KMA-628

guy44 posted a lengthy, well-thought out post in a different thread that I wanted to respond to. His post was a response to an article written by Donald Luskin (an economist) and can be read, in it's entirety, here

The thread in question, can be read here

Rather than take the thread further off topic than it already was (with my assistance, of course), I thought I would devote a new thread to it.

Here is guy44's post (I will respond to it in a second post).




sob asked what will happen when the revenue-payment ratio for Social Security reaches 1:1, and provides a Luskin artical proclaiming disaster. Let us deconstruct Mr. Luskin's piece, shall we?

This is true. The surplus for SS is the amount of extra money - say, equivelant to an individual person's savings account - used to pay whatever amount of the benefits can't be paid in a given year by the money SS recieved that year. Say SS has to pay $100 a year in benefits, but only receives $90 a year in 2009. This means that $10 has to be removed from the Trust Fund. About that time, in real life, the Trust Fund will have over a billion dollars. But then Luskin says:

This is spin - and it is just silly. What Luskin is trying to make you think is that, as SS takes money out of the Trust Fund, beginning in 2009, and it shrinks as a result, SS will be forced to get money from somewhere else. What he doesn't say is that such a scenario is only true if SS were to have a goal of maintaining the Trust Fund at its peak, or the level it is at the day before SS begins dipping into it. To further my example from above, if the Trust Fund had $50 on December 31, 2008, it would have only $40 dollars by December 31, 2009. Luskin is saying that SS will have to begin finding other sources of funding in order to maintain a total amount of available SS money - including Trust Fund money - equal to what existed on December 31, 2008. He calls this situation a crisis.

Back on planet Earth, the Social Security Administration will do no such thing. It is silly to think that the Trust Fund should always remain filled with as much money as humanly possible. The Trust Fund is actually there in order to ensure benefits for many years after SS begins paying out more in benefits than it takes in. It is not meant to be a minimally acceptable level of available money. When the Trust Fund was established in its current form - in 1983, by Reagan - it was designed to simply cover SS benefits for a while and, in doing so, eventually dwindle. To use my example again, the Trust Fund will dwindle over the years - from $50 on the last day of 2008 to $0 at some future point - as it is spent by SS to ensure 100% payment of benefits. This "crisis" Luskin is referring to is the Trust Fund doing EXACTLY what it was designed to do.

OK, so in 2018 the Trust Fund will have run out of money and Social Security will be taking in less in taxes than it pays in benefits. Well, there wasn't really a crisis in 2009, no matter how much latitute you grant Luskin on the semantics of the word. But, I mean, this time, Luskin can't be wrong, can he? Well, yes. See, as Luskin points out, SS has a large amount of bonds that it can dip into in order to pay out 100% of benefits:

So SS has been paying the federal government money for years in the form of bonds in order to have - excuse me, hoard - Treasury bills. Think of these as IOUs with a bullet: SS has been giving money for a long time to the federal government so that one day, when they need money, they can receive what they originally gave back with interest. In 2018, as Luskin has correctly shown, SS will need to dip into their hoard of Treasury bills and receive their investment back with interest. So if they gave the feds $50 dollars originally, with interest they may be expected to get back, say $55 (this doesn't correspond to reality, I'm just creating an example). What is wrong with this? I mean, if you put your money in the bank and withdraw it a few years later, you expect to get it back with interest, right? Shouldn't SS too?

Well, he says that this puts the government $11.9 trillion dollars (the amount they will owe SS) further in debt. Is the real SS crisis that the government will have to pay back to SS the money it owes them? Perhaps - I mean, $11.9 trillion is a lot of money. So what are the possible solutions to this problem?

Luskin has no answers. Instead, he points out the obvious - that the government has to get the money to repay that $11.9 from somewhere:

I can propose a solution or, more accurately, describe what other, smarter people have written. As Matthew Yglesias wrote, "The White House has repeatedly defined Social Security's move into cash flow imbalance starting in 2019 as the problem. One can dispute whether or not this is, in fact, problematic. It is clear, however, that it only is problematic if you think there's something problematic about paying the money back." Why does the White House think it is problematic to pay back the money it owes? I propose that it is because the White House wishes to make Bush's tax cuts permanent. As this report from the non-partisan Congressional Budget Office shows, "If the 2001 and 2003 tax cuts are made permanent as the Administration has proposed, their cost over the next 75 years will be more than five times the Social Security shortfall over this period." Don't believe the CBO? How about John Kerry: "And all you need to do to move Social Security into safety, well into the 22nd century, into the next century, is to roll back part of George Bush's tax cut today. His tax cut takes three times the deficit of what is contained in Social Security." In fact, "rolling back Bush's tax cuts just for those Americans who earn more than $350,000 a year would come close to covering the shortfall! If the tax cuts were NOT made permanent, in other words, the government could easily cover all of its Social Security expenses. When Luskin asks where this money will come from, everyone should answer, "from revenue generated if Bush's taxcuts are allowed to sunset (expire)."

