by Bruce Webb
As Krugman would say: Wonkish. Last Wednesday I put up a post Vanishing the Social Security Surplus which got some push back in comments by Andrew Biggs. So let me back up a little.
Social Security surplus is defined in two ways. One is ‘Income less Interest – Cost’. The other is more simply ‘Income – Cost’. I would argue that the standard definition is the latter and would support it two ways. First the Social Security Trustees implicitly define it as the second, for example we could examine Table Vi.C6 from the 2008 Report.
Note that there is no column corresponding to ‘Income less Interest – Cost’, you have to derive it. On the other hand there is a column equating to ‘Income – Cost’ which is labeled ‘Net increase during the Year’. Now the Trustees don’t label this as ‘Surplus’ but there is little doubt that most people think of it as such, generally the current Trust Fund balance of $2.4 trillion is thought of as an accumulation of ‘surpluses’. Indeed a lot of people on both sides of the debate insist that the government ‘borrowed’ (or alternatively ‘stole’ ‘spent’ ‘diverted’) all of the Trust Fund balance to other uses over the years. As we will see this is not right but back to the point.
It is perfectly clear that CBO is not so reticent. They clearly equate Income – Cost as equalling ‘Surplus’. For example in their August 2008 Report The Budget and Economic Outlook: Fiscal Years 2008 to 2018 they put it as follows:
So total Unified Budget surplus/deficit is defined as the combination of on-budget surplus/deficit and off-budget surplus/deficit. And for all practical purposes off-budget surplus equates to Social Security surplus. Meaning there is a practical equation between ‘off-budget surplus’ and ‘social security surplus’ and ‘net increase during the year’ and ‘income (including interest) – cost’. For budgeting purposes they are all the same. And an examination of SSA’s Table VI.C6 shows that by 2017 all of that surplus is comprised of interest on the Trust Fund.
Now in an article on Tuesday in the WaPo by Lori Montgomery titled called Recession Puts a Major Strain On Social Security Trust Fund we get the following claim:
Last August, the CBO predicted that surplus would exceed $80 billion this year and next, then rise to around $90 billion before slowly evaporating by 2020. But the rapidly deteriorating economy — particularly the loss of more than 4 million jobs — has driven those numbers much lower much faster, with the surplus expected to hit $16 billion this year and only $3 billion next year, then vanish entirely by 2017.
Huh? CBO in August 2008 predicted a Socials Security surplus in 2009 of $199 billion and in 2010 of $210 billion. And far from evaporating by 2020 showed a surplus of $253 billion in 2017. SSA has somewhat lower numbers or 2017 at $213 billion and $169 billion by 2020 (Table VI.F8). How do we get from there to $80 billion for 2009 and ‘evaporating by 2020’? Answer is below the fold.
(Update. Coberly found the main cause of the problem. Like all 10-year Treasuries interest on the vast bulk of the Trust Fund that is invested in Special Treasuries is payable twice a year in June and December. So the actual monthly Fund Balance Sheet for any other month won’t show it since it is not yet actually in the Trust Fund, while on the overall SS Balance Sheet it shows up as a receivable and hence as an asset.)
Simple, you just take definition number one for ‘surplus’ which is ‘income excluding interest – cost’ and abandon the standard CBO definition of ‘income including interest’. In effect you just assume that the interest on the Trust Fund is just not real, which in turn requires assuming that the principal in the Trust Fund is not a real interest earning obligation of the United States government.
Note that there is no hint in the Montgomery’s piece that she is using a different definition of ‘surplus’ than that in CBO’s Table 1-1. Plus in order to find the distinction she is stating here you have to go deep into the Report.
Given that this is page 121 and the usual standards of the WaPo you don’t have to be a genius to tell that this is the product of some feeding of Steno Lori by the usual suspects, in this case from AEI.
So let’s have a subtotal. Using the standard definition of ‘surplus’ as used by CBO and SSA, that is ‘total income excluding cost’ it is clear that it didn’t vanish in February, the roughly $2.4 trillion TF balance earning interest at a nominal rate of 5.0% was returning around $120 billion which for a short month like February means something like $8 billion. From that accrued interest we would have to subtract any gap between revenue from taxation and cost for the month, amounts that are supplied by Andrew Biggs in his post Slowdown Slashes Social Security Surplus. Biggs introduces us to a new tool from Social Security’s office of the Chief Actuary which gives us results by month Financial Data for a Selected Time Period. If we punch in Feb 2009 we see OAS with a surplus of $525 million and Di with a deficit of $1.779 billion for a combined deficit of $1.255 billion hence ‘vanished surplus’. Now this number is basically legit in that if you go to the Treasury’s Monthly Trust Fund Report and select the OAS January version you find the following results on page 3.
And similarly the February
So the number is legit, we have a TF balance for OAS up from $2,219.314 billion to $2,219.964 billion which is close enough to $525 million not to matter in context. But what are we to make of this?
In January the Trust Fund earned $20 million in interest for a total yearly total of $52.978 billion.
In February the Trust Fund earned $75 million in interest for a total yearly total of $53.053 billion
But we are talking a $2.2 trillion dollar Trust Fund at a nominal 5%, shouldn’t interest be more like $9 billion a month? Well yes it should. So lets take a look at page five from the same Reports.
Whoah! January assets that totalled $2.193 trillion and moved up to February assets of $2.196 trillion on page 3 transform to assets totaling $2.228 for January on page 5 and $2.237 trillion for February. Somehow the approximately $525 million February surplus for OAS cited by Biggs, admittedly based on totally official information from the Treasury, transforms to a $9 billion surplus between between page 3 and 5 of the same report. And if we repeated the exercise for DI we would see a deficit transform from $1.7 billion to $900 million.
Why the difference? Well it turns on a category called “Interest Receivable”. For whatever reason interest accrued on the Trust Fund in January and February of this year was not counted as an asset on page 3 of the monthly TF Report from Treasury or on the Web application of the Office of the Actuary. On the other hand it was so credited on page 5 of the monthly TF Report. Maybe someone with actual accounting skills can explain why we should claim with Biggs, Hassett and Montgomery why Social Security surpluses vanished in February even as assets increased by a net $8 billion dollars. To me that can only be done by claiming that the Trust Funds don’t really exist and that all excess contributions since 1983 and interest on them should be discounted to zero.
In other words ‘sorry suckers! we got the money and we are not paying it back!’.
(There are a lot of numbers here, if I have missed something please correct me in comments.)