intergovernmental transaction, and so nets to zero no matter what the interest payment is.

    But the chosen interest payment size does play one important role.  And this gets back to another reason why you might want to play the bookkeeping game described earlier with your food account and general expenses account.  If you write a post-dated check on your general expenses account for $110 dollars, even if it is a check deposited in another bank account that belongs to you, you have still incurred a legal obligation.  The bank that manages the food account will eventually go to cash that check.  And if there are insufficient funds in the general expenses bank account, the check will  bounce.  The bank that administers that account will be mad at you.  They will charge you a penalty.  If the sum were large enough they might even call the police.   So by playing the bookkeeping game, you are like Odysseus tying himself to the mast to guard against temptation and incontinence.  You help make sure that after you spend your food surplus on the cell phone in the near term, you don't neglect to put the same amount of assets back toward food in the long term.

    That's why we play the bookkeeping game with Social Security: we tie our own hands legally to make sure that when we have a Social Security surplus we want to spend, that we don't neglect to spend that amount - and more - on Social Security on the future.  Unlike in the private sector where interest rates are set by supply and demand, and market negotiation, the interest rate on the special issue securities held by the Trust Fund is set by government fiat.  We have simply decided how much of an obligation we want to impose on future taxpayers, and how much of their resources we want them to apply toward Social Security.

    If the Trust Fund had loaned the money to China instead, then the securities would not represent money we owed ourselves, but money owed to us from an external entity.  That would be nice.  But as a future retiree, I would rather be dependent on my trust in the American people to fulfill their commitments than be dependent on the Chinese.  Also, the money we had loaned to China would not have been spent mainly in the United States, but mainly in China.   A good thing about "loaning" the trust fund surplus to ourselves - or in other words, shifting the surplus from one narrowly designated purpose to another more general purpose - is that we then spend it on goodies for ourselves.


    Dan, let's play a different game. 

    The current national debt is $14.3 trillion, of which $2.7 trillion is owed to the Trust Fund.

    If the Trust Fund had bought China's debt instead of America's debt, does that mean that that America's debt would now be…

    $14.3 - $2.7 = $11.6 trillion



    Probably not.  The general fund would probably have borrowed close to that $2.7 trillion from other creditors, if not from the Trust Fund.  If that had happened, China would owe $2.7 trillion to the Trust Fund and we would have owed $2.7 trillion to those other creditors.  But as it happens, we owe the $2.7 to the Social Security Trust Fund.  Also, if we had lent the $2.7 trillion to China instead of ourselves, we would currently be $2.7 trillion lighter in dollar assets.  Instead we turned those dollar assets over to the general fund, which spent most of them back into our own economy.  But you can't get around the fact that the debt we owe to the trust fund is an actual debt.

    Let's suppose for the sake of argument that, according to current projections, the total Social Security payment obligation in 2025 will be $1 trillion.  And let's suppose that, again for the sake of argument,  the total payroll tax receipts in 2025 are expected to be $800 billion.   And finally, suppose that redemption of securities held by the trust fund is expected to be $200 in 2025.  In this hypothetical situation, we would say that the Social Security budget is projected to be in perfect balance in 2025.

    Now consider an alternative hypothetical situation.  Suppose again that Social Security payment obligations in 2025 are expected to be $1 trillion, and suppose again that payroll tax revenues are projected to be $800 billion.  But now suppose that funds from redemption of securities in 2025 are projected only at $100 billion.   In this case we would say the Social Security budget is projected to have a $100 billion deficit in 2025.  Thus, to meet all of its Social Security payment obligations, the government will have to raise $100 billion additional dollars from either other tax sources, or from additional borrowing, or from some combination of the two.

    Now should we say that the second situation is bad and ominous, while the first situation is good and reassuring?  Should we say that in the first situation we have a problem that we don't have in the second situation, and that in the second situation, "we've got it covered" as far as 2025 is concerned?

    No, not really, because there is hardly any real difference between the two situations.  That's because the $200 billion in securities that are to be redeemed in 2025 are debts of the US government.  And that means they are our obligations.  Whether $200 billion in securities are to be redeemed in securities in 2025 or $100 in securities are to be redeemed in 2025, we have to come up the funds to redeem those securities.  If the payouts in 2025 exceed the payroll tax revenues by $200 billion, that means that Americans in 2025 dollars have to supply the additional $200 billion, and it doesn't really matter whether they supply it by paying off $200 in bonds, for the purpose of which they will need to raise $200 billion through taxes and borrowing, or they supply it by paying off $100 billion in bonds, and raising an additional $100 billion through taxes and borrowing.  Either way, they have to come up with $200 through taxes and borrowing.