OK, replies Luskin, what if the federal government does repay its debt to SS? Even then, SS will only be able to ensure everyone receives 100% of benefits until 2042, and surely THAT is the crisis [although I question the imminent adjective he likes to use]:

Well, what would happen if, as Luskin claimed, eligable Americans were only recieving about 80% of their SS benefits beginning in 2042? I mean, surely chaos would reign, milk will curdle, and retirees will all live in poverty? Well, there is a lot Luskin is leaving out.

Remember when I told you that allowing Bush's tax cuts to expire would more than pay for whatever amount of money the government needs to raise in order to pay its debt to SS? Well, that would easily cover the last 20% or so of benefits that SS needs to make up beginning in 2042 - and keep SS providing full benefits until somewhere around 2080. Even if it didn't, those 80% of benefits are, according to this article, actually worth more in real money than retirees get in full benefits currently (thanks to wage-indexing). Think of it this way: retiree A gets, say, $20 a month from Social Security in 2005. In 2042, retirees may only be receiving 70-80% of what they should be getting, but even so, the amount that retiree B - who lives in 2042 - gets is equivelant to $25 for retiree A. So nobody will be in that much trouble, really, even if the system pays out less than it should in 2042.

Which leaves Luskin in trouble. Social Security doesn't face a crisis in 2009, because it has its Trust Fund specifically set up to ensure that retirees get their checks. There is no crisis in 2018, because the government can easily get the cash it needs to pay back Social Security everything it owes in Treasury bills. Even if Social Security doesn't provide 100% of benefits in 2042 - it easily could, but just for the sake of argument - if it gives out only 70-80%, everyone receiving that money would actually betting getting more in real money than people getting all of their benefits in 2005. The earliest time that Social Security faces a real crisis, therefore, is around 2080. That sure as hell isn't imminent and, despite all of Luskin's pretty rhetoric, misdirection, and half-truths, is no crisis.

KMA-628

The first thing I noticed when reading this post was the references.

In providing opposing thought, one reference is falsely labeled and the other holds very little weight:

Well, no, that's not true. Some of the data being interpreted is from the CBO, but the report is not, it is from the CBPP, hardly a non-partisan organization. Also, the topic being disputed by guy44 regards the SS trust fund, its balance, etc. all of which are not even mentioned in the report by the CBPP.

First, I should mention that my initial opinion of this reference went down the toilet fast when i saw a banner ad proclaming "ASSES OF EVIL" along with pictures of GWB, Cheney and Rummmy. Not much is going to be accomplished in a debate when the very references you cite immediately alienate your intended audience.

Well, Matthew Yglesias is a writer for "The American Prospect". If you look at a history of articles written for the Prospect, you will note that they lean heavily towards Bush-bashing. While that is their perogative, they are not really a good reference for this discussion. The overwhelming bias presented by the Prospect makes me immediately dismiss any claims made by them.

Further, it is hard for me to even consider believing the words of a blogger (the article linked by guy44 was from Matthew's blog) over a learned economist.

Now, on to a different point:

In the CBPP report referenced by guy44 there is a very telling statement.
That tells you exactly where this group is coming from. Reading between the lines, I am left with the impression that OBPP's argument is to leave Social Security alone, and when problems arise in the future, we should just cut benefits and increase payroll taxes.

I cannot stress to you how much I am against this thought process. If we can come up with a better way of doing business that doesn't raise taxes and decrease benefits, shouldn't we take a look at it now rather than wait until the problem is staring at us in the face?

Why even propose a solution that involves more taxes and less benefits? I cannot believe that the left truly thinks this is a good plan--there has to be something happening behind the scenes here.

