2010 Social Security Report: Surprising Drop in 75 yr Actuarial Gap
by Bruce Webb
Well surprising to me anyway. The 2009 Social Security Report projected a 75 year actuarial gap for combined OASDI of 2.00%. Between the structural change involved in changing the valuation period (as 2009 drops off and a new year 75 is added) and the current recession cutting into revenues I fully expected this gap to edge up. Instead it was revised down to 1.92% putting it back to where it was in 2001. Why the change? Well the following table breaks it down. As always, click to enlarge.
Well it wasn’t because they gamed future economic and demographic projections (except one) the OACT left ultimate numbers unchanged. There were some changes in initial numbers due to high unemployment, but those were offset by changes in the Methods and Programmatic Data. Instead the biggest change is the +.14 due to Legislation offset by the -.06 due to the Valuation period to give our net change of +.08.
And what legislation was that? Health Care Reform. The OACT calculates that HCR will result in dollars being shifted from employer paid health insurance to wages after the Exchanges et al are fully in operation. This seems to rest on an argument from economic theory that has employers setting total compensation at some rate established by the underlying fundamentals and then backing out health care costs from that, with the idea that savings in the latter simply means more of the total flowing to wages. Well personally I have never been convinced by that argument, but in that I am in a decided minority, in particular most of the professional economists I know endorse it. So I guess I’ll just let it stand.
What are the policy implications of a steady state or dropping year over year 75 year actuarial gap. Well some thoughts under the fold.
Well the first thing it does is put the “We can’t afford to wait” folk in their place. Take the following table showing actuarial gap by Report year.
This table is found on page 153 and is accompanied by text explaining the specific changes that went into adjusting the number, but if we back up a bit we can see that after a fairly drastic surge between 1993 and 1994 the actuarial gap has, despite any attempt to adopt policy to address it, has stayed remarkable steady fluctuating around a mean of 2.0%. This is a little odd for two reasons, one is that the change in actuarial period represented here should have something like 0.7% to the accumulated total, that instead if anything that the trend has been modestly down suggest there is something in the model which is too pessimistic, and that this factor or factors, whatever they are, is enough to offset the accumulated change due to valuation period.
But even without trying to identify those factors we can come to a clear empirical conclusion: based on these numbers the clearly superior approach to Social Security (and the last entitlements commission-Kerrey-Danforth) in 1994 has been a plan of ‘Nothing’. Addressing Social Security in 1994 by cutting benefits or raising taxes would have been a straight give away by everyone who was either a worker or retiree in those years, instead all beneficiaries received full benefits and all workers got the equivalent of a 2%+ tax cut. And based on the results of the 2010 Report ‘Nothing’ was also a perfectly fine plan for 2009, despite all the hysteria stirred up by “vanishing surplus, YEARS ahead of schedule, we got to act RIGHT NOW” the final numbers just show no support for that at all.
Now for those of us who want to avoid any future cut in benefits there is merit in putting in place a contingency plan that would have us move when the numbers actually support it. But those who want to use some theoretical future cut in benefits to justify cutting benefits even sooner are asking workers for a give-away where there is no evidence they need to sacrifice themselves in the face of something that doesn’t appear to be a crisis at all.
Just as supporters claimed when Bush took a run at Social Security in 2004-2005. Five years later and we are right back at 1.92% of payroll.
Social Security ain’t broke.
The need to cash in a few of the worthless IOU’s this year and next seems to be a sign of imminent doom in some quarters. I kinda like the idea of cashing a few in. It’ll be a fact to point to when folks argue the trust fund will never be paid back.
Well I for one LIKE doing nothing.
I think the economic argument about workers taking home more wages if they end their employer coverage, get all that health compensation as wages, and buy cheaper plans in the state exchanges is a sound one.
What I haven’t seen anyone think about is whether the employers have been playing shenanigans with the healthcare funds as some of them have done with the pension funds. That is a large amount of money on hand to gamble in short-term securities. Where is all that profit, and does some of the much-vaunted “businessman’s uncertainty” about the “regulatory future” tied to hidden losses they should have had covered?
The rationale is that to avoid the Cadillac health care tax employers will reduce the cost/generosity of their health policies, but because labor markets target total compensation that will result in an increase in wages, which will then be taxable by Social Security. So in a sense part (a good part) of the money raised by the Cadillac tax will actually be raised indirectly by Social Security. One problem, as CBO and the CMS actuaries have noted, is that this extra revenue gets double-counted — it’s both credited to the trust fund and used to offset the costs of health reform today, but that’s another story.
