Oh, Lord . Time for another boring lecture

    By Flavius on Wed, 02/16/2011 - 10:22pm |

    ... on the social security trust fund.

    What it isn't: a lot of cash.

    What it is: two columns of numbers.

    Deep in the Treasury there's a yellow lined pad with two columns. Each day at midnight an ancient retainer (hereafter AR) writes down in column A the amount of money we gave to the Goverment that day through the withholding tax, . In column B he writes down the money the Government gave to retirees.

    He totals each column.and subtract the total in B from the total in A. OK so far?

    That number - when he subtracts B from A- is called the Trust Fund. A misnomer because there's no Fund and from the discussion going on right now , the Goverment can't be trusted. 

    To avoid confusion  I'll  call it  The Delano.

    OBTW what happens to the actual cash the Government receives each day from those social security withholdings?  It's spent . The second it comes in.

    On Social Security ? Not exactly . On whatever bills the Government  has to pay. Some  small part of them might be  social security benefits but mostly on  other good things like Aircraft carriers and Senators' salaries. Been doing that since 1937, it's been useful that the workers have been willing to loan it all that money..Otherwise there might be fewer aircraft carriers and senators.(Whatever happened to Mickey Vernon, BTW?)

    What would happen if   the number in the Delano was , say 100 trillion ,  but the Goverment had no cash ,couldn't borrow any and it was supposed to pay social security benefits ? It wouldn't.

    You: But the number in the Delano  is 100 trillion.

     Secretary of the Treasury:  yawn.

    So if the money from withholding taxes get's spent immediately why do we talk about the  number the AR writes down in the Delano every night.? 

    Gives the actuaries something to argue about . Keeps them off the streets.Probably cuts down on crime.

    This year Obama cancelled the withholding taxes. What effect does that have? The AR won't have to write any numbers in Column A on that yellow pad.Maybe we can put him on half time to cut down the deficit..

    Yes , yes. What I mean is ,what effect does that have on the ability of the Government to pay social security benefits?None, provided the Government has enough cash. 

    But suppose the number in the Delano is 100 trillion but the Government has no cash? Asked and answered.

    Suppose the day comes when the AR's calculation results in the number in the Delano becoming  zero, or even  a minus:  because  the social security benefits the Government's paid over the years  is more than the withholding taxes we've paid........

    Flavius: Have you a question?

    What will the Government do then about paying ss benefits? Pay them, if the word of the Government can be trusted. Or not ,if it can't..Anyway by then Global Warming will have caused the Potomac to overflow and swamp the Metro. We'll have better things to worry about.

    Comments

    What they actually do is take the surplus and purchase non-negotiable United States Treasury bonds and U.S. securities.  So when they need money from the trust fund they seek to redeem these bonds and securities in a claim to the Treasury.  The only way for the Treasury (i.e. government) to make the payment would be by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

    We have spent more and taxed ourselves less, it can be argued, because of this increase flux of revenue from SS Trust Fund purchases of these bonds.  This really became a problem during the Reagan administration when he, Greenspan et al. upped the FICA amount taken to generate a large windfall.  Now in a sense the chickens are coming home to roost.  Either SS gets adjusted or we have to some mix of raising taxes, "borrowing from the public, or reducing benefits or other expenditures." Given the size of our debt, borrowing is pretty much out of the equation, so it leaves raising taxes and reducing benefits and other expenditures elsewhere in the budget to pay SS.  Exactly where is where the dialogue is going on now.


    by Elusive Trope on Thu, 02/17/2011 - 12:25pm

    "Either SS gets adjusted or we have to some mix of raising taxes, "borrowing from the public, or reducing benefits or other expenditures".

    My point is that the steps we must take are exactly the same whatever the amount written down in Delano/the Trust Fund.

    o If the actuaries tell us there's a surplus in the trust fund but the  Treasury is unable to issue bonds, it won't be able to pay the benefits.

    o if the actuaries tell us that that the trust fund "has run out of money" but the Treasury is able to issue bonds, it will be able to pay the beneftts.

    Whether the trust fund is "solvent" or has "run out of money" today is  completely irrelevant. Whether it may run out of money at some point in the future, more so.

    As of Jan 1 of each year every government program has run out of money. They then are provided the cash by the Congress.With the exception of social security none of the other programs have a  trust fund. And it doesn't matter.

    With the greatest respect the steps you describe in your first sentence-purchase of non negotiable bonds etc.-are an empty formality.Whatever the objective was supposed to be, the effect is to confuse the voters . In particular by making them think that social security is "safe" when the amount in the Trust Fund  is actuarially  sufficient and unsafe when it's not. Where as in fact it doesn't matter.

    The voters have the right to be told that their chance of enjoying  the promised benefits are entirely dependent upon the willingness of future congresses to provide the cash when it's needed. And that no amount of money they  pay into the social security Trust Fund between now and then  will make it more , or less, likely that when the time comes the government will supply the promised benefits.


    by Flavius on Thu, 02/17/2011 - 6:59pm

    Shorter version: cash is fungible.


    by Verified Atheist on Thu, 02/17/2011 - 7:06pm

    Yes. Certainly has been for the last 70 years when the Government has been happily sopping up the excess ss withholdings and paying interest at derisory rates.  If it had been paying market rates the Trust Fund would still be well  in the black. 

    It is a class war, and our class is losing. ..



    by Flavius on Fri, 02/18/2011 - 6:02am

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