Anyway, moving on again:

Let me try and clear this up again. There is no money in the trust fund. None, nada, zero, zip. It is similar to a personal checking account having a balance of $5,000 but there are $5,000 worth of checks written against it, checks that have absolutely nothing to do with the original purpose of the checking account. The balance in the trust fund is not money to support Social Security payments, rather it represents an obligation that must be paid back by someone, and paid back with interest.

While the trust fund carries a balance, that balance represents no actual economic assets.

There is, however, a ton of money owed to the trust fund (with interest). That means, when Social Security starts running a deficit around 2016, it will have to call in those debts since there isn't any money in the trust fund to draw from.

Where is that money going to come from? Something will have to be done to:

a) Cover the money owed to the trust fund. By the way, the money that was borrowed has been spent. it is not sitting around waiting to be used to pay back the loan.

b) Cover the deficit that Social Security will be running. Regardless of how you interpret the balance of the trust fund, you have to realize that the gov't will not let SS continue to run by drawing on already used-up resources. More than likely, many of the things that are predicted to happen to SS, whill happen in around 10-15 years, not 40-50 years. Caps will be raised. Payroll taxes will go up. And talks of changing benefits will begin to happen.

Why do I think this?

Because our government stands to lose a lot of money when Social Security starts running a deficit. Right now they are used to spending the extra money that Social Security brings in to fund other, non-relevant spending programs. They are used to borrowing from the trust fund. All of this revenue will go away.

Now, do you think our government will make do with less revenue?

Here is an anology that makes sense to me:

Imagine it is time for me to pay my bills for the month and I have zero dollars in my bank account.

Well, if I write checks for everything, I can buy myself a little time. However, that will come back to haunt me later when I need to pay back the money that I owe, plus more, to cover all of the fees and fines.

But there is a different problem here. I don't have anymore money coming in now than before, plus, I now have to pay the bills that came due for this month.

So....

Not only do I have to pay my current bills, but I also have to payback my old bills and pay the extra fines and fees associated with those bills, all with the same amount of income coming in. I am in a lose-lose scenario unless I find another way of bringing in some extra cash to cover the old debts that I have.

Now, if I am living paycheck to paycheck (as our government is), there isn't any more money for me to get.

Moving on.....
Notice the contradiction here?

guy44 mentions above that there is money in the trust fund and then, in the last sentence, mentions that the trust fund will have to call in its IOU's.

Also, as to the first sentence in the above quote: the trust fund has no assets. How can it run out when it is already empty? The trust fund represents a liability held against us, the tax payers. We are the debtors here in this equation. The money was borrowed, without our approval, and we are the ones that will have to pay it back......and we aren't talking about paying back billions, we are talking trillions.

That's a lot of zeros.

On to the next point....
Do you see the problem in the above statement?

You can't compare this to money deposited in the bank. Why, because the money has been spent, not deposited. It isn't sitting anywhere waiting to be used, it is gone.

What is wrong with that?

The money isn't in the budget to pay back the debt. It will have to be raised through taxes.

Next point:

That was the stated purpose of his column, why are you criticizing him for doing what he said he would do?

The purpose of his column was to point out the obvious to the people who are claiming the obvious isn't true. He intent was not to propose a solution.

Anyway, this is already a novel, so on to my last point:

Why do they call Social Security the third rail of politics?

If you mention cutting Social Security benefits, whether it be today, tomorrow or 40 years from now, you will unleash a storm. There would be hell to pay if you didn't increase benefits, let alone discussing a possible cut. (which goes to show you that nobody is paying attention to the "experts" at CBPP and the details in their proposal).

O.K., I have said way too much and will be lucky if anybody reads even half of what I wrote...

more to follow later....

sob

I read it. My prediction is still, circa 2018 or so, that we'll hear "All of you greedy people who saved for your retirement are going to have to forfeit your payback to those who didn't save anything for their entire lives."

And it will be supported by the same whiners who keep trying to tear down the successful element of our society. You know the tactic: Start the ripoff with the people who make a lot of money, and gradually expand it until it includes almost everyone.