Andrew nice to see you here. I tried to formulate a response but was too tired. But as the worst governor in California history explained in every movie he made: “I’ll be back”.
thanks. i think you are right. except for that ominous “double-counted.”
probably it is. but it doesn’t matter.
the life expectancy of the trust fund is of very small consequence. none, actually. and the cost of filling the actuarial gap is practically speaking, nonsense.
we are not going to find 5 Trillion Dollars to put in the bank at 5% interest to pay for Social Security for the next 75 years. And even if we could, the costs and revenues that far out are essentially science fiction. As we see every year, estimates change.
Nor would raising the payroll tax 2% plus or minus a few hundredths of a percent guarantee that there would not have to be further adjustments, which Mr Peterson could scream “Social Security is Going Broke!” whenever they appeared. What it would guarantee would be that all of a sudden the Trust Fund would start to grow again, and Congress could borrow from it again. And the deficit hawks could keep on screaming about the deficit, which they do and do not count according to the political needs of the day. And, of course, if we “balanced” the books for the next 75 years, it would be a matter of one year or five? before Mr Petersons friends started screaming “Social Security is going broke! Will run out of money in 70 years!!” And of course the Trustees could ominously report that “after 75 years, even greater adjustments would be necessary!
Contrast all this nonsense to a rather simple observation:
Based on the Trustees Reports, essentially over the past twenty years, we could put a provision in the law to raise the payroll tax one tenth of one percent whenever the Trustees report short term actuarial insolvency. This is equivalent to eighty cents per week in today’s terms, and is predicted to be needed about one year out of four, and decreasing, over the next century.
So for a low, low price the workers of America could assure that they will always be able to retire at 67, or 62 with a reduced benefit, and know that they will have paid for it themselves.
Or would that take all of the fun out of it for you?
And if the Cadillac tax is being credited to the Trust Fund, was it honest to fail to mention all these years that something like half of the Social Security “deficit” was being caused by shifiting earnings to non taxed benefits?
re “double counting”
like Bruce I am a bit tired, but it seems to me this “double counting” is double talk.
so what if the money will both be credited to the Trust Fund and offset costs of health care reform today?
if i buy a car the money will both buy me status with my neighbors, and provide me with transportation to work. is that double counting? or win – win?
should we be dismayed to discover that something we do has more than one benefit?
I get it that Social Security’s finances are quite secure, assuming the redemption of the Trust Fund for its legally intended purpose. But the fact that the plan was (and existing law is) to redeem the Fund for the benefit of Social Security doesn’t mean that is what will inevitably happen. Going forward the system will be under pressure every year that funds have to be raised – either trough taxes or debt sales – that there is “something” better to do with that money. The historically active engagement of older citizens (high voting rates and strong emphasis on maintaining the system) makes me believe that it will not be fundamentally changed, but unless the economy and jobs pick up (general IRS revenues gorwing stronger), it is reasonable to fear that the plan to redeem the Fund for benefit distributions will be under increasing attack. These attacks will start coming from more directions than the usual corner of not wanting to pay more general taxes (progressive ones) to pay out as promised. No, you’ll start hearing about: we need more for HCR subsidies, we need money for bridge repairs, higher education needs more to prepare for the future. Lurking behind these arguments will still be the desire not to pay progressive taxes, but this is coming so arguments that this is the best possible use of these resources are going to be needed.
I suppose this idea is simplistic sounding, most likely because I’m over 70, but I don’t seem to hear why the F.I.C.A. , which I believe is the S.S. fee thaxpayers pay each paycheck, isn’t just raised to infinity, covering any & all income derived from employment? If one looks upon those employees who make up to the ceiling now, then they pay right up to the limit. But, those above, get a holiday, especially those in the stratosphere region of wages. Also, I believe it’s time the Congress should also be covered by S.S. too. Too many perks for the ??????? or what ever one might label them.
As to double counting.
Various agencies in the Federal government score current and future spending using different measures for different purposes. The Social Security and Medicare Trustees are charged with maintaining the Trust Funds in actuarial balance and tasked with reporting that status to Congress when that status is at risk and presenting a range of potential fixes. Though half of them wear other and policy making hats, when addressing solvency their role is more like an umpire calling balls and strikes. With that hat on any change in law that increases the net flow of dollars in and reduces the net flow of dollars out improves the solvency of the Trust Fund and extends its life. And that is a useful piece of information for policy makers, it tells them they can move Social Security or Medicare as such down their priority list.