    The key here is that the special US government securities in the Trust Fund are not the debts of some external entities living on Mount Olympus, obligations which are only due to Social Security recipients at no additional cost to the American people.  Those securities are debts of the American people, due to Social Security recipients at a cost to the American people.

    The only benefit of having the US government now issue securities to the Trust Fund, to be redeemed in 2025 in order to help meet total payment obligations in 2025, rather than simply letting the Trust Fund run deficits that have to be made up in 2025, is that issuing the securities makes it harder for the Americans of 2025 to weasel out of their Social Security obligations.  The bottom line is the $1 trillion in payment obligations.  The American people who are around in 2025 will have to come up with that $1 trillion, no matter what.


    "The general fund would probably have borrowed close to that $2.7 trillion from other creditors, if not from the Trust Fund." Agreed.

    "…you can't get around the fact that the debt we owe to the trust fund is an actual debt." Agreed.

    If anyone is still reading, we've probably bored them stiff, Dan, but it's clear we agree on this much:

    1)  the debt owed to the Trust Fund is real, and

    2)  the the debt owed to the Trust Fund does not represent an additional burden, over and above what the government would have borrowed if the Trust Fund did not exist.

    I wish everyone understood that.

    The second hypothetical describes a situation that could very well happen 25 years down the line if we don't take the steps you've described above to head the problem off at the pass. Or, perhaps, other things might happen in 25 years to make the Trust Fund healthier. Or Congress, in its infinite wisdom, could change the law, refuse to honor the debt and tell us to go play with matches.

    Anyway, 25 years down the line is beyond the time frame of my argument here, which is that adjustments to Social Security should not be on the table for discussion by the Super Congress, a body charged with creating legislation by November, for up-or-down vote, the purpose of which is to reduce deficits over the next ten years. And I have qualms about the competency, or the intentions, of any public official who says the opposite.

    Thanks for a thoughtful exchange.


    Okay, I'm not bored and I've been following along.

    I think we've established that SS obligations are debt we owe to ourselves. And we establish this as a debt to make it harder for the government--us--to weasel out of these obligations. Debt is hard to overlook.

    But I think we're still overlooking the central criticism of the system, which is that fewer and fewer working will be on hand to pay this obligation and thus the obligation will be that much heavier on them.

    In fact, it is for this very reason that revenues are expected NOT to cover pay outs as the boomers retire and the smaller generation steps into our shoes. So the tax burden on these folks will get heavier and heavier and crowd the other things they could be doing with this money: investing, building their future, etc.

    I agree: This is not an urgent problem the way unemployment is. And if unemployment isn't fixed, the SS shortfall will become drastically worse as people are kicked out of the economy.

    But it is an it not?

    As I said above, one of the political issues is that "we" don't consider ourselves members of "one" body politic. So there is not consciousness of ourselves as owing this debt to ourselves or of us being members in an interdependent generational line. We have an atomized consciousness.

    Peter, so this doesn't skinny up on us, I've posted a reply below, full width.

    Social Security was set up to protect the Capitalists

    The Capitalists feel emboldened, they don't fear the workers.

    Obama stood between the Banker/Wall street crowd and the pitchforks.

    The worker class has been disheartened and pacified.

    Now neutered and pacified, the Capitalist are emboldened to attack the Social Security appeasement program.

    The capitalists feel no need to appease the workers any longer.

    Starting with lowering the retirement age--instant job creation machine.

    You're right.

    Ten years ago I was with friends hiking Arches National Monument. We were befriended by a German hiker (they love the American West) who, at 56, was a retired engineer with time on his hands and an inclination to wander.

    He regaled us with stories of the trips he'd taken during the many 6-week vacations he'd enjoyed while still employed, and with his plans for extensive world travel over the next several decades.

    In fact, after a few hours, we couldn't stand to be around him. What a softie! No self-respecting, patriotic American would accept six weeks of annual vacation and retirement at 55, nor would we respect anyone who does. 

    How do Germans ever expect to compete with a work ethic like that? Why, they probably take sick leave, too. And let some young person do their work for them!

    No wonder they are only the most productive economy in all of Europe.

    Excellent blog and comments.

    I admit to believing like W that there is no trust fund, just a piece of paper on which some minion in the Treasury had noted the net balance among the  funds received from with- holdings, the theoretical funds received from interest payments , and finally the funds paid out over the years.  

    I can understand how others disagree and prefer to see the fund as ,well a fund. Or at a minimum a copper bottomed obligation of the US /

    To me it's a distinction without a difference.