The pattern was already established with the alternative minimum tax.

guy44

This kind of discussion is great, I love arguing over policy specifics and detail and nuance with people, and I appreciate KMA giving my post so much time. This level of discussion is far too rare. I'd like to reply to KMA-628s post here:

First, he took issue with the statement:

KMA wrote:

This statement is not the exact verbiage used by the non-partisan Congressional Budget Office (Congress' version of the Office of Management and Budget), but it is a sentence summarizing the conclusion of the CBO's report. It is not a CBBP fact - it is what the CBO said. The sentence I used from the CBPP was completely absent of partisan rhetoric. Furthermore, immediately after proclaiming that the CBPP report did not discuss the Social Security Trust Fund or the balance of the Trust Fund, KMA wrote:

How can the CBPP report NOT be discussing the Trust Fund's balance while simultaneously including what KMA calls "telling statements" about Social Security solvency? These are all the same issue - whether or not Social Security will have money, in particular, whether or not the government will make good on its debt to Social Security. If it does pay back the money it owes, Social Security will remain solvent. If it doesn't, Social Security won't. KMA can't have it both ways - either the article is discussing the Trust Fund balance/solvency, or it isn't.

Then KMA questioned the credentials and appropriateness of referencing Matthew Yglesias, and claims that he can't trust him over a trained economist (Luskin, whose article I was examining). I'll number my reply:

1) I only quoted Yglesias to ask whether or not Bush planned to default on the money the government owed SS - the very issue central to Luskin's argument. Luskin says, more or less, that if the government pays back the money it owes, it will be disastrous because it is such a large amount. If it doesn't pay SS its money, then SS will be insolvent. The quote I used from Yglesias didn't take any position; instead, it merely pointed out that there is only a financial problem for SS if the federal government doesn't plan on paying back its debt. Which is no different than what Luskin wrote.

2) Yglesias writes for the respectable This American Prospect, and has a very popular blog. Apparantly his political leanings - according to KMA - make him too biased to be trusted over an "economist." Well, Luskin wrote this article for the National Review, one of the biggest right-wing mags out there. I don't begrudge him this, and I won't invalidate Luskin's views simply because of this. I hope KMA won't invalidate Yglesias' views simply because he also writes for an ideologically-oriented magazine. Furthermore, while Yglesias' website has anti-Bush ads on it, the NRO website has "Liberal Most Wanted Cards" ads on it. So KMA, please don't attack Yglesias on something that could just as easily be aimed at Luskin.

3) Yglesias is NOT an economist, that is true. So I thought I'd link the opinion of a trained economist - just like Luskin - on this issue. Here Duncan Black, aka Atrios, a trained economist, seconds Yglesias statement that I quoted earlier. There - now we both have a trained economist's opinion to rely upon.

Next, KMA criticizes the CBPPs solution the Social Security's problems. I don't want to get into that here, and I never advocated for their plan in my earlier post, and I don't feel like defending it here. I didn't rely upon their solution earlier, and I don't necessarily agree with it. Really, the only reason I used the CBPP webpage was for the Congressional Budget Office quote - I couldn't find the actual report myself. I wasn't using CBPP suggestions in the first place, so I don't take KMAs critique of them - whether I agree with him or not - as a critique of my post. KMA then wrote:

I agree with most of what KMA wrote here. Only, though the claim that Luskin (and KMA) make that SS actually has no money is technically true - its like they hold an ungodly amount of IOUs from others - the manner in which they use that information is misleading. Just because SS doesn't actually have money in the bank doesn't mean they don't have anything - just like liquid assets are assets nonetheless. So saying SS has no money is technically true, but since SS can call in IOUs when they need to, they have funds to continue providing benefits. Next:

I agree with this. One of the two will have to happen. But KMA has compeletely ignored my solution for this problem that I wrote extensively on in my original post. KMA says "the money that was borrowed has been spent. it is not sitting around waiting to be used to pay back the loan." True. But there is a way to get the government more than enough money to pay back what it owes. And that would be to not make permanent Bush's tax cuts. As my original post showed, the amount of money this would save the government is almost unimaginably huge. (See my original post, posted earlier by KMA, for links.) For example, the cost of the tax cuts over the next 75 years, should they be made permanent, would be five times that of the Social Security shortfall over the same time period. Just rolling back the tax cuts on those making over $350,000 a year would almost completely cover any Social Security shortfalls.

The point is, repealing Bush's tax cuts would give the government more than enough money to pay back what it owes Social Security. If just the cuts on those making over $350,000 were enacted, then KMA's second option - covering Social Security shortfalls while not paying it back - would be doable without having to raise caps or payroll taxes, as KMA suggests. Next:

OK, I did use somewhat faulty language here. Beginning in 2009, the Trust Fund size will decrease each year until Social Security is forced to call in its IOUs from the federal government in 2018. This is what I meant. But there is no contradiction: unlike Luskin or KMA, I believe in the full faith and credit of the federal government, and that the Treasury bills I refer to in the last sentence that SS will redeem are good money. After all, it is generally pretty bad policy for the federal government to just start defaulting on our loans. So what has actually happened is that the Trust Fund size has decreased and, as Luskin, KMA, and I have agreed, the government will either pay back or default their SS debt. The point I was trying to make here in the original post was that the term crisis was incorrect beginning in 2009, because the simple reduction in Trust Fund size is not a disaster - as long as the federal government doesn't default in 2018.