Now that flow in or the reduced flow out obviously has externality effects, those dollars could have been directed somewhere else, and that reduced flow out means someone is not getting dollars they used to, and measuring and assessing the effects of that is certainly the concern of policy makers, but it is not the concern of the Trustees qua trustees.
Another useful measure is that of Public Debt outstanding, useful but incomplete. Because without some additional information about future obligations that are not in the form of debt as such it doesn’t tell you much about what burdens are being shifted forwards. For example when in the early 80’s President Reagan established a goal of a 600 ship Navy and Congress started issuing multi-year contracts for ships with a service life of around thirty years they were establishing a future obligation not just on taxpayers who would be alive during the service lives of those ships but potentially for decades or generations after that. But none of that spending is booked as Public Debt, nor is it scored as some sort of Unfunded Liability, nor is any of the money that will be needed to staff, operate and maintain those ships going forward. Yet that doesn’t remove the fact that it creates future obligations quite apart from any short term additions to Public Debt it creates.
It is this non-scoring of future obligations from discretionary military acquisitions that makes the argument that money that was diverted from Medicare over the next ten years will be spent on something else and therefore is being ‘double counted’ intellectually dishonest. Of course that money would be spent on SOMETHING, that might be paying down Debt Held by the Public, or it might be used to forego some planned tax increase, or it might be used to buy a couple aircraft carriers or to fund a war on Iran, and each of those choices would end up being counted in different ways and in more than one way. But to say that this approximation of zero-sum total spending means that the savings from that diversion is somehow somewhere between meaningless and deceitful is just special pleading.
Now there are interesting arguments to be had as to whether the diversion of $538 billion over ten years from Medicare to something else actually adds to the net General Welfare or alternatively adds or subtracts from future productivity but that is not the argument that ‘double counters’ are advancing, instead they are just darkly hinting that somebody is cheating here.
Still there is a context in which this makes sense. If your only concern is the future tax burden on billionaires then a savings from Medicare that is just spent on health care people for poor people is in fact a zero sum game. But as one of those uninsured poor people forgive me if I don’t lose sleep over Pete Peterson’s tax bill.
It looks like the money is double counted, because the excess trust fund monies are loaned to the Treasury’s General Fund. I am not aware of any of that money being used to lower taxes or raise revenues. Rather, it is generally spent for current expenses, likedefense and education.
So, the asset part of the loan is used immediately. The liability part is deferred. Even the interest is not paid in cash, but rather in additional Treasury securities (debt).
When does the liability part arise?
When trust fund outgo exceeds income, excluding intererst.
So, the money is double counted if you take into account the time value of money.
We are seeing the DI trust fund outgo exceed income, as well as the HI trust fund, and the Social Security trust fund.
So, we are seeing some of the liability part come to fruition.
When that happens, public debt is increased unless there is a surplus.
Bruce is right about the accounting for long range items in the budget, for the accounting is on a cash basis.
That is one reason why Social Security and Medicare is considered a liability only for the current year.
Few large employers, even those that self-insure, actually manage their own health care plans, instead they contract that out to health insurance companies. I am sure that somewhere on the corporate books is some category to account for possible catastrophic outcomes that would result in a spike of claims, but I am thinking that would more likely be in the form of premiums for disaster insurance rather than some dedicated pool of money in the way that a pension fund might be.
And I have never been convinced that the cost of health insurance is any more to be considered as compensation than say the cost of providing heat and light to the employee lunch room or the cost of maintaining and providing security to the employee parking lot in a suburban office park would be. It takes a certain amount of money to recruit, train and retain staff and in many cases that includes health care benefits. But equally it often requires maintaining a safe workplace as well as a non-hostile work environment and mostly we would think of charging back the costs of the Safety Team and HR to compensation. It seems to be that someone has just drawn an artificial line between two categories of the costs of doing business. (In the early days of the Industrial Age and even in some sectors today miners and workers had to pay for replacement tools, those drill bits were considered part of their compensation.)