    What counts is the policy we have adopted as a country and whether there is a sufficient reason to change it.

    My  answer: NO. The Social Security concept represents a fundamental decision by the country to permit old people to live with dignity. And there is no economic reason to overturn  that decision 

    The argument about a declining number of workers supporting the retirees is a particularly weak reed. What matters is not the  number of bodies in the working class but the  size of the economy and no one argues that it is declining.

     As a country we can decide how to split up that pie:how much should be spent on the DOD, how much should be left for the rich to spend on yachts in St. Tropez, how much for medical care, how much for Social Security.

    Entitlement has become a term of selective abuse. For the needy.

    In the ceaseless PR war the wealthy finance, we never hear a reference  to the Pentagon's entitlement. Or to the wealthy's entitlement to  yachts and private jets.It's only used to describe the needs of those who can't afford their own PR campaign.

    Thanks, Flavius. I'm delighted that people are interested enough to read and comment.

    I do think it is important to realize that debt owed to the Trust Fund is real debt, and that the government would have borrowed that money from someone else if it hadn't borrowed from us, the workers and small businesses that contribute to the Trust Fund.

    Why? Because if they can convince enough people that the Trust Fund is just worthless IOUs, it makes it that much easier to go the next level and convince voters that we just can't afford to honor those worthless IOUs. Which is what they want to do.

    The argument about the changing ratio of workers to beneficiaries is, as you note, about more than just the numbers. If we had full employment and rising productivity, and if wages kept pace with productivity, there might be no problem. On the other hand, if we wring our hands and mope and moan about deficits and can think about nothing better to do than cut spending, we're all in for a heap of pain, and I'm not just talking about the Trust Fund.

    All this talk about entitlements from those on the make is projection, I suspect. The psychological phenomenon, I mean. Nobody feels quite as entitled as a billionaire hedge fund manager does to his 15% federal income tax rate.



    It's occurred to me more than once that the underlying assumption behind much of what conservatives say is...scarcity.

    They assume that we can't really raise revenues--not just taxes, but the underlying productivity of the economy and the income of its workers.

    So we have to keep cutting and cutting. But unfortunately, this sort of cutting only produces the need to cut more. And so it goes down the drain.

    Having a lot must be scary, Peter. It's a long way to fall.

    It's the flip side of what Kristofferson wrote: "freedom's just another word for nothing left to lose."

    You know the wealthy have regular seminars in exotic locales to learn how not to lose what they've got.

    And there's something to it that really is a bit scary. In a world of hyper population increase, finite resources and international chaos, the wealthy choose to study how to protect themselves if everything falls apart.


    Reply to Peter (see above),

    The demographic challenge is one to take seriously. 

    Here's an interesting article from the Economic Policy Institute:

    The article begins by quoting Geo. W. Bush, who stated the problem with his (non-)native Texas eloquence and misdirection:

    "In 1950, there were 16 workers per one putting money into the system—which means that when somebody retired, there's 16 workers contributing to that person's retirement. Today there's 3.3 workers contributing for each beneficiary. And when youngsters retire, it's going to be 2.1—two workers per beneficiary. In other words, the burden of paying for retirees is increasing on workers."

    I remember hearing him say this and thinking "Isn't it remarkable that 3.3 workers today can accomplish what it took 16 workers to do in 1950." But George wasn't curious enough to wonder why and that wasn't the conclusion he was trying to sell anyway. 

    That's what the EPI article addresses. It was written pre-GWB-financial-crisis, which certainly has been a setback, but the impact of increasing productivity on SS is important to understand.

    You and Dan have pointed out, above, that in the long run, preserving and improving SS is about having the will to do. Here's the conclusion of the EPI piece:

    "Looking at this broader picture tells us that the resources will be there to keep our commitment to retirees. Productivity growth will more than make up for the 8% growth in the total population that working-age people will have to support in coming decades. Political pressures, not excessive economic pressures, will determine whether our society fulfills current commitments for Social Security benefits in the future."

    The Tea Party is all about the ascendance of politics over reason, of course, which is why the proposal to entertain adjustments to Social Security in the context of a fake deficit crisis is not just inappropriate, it is duplicitous.

    Why would any Democrat agree to it?


    VERY interesting. Hadn't thought about that. And as you said to Flavius, if only wages kept up with productivity, then...

    Thanks for that article.

    Someone reminded me that there was a 100K on SS taxes, so making more wouldn't increase the money you paid into the system. But I assume EPI assumes a lifting or doing away with the cap.

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