OK, finally:

My point here was actually to mention that the crisis forecasted by people such as Luskin is, in the end, an 80% payout rate of Social Security. SS will NOT stop paying benefits - instead, it will at worst payout 80%. But in real terms, by the time we get to the point where SS starts paying 80% of benefits, in 2042, that 80% will be worth more to recipients than 100% of benefits do to recipients today. So the worst case scenario - even Luskin says that this is where SS is headed, and I don't disagree - is that recipients lose about 20% of their benefits but are still better off than recipients today who get all of their benefits.

Which is why I don't believe there is a crisis.

__________________
"You have reached Ritual Sacrifice. For goats press one, or say 'goats.'"

flstf

First of all I'd like to thank KMA-628 and guy44 for the detailed explainations of SS funding even though a lot of it is over my head.

One of the things I don't quite understand is the concept of the trust fund. If I save $100 a month for a new car and I add it to my checking account for 10 years, I will have a nice sum saved up. But if I spend it on other things and loan myself the car money to be payed back to myself plus interest, aren't I just fooling myself? I mean, what's the point? After 10 years when I go to buy the car I won't have the money to pay myself back. I'll have to take out a loan or get a raise in order to handle the future car payments. The $100 a month I have been putting away is just gone, there is no fund except in my head.
2042 is 37 years from now. Isn't this like saying that 80% of 2005 SS money is as good as 100% of 1968 SS money? Are we to assume that the polititians will not mess with the program in the next 37 years as much as they did in the previous 37 years? Will one worker be able to support one SS reciprient?

guy44

flstf -

The real value of that 80% in 50 years or so is greater than the real value of 100% of benefits today. This is assuming that the way benefits are adjusted over the years is through wage-indexing - as they are done now - rather than fixing them to inflation, as Bush wants to do. Obviously, if you tie benefits to inflation, everything else being equal, the real value everyone recieves in benefits will never change. To be honest, I'm not 100% sure how wage-indexing does what it does - but what it does is slowly increase the real value of benefits so that 50 years from now, even if you receive only 80% of total benefits, you are still getting more than someone gets today with 100% of benefits received.

As far as I know, and as best as I can explain it, the Trust Fund works like this:

In the 1980s, everyone knew that as Baby Boomers became Social Security eligible, there wouldn't be enough people paying into the system to pay for the huge amounts of people getting money from the system. So in 1983, Reagan and Congress rose taxes a bit so that every year more money than needed would be raised for Social Security so that there would be extra to go around by the time the Boomers were retiring. A lot of Trust Fund money has been lent to the federal government in exchange for Treasury bills which Social Security can redeem with interest when it needs to. Sometime in the next 20 years or so, it will need to.

To use your example, I save $100 extra dollars a month for 10 years in anticipation of purchasing an especially nice car. However, in that time I don't really need that extra $100 a month, which I'll call my Car Fund. So over those ten years, I'll lend my money in exchange for the promise to get it back with interest. This is more or less what a bank does - you lend them money, which they use for capital investments, their own loans, etc. - so lets say I put that $1200 a year for ten years in the bank. At the end of the ten years, I want to buy that great car. So I withdraw my Car Fund money from the bank, with interest.

This is more or less what Social Security did, except instead of a bank they lent the money to the federal government and the federal government promptly spent that money on programs. So the question is: when the time comes, how will the government be able to pay back the Trust Fund money that they have already spent - with interest, no less?

Bush's plan appears to be to default on that debt - essentially, to simply not pay it back. The plan of action I proposed would be to repeal Bush's tax cuts, which would provide the federal government enough money to pay back Social Security the money it needs. And if Social Security gets that money back, then there won't be any crisis.

I hope I've explained that correctly and satisfactorily...