“labor markets target total compensation “
This seems to me more a theoretical textbook concept than any description of the day to day reality. I doubt many prospective employees have any idea of the comparative price of their health insurance plan by policy area, they have no reason to know or care that the cost to an employer in Minneapolis is significantly less than it is for an employer in San Francisco, what matters is ‘health insurance for my kids. Yes or No?’ I mean who in their right mind would assent to the following proposition: “We are transferring you to our Bay Area plant. But because the cost of living is higher there, including health insurance, and we don’t expect your marginal productivity to change, we will have to lower your pay.” But that is where the logic of total compensation/wage set by productivity leads you. Fits nicely in the textbook pages, but takes a Bed of Procrustes to make a one to one fit with real life.
Bruce, I know you discuss this issue extensively on your website but it needs to be repeatedly emphasized [particularly to deficit bulimics] that projections in excess of 15 years (and probably an even shorter time frame) are illusory [because the impact of the initial assumptions will swamp out the effects being projected]. As your website points out, even the “low-cost” and “intermediate-cost” projections use the “high-cost” assumptions from years 15 out — which is appropriate for purposes of illustration. However, it is totally ridiculous to scream “crisis” based on some 25-year or 75-year projection.
Ahh, every now and then my years of research into the theory and evidence for compensating wage differentials comes in handy. Short summary: the evidence on most nonwage costs/benefits/conditions of work supports some wage compensation, but seldom full, and the coefficients are all over the map. Institutional factors seem to matter. Theoretically, full wage compensation occurs only in the ideal textbook market, and it becomes partial under many alternative specifications, like search theory, efficiency wage theory, repeated-game bargaining, etc.
It is correct to say that most economists assume full wage compensation, but most economists (and apparently those employed or consulted by the OACT) don’t dwell in the swamps of labor market theory. Perhaps the high priest of wage compensation is Kip Viscusi, and AFAIK he has never so much as alluded to any of the non-clearing labor market models in any of his writings.
Thanks for coming by Peter.
Fair enough but let me add a couple of points.
One the DI Trust Fund started cashing in its principal last year to the tune of $16 billion and this in addition to all the interest accrued on what started as a $215 billion Trust Fund meant that funds WERE raised without giving rise to the “we have better things to do with our money than pay benefits to disabled people”. The beauty of the Trust Fund structure is that it is shielded from the legislative process on a year to year basis, unlike such things as raising the debt ceiling it is not subject to the kind of posturing and quasi-blackmail that we see in the budgeting and appropriations process, as long as Trust Fund balances are positive Treasury can and has manage redemptions freely, the challenges you posit not actually coming to the surface. DI went cash flow negative in 2006 as it started taking a portion of its interest in cash, and then as mentioned in 2009 started cashing in its Special Treasuries, and nobody noticed, it was a non-event.
Now this is not to say that it would necessarily stay a non-event, if the amounts actually needed to redeem the Trust Fund in any given future year actually began to have visible crowding out effects then we might need to revisit this. But I don’t see the numbers ever being so big as to have that effect. The Trustees report future operations of the Trust Funds in both current and constant (inflation adjusted) dollars. If we take the latter as being the right comparative measure we could look at Table VI.F7 http://www.ssa.gov/OACT/TR/2010/VI_OASDHI_dollars.html#180555 we can see that cash transfers in 2025 are projected to be $185 billion, in 2030 $267 billion, in 2035 $318 billion. Now those are big numbers, on the other hand they don’t go up much on a year over year basis until the last five or so years, nor is it conceivable that we wouldn’t address solvency one way or another prior to that. Under the current rules the Trustees are supposed to recommend action to Congress anytime either fund goes out of Short Term Actuarial Balance which for combined OASDI will be around 2026, and any fix programmed in reduce the cash transfers ten years out significantly. So there is no reason we can’t keep those cash transfers at a level that is not much higher than those we are seeing in 2010 and projected to see in 2011. If we can fund an Afghan war that has less than majority support surely we can find equivalent funding to redeem a legal obligation to (as you point out) tens of millions of voting seniors.
It is worth noting that most people who make the crowding out argument carefully avoid using dollar numbers, current or constant. Because like ‘unfunded liability’ the scary numbers and concepts lose most of their impact when reduced to actual year by year effects. Not only are the actual numbers not that big, there are any number of ways to get those cash transfers down that don’t require slashing benefits.
Congress is covered by Social Security. They get a generous pension besides.