__________________
"You have reached Ritual Sacrifice. For goats press one, or say 'goats.'"

flstf

As I understand it, loaning money to yourself is like having no loan at all. It's like playing games on paper since the one giving the loan is the same as the one getting the loan. Maybe someday I'll pay my car money back by taking it out of the mortgage money, or something like that, but it all comes out of the same pot.

host

In the mid 90's, the SSA became an independent agency. It possesses treasury
bills, just as the Japanese government (an estimated $700 billion worth) does.
These T-bills are negotiable instruments. What would preclude the directors of
SSA from selling or trading some of their T-bill portfolio to third parties, in
exchange for dollars, euros, or even gold?

If SSA is an independent agency, not unlike "government sponsered enterprises"
(GSE's) Fannie Mae and Freddie Mac, and it can muster effective PR to avoid
new legislation to restrict it's independence, and it actually has physical access to it's T-bill portfolio, then those T-bills potentially put the same
debt pressure on the US government as any other T-bills.

Bush wants to make his temporary tax cuts permanent. They were enacted
with a "sunset" provision. If no new legislation is enacted, they will expire and
tax rates and tax revenue will increase. Bush appears to want to remove the
argument that the tax cuts cannot be made permanent because we are
experiencing large federal deficits and there is no replacement for the plan
to use the budget surpluses envisioned back in 2000 and 2001 to "pay back"
the SSA trust fund. Bush sees a political necessity in designing a quiet default
of federal government SSA trust fund obligations. Added benefits are building
his "legacy", propping up already overvalued stocks, paying back political
supporters on Wall Street who anticipate "personal account" trading and
fund administration commissions.

KMA-628

FYI - I didn't bring Luskin into this discussion. I came in after the fact. I did however want to include a clean link so that someone who hasn't read Luskin's article could read it. After going through several links, I chose the NRO one. I dismissed several because of the content of the website.

I mention the Prospect guy because of the effect it had on me when I clicked on the link

The only problem I have here is that there isn't a plan to pay back the t-bills.

The money was borrowed and spent with out any plans for future repayment.

It would be one thing if the people who have pulled this stunt, included a provision or a plan to pay it back, but they didn't. So, yes it is very much like borrowing from yourself and not having the money to pay yourself back.

Yes, I did ignore that tax cut idea.

I figure we are on a touchy enough subject that has a very high probability of getting ugly or going stalemate, why bring in another issue that just makes the potential for this topic to spiral even greater.

However, since you have brought it up twice, I should respond.

There is a lot of mis-information going around concerning the tax cuts. In a different thread host (with extensive hyperbole) went on about what the tax cuts did to gov't revenue.

The only problem is......it ain't true.

Through a down economy, recession and war, gov't revenues have increased to levels not even seen during Clinton's tenure. All with a large tax cut put into affect almost immediately.

If Bush's tax cut was so bad for us and our economy, the numbers would be the opposite they are. You will notice, however, when Bush and his tax cuts are demonized, rarely do you see any numbers or figures to back it up. It is just rhetoric, in my opinion.

The tax cuts will pay for themselves and thereby make them moot to the converstation - in my opinion. Also, I do not wish to discuss this issue any further as it has already been done to death, and nobody got anywhere. I would rather focus on things that further discussion rather than kill it. Unfortunately, however relevant, discussing tax cuts will make this get ugly. With one exception, this discussion is going well. I would rather see it continue on its path than see it get all heated up and then locked.

The Social Security problems are a much older issue and they pre-date the tax cuts. Plus, if we want to discuss programs that could be cut to pay for SS, we would be here a long time. As you think the tax cuts are a waste of money, there are many, many different gov't spending programs that I have the same opinion about. We really won't getting anywhere taking this discussion down that road.



Anyway, back to the trust fund.

The main problem is that guy44 and I are looking at the same exact thing.

He sees that there isn't any money there, but is confident in the government's ability to pay back its IOU's.

I see there isn't any money there, but I do not have the same level of confidence.

So, we have common ground on one part: If the Social Security trust fund were to cut me a check for $10 bucks, right now, without calling in any loans, the check would bounce.

We also have common ground on Social Security running a deficit sometime in the next 10-15 years. Regarding the accounting question: SS is designed as a self-supporting "Pay-as-you-go" system, so where SS revenue goes doesn't really matter. It could go into a separate account or it could go into a general account, to me, it really has no bearing on the discussion. Regardless of where it goes, it is still tracked like any other transaction and has a balance. It is still budgeted for separately and must be accounted for separately.

It seems to me that the true issue here is how the money owed to Social Security is paid to keep it solvent through 2040 or 2050. After that, another problem arises, a problem that is much bigger than nulling any tax cut could fix. And, really, another topic altogether.

So, we all have to come to our own conclusion as to how we think the money owed to the trust fund should be paid. We also have to come to our own conclusions as to the effect the repayment of those debts will have. Unfortunately, on these matters, I doubt many of us will agree.


A couple of other points:

I think flstf made the best point in this thread -
This concerns me more than anything. Look at what they have done to it already. If we don't do anything to protect it, now, how much worse are the politicians going to make it in the upcoming years. It seems obvious to me that they have no control over themselves, so what is to make us think they will suddenly start spending wisely?

Also, flstf probably posted one of the better analogies regarding the trust fund that I have read.

C4 Diesel

It's actually quite simple, to my understanding. While inflation-indexing increases the benefits by the inflation rate, wage-indexing increases benefits based off the increase in wage. Historically, the rate of wage increase has been greater than the inflation rate, so, this remaining true, basing rates off wage-indexing does increase the value of the benefits as time continues. However, this is not necessarily always going to be the case, and could easily not be the case in the near future. Large foreign debt could forseeably reduce the value of the dollar and increase inflation, while leaving less "dollar value" (since more US$s are leaving the US and inflation reduces the value of the $ currently in the US) within the United States. This decrease in overall US wealth could cause an inability to increase wages at a rate equal or greater to the inflation rate. In this scenario, wage-indexing would actually decrease the future value of social security payouts. Mind you, my proposed scenario would likely require a very large inflation rate (80's, anyone?) and I have *just* enough faith in the US economy to believe this will not happen, but that's all personal opinion.

__________________
C4 to your door, no beef no more...

Yakk

Given that you ignored the question I posed to you in the other thread, I'll ask it here.

Are Social Security taxes general revenue? Or, do they exist to pay for Social Security? This is a yes/no, A/B question.

If SS taxes are general revenue, then there is no Social Security crisis when Social Security taxes end up smaller than Social Security expenses. In which case, there is no 'crisis' in 2018. 2009, or whatever date.

If SS taxes are not general revenue, then the US government owes the Social Secuity system for debts incurred. In which case, the current administration is spending the US government massively into debt.

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

KMA-628

I already answered your question above

KMA-628

I understand your distaste for Bush, but it isn't the "current administration", it is a whole slew of them.

What do you think helped Clinton balance the books?

We have to get past this "hate Bush" syndrome to get anywhere on this topic. The problem existed before GW was even sober.

guy44

No, KMA, Yakk is partially right. It is true that this debt has accrued over several administrations: Reagan, two Bushs, and a Clinton. But the fact that Bush has spent so outrageously as to absolutely nuke the deficit, I mean, really, really just spent like Paris Hilton on a bender, is what our biggest problem actually is. Not that the SS trust fund will go bankrupt - because even if the government never pays back the money, people will still receive about 80% of benefits. SS will never be going bankrupt, it just won't be able to pay out full benefits in around 50 years.

But Bush's ginormous debt is what prevents the government from scrounging up enough money to repay SS or at least cover any benefit shortfalls that start 50 years from now.

__________________
"You have reached Ritual Sacrifice. For goats press one, or say 'goats.'"

KMA-628

I really didn't want to get into this, but....

amount of spending means nothing when it isn't compared to income. I can increase my personal spending two-fold, but just telling you that means nothing. What if my income went up three-fold? What if my income went down?

Now, look at historical figures for spending as a percent of GDP, that is where your answer is.

As a side note, I have been very critical here on this board of his spending. I have never been very happy with that aspect of the Bush Pt. II administration.

However, that has nothing to do with the problem we are in right now. It would only be relevant if the SS problem only cropped up in 2001. Since it didn't, trying to pin this only on Bush is a waste of time and does nothing to help further the discussion or help come up with possible solutions.

Yakk

I seem to have trouble understanding your answer. Could you make it clear?

Is Social Security taxes and expenses part of General Government Revenue or not?

If it helps, I'll explain my personal position:

It is my position that the US government's general budget is in far worse shape than the government in power claims it is. They are trying to shovel their problems into a 'social security crisis', when the crisis is a crisis of massive unsustainable deficit financing in congress's discretionary budget.

There is a pig-in-the-python crisis that is coming, where the ratio of the number of elderly people to the number of working people shrinks. Fancy financial footwork won't solve this. If we wish to keep the elderly from destitution, the burden on the workers will increase, no matter how you arrange it or pretty it up, short of a change in the working habits of the elderly or a demographic shift.

Luckly, this is less of my problem than it is yours. =)

Past administrations have no power to impact the future -- not anymore. Current ones do. You can look into the past for causes, but looking into the past for blame doesn't help fix the problem. There is currently a problem.

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

flstf

I have a limited understanding of how our budget and monetary system really work but IMHO the answer is yes. The government is over taxing and over spending like they always do. A complete turnover to Libertarians of a majority of our polititians would be required to put things back on track, but that ain't gonna happen.

I have a problem understanding exactly when a deficit is too big. I have a general idea that debasing the currency will eventually catch up to us but no idea how much is too much. One trillion, 100 trillion, etc...

Yakk

The debt and deficit problems are not due to over taxing or over spending. Debt and Deficit problems are the result of spending more than you tax.

A libertarian-leaning society whose government spent more than it taxes would have this problem. A socialist-leaning country whose government taxed more than it spent would not have this problem.

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

flstf

How big of a deficit is too big before the monetary system breaks?
How much of a tax is too much before the economy fails?
I have no data to back me up but I believe that taxes are way too high and the government is way too big.
However I have no idea how much of a deficit is too high.

KMA-628

Isn't spending more than you tax overspending? You kinda lost me on this one.

Anyway, onto your previous question....

What I said above was that where exactly SS revenue goes means very little to me. That is because the design of the system itself is that it is self-supporting, thus, must be accounted for separately, regardless of where the funds go.

Since the program is supposed to be "pay-as-you-go", we have to make sure that the system brings in more than it spends, other wise the system becomes a liability, which is not what was intended.

If we don't pay attention to how the system balances out, it could easily spin out of control (over a relatively long period of time) and become another huge burden on American tax-payers.

Yakk

Define 'break'? You can have a monitary system with a debt 100 times the nation's GDP. It won't be a very useful one.

Define fails?

As you decrease the marginal incentive to produce, production tends to go down, if all other variables are held constant. All other variables are not held constant. (there are situations in which a pay, or incentive, raise results in less production)

With 100% income tax, production will still be done. Most of it may be underground, but it will still happen.

There are probably points of crisis along those lines. But the economy never shuts down, and the money system never disappears in a puff of smoke.

Spending more than you tax can be called overspending or it can be called undertaxing. Over/under spending and over/under taxing can be problems in and of themselves which are distinct from spending more than you tax.

The system is not supposed to be "pay-as-you-go". There is a designed social security surplus, to pay for future social security costs, since the 1980s. It is supposed to have a surplus. It is supposed to start running a deficit starting around 2018 or so. This is what is supposed to happen.

From what I can tell, the point where it uses up it's surplus and starts having to borrow money from the rest of the federal government is so far in the future there easily could be massive demographic change by that time.

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

flstf

Oh, I don't know, maybe something like 1000% inflation or when I go to buy bread they won't accept my little pieces of paper with pictures of dead presidents on them.

Again, I'm not sure, maybe something like the great depression or unemployment over 30% or so.

KMA-628

From the SS website: LINK
I really have no idea where you are getting your information from, specifically regarding all the "supposed to" comments.

Unless I am reading this wrong, self-supporting is the same thing as "pay-as-you-go".

Yakk

Agreed! The money won't be very useful.

The break down isn't at a magic point. If money halves in value every year, is that a broken monitary system?

Right now the economy is growing at a steady 3% (real) rate with relatively low unemployment. If that is your standard, 1% with 50% more unemployment (ie, 5% to 7.5%) is 'bad'.

The great depression was really fucking bad. People starved.

You object to my claim that social security was redesigned to have a surplus in the 1980s, so when the pig in the python started retiring that accumulated surplus would be availiable?

I can find citations. Possibly on the web, but definately somewhere, if you want them.

I assumed you meant "pay-as-you-go" to mean "you use this year's revenue to pay this year's expenses". I am disagreeing with that -- maybe that isn't what you meant. Possibly that was the design at one point, but it was changed in the 80s by R.R.'s administration.

At the same time, theoretically social security could carry a debt -- this could be wise in some demographic situations (a high retiree-to-worker ratio that is expected to drop rapidly), because social security has a future income stream to borrow against. Practically, this won't be nessicary until at least 2050+, if I remember correctly.

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.