The argument against raising the cap to cover all income is the same argument that FDR made when setting up the cap to start with. Social Security is currently configured as an insurance program against poverty in retirement, it establishes a floor upon which industrious or frugal or simply lucky people can add on. And while there is some transfer involved in setting the floor for the lowest income workers, the floor level is established based on payments made by the worker over their lifetime of work and as such is not welfare, in particular there is no appreciable transfer from the truly wealthy. Which is the only thing that keeps them from nickeling and diming Social Security. Even now Social Security administration costs, though funded out of worker contributions have to go through the appropriations process and Republicans are always screwing around with staffing levels not because it actually frees up money for other purposes, because it doesn’t those funds are walled off, but just because they can. They used to play similar games with COLA’s before the system was changed to automatically adjust them to inflation.
If Social Security were really in a bind then it might make sense to lift the cap entirely and risk exposing it to the political process that comes with the principle “he who pays the piper calls the tune”. As it is Social Security draws nothing from capital except repayment of loans made by workers to the General Fund, and that only if and when, and so owes nothing to the owners and controllers of capital. And frankly the way I would like to keep it.
I have nothing against progressive taxation, and certainly FDR had no such objection, but Social Security was deliberately kept outside its scope. I don’t flatter myself that I am smarter than FDR or Frances Perkins either, i am willing to grant that they knew what they were doing.
Don you seem to have skipped over my 8:19 response to Andrew Biggs.
Look you give money to the government. They give you a piece of paper promising payment ten years out with interest and then spend the money on what they want. In doing so they claim they have created an asset for you even as they defer their liability for years. You might call that ‘double counting’, the world calls it ‘Buying a Ten Year Treasury’.
“When does the liability part arise?
When trust fund outgo exceeds income, excluding interest.”
No the liability is created right away. The Special Treasuries are not open ended obligations, instead they have set terms and are redeemed on schedule or as needed. if at the time of redemption the particular Trust Fund is not in need of cash they are rolled over into new Special Treasuries in exactly the same way that any long term holder of bonds would. This is where the OAS Trust Fund is today. And you can examine the current portfolio and its 2009 redemptions and reissues here:
In contrast the DI Trust Fund started taking some of its interest in cash in 2006 and last year cashed in $16 billion of its principal. In fact it is already cashing in some of its lower earning 2011 bonds, because part of what makes the Special Treasuries special is that they are redeemable at par at any time. (scroll down a screen from above link).
But the liability exists from the instant the Special Treasury is issued.
As to time value of money the bonds draw interest . From the Report “The Social Security Act authorizes the issuance of special public-debt obligations for purchase exclusively by the trust funds. The Act provides that the interest rate on new special obligations will be the average market yield, as of the last business day of a month, on all of the outstanding marketable U.S. obligations that are due or callable more than 4 years in the future.”
And to repeat you are using the terms ‘Public Debt’ as if it were interchangeable with ‘Debt Held by the Public’. These are two different concepts. Intragovernmental Holdings are added to Debt Held by the Public to give total Public Debt, and this addition comes when the Special Treasury is issued and not at the time it is redeemed for cash. Perhaps this handy Debt to the Penny web application will help you get clear on this point.
Social Security surpluses score as Public Debt.
And I have no idea what your last sentence means.
Well that is not quite right. While each of the three alternatives settle out to ‘Ultimate’ numbers for the economic variables, and those numbers are in each case in my opinion too pessimistic, they are not the same numbers. Where Intermediate Cost would set ultimate productivity at 1.7%, Low Cost pegs it at 2.0%, and High Cost at 1.4%
And this carries through for unemployment, real wage, gdp.
It is just that SSA doesn’t pretend they have some crystal ball that can predict year by year variations outside the same ten year window used by CBO and OMB. If they didn’t use different numbers for each alternative you wouldn’t see the divergences seen in figure IV.A3 (see under the fold on todays post )
My thanks too Peter. I am a regular reader of EconoSpeak but only comment when Barkley or PGL post on Social Security, not really having the chops to comment on anything else.. But I have taken a lot in from you and from Sandwichman too when he was posting there.
And thanks to you all! Sorry I don’t have time to post more. So much to figure out, so many voices to listen to, so little time….
“No, the liability is created right away.”
Agreed. But the payment for the liability is deferred, while the assset part is used immediately.
Even the interest is not a cash outlay, but additional Treasury securities.
You are correect about the Treasury being rolled over, if there is no need of cash.
The reason the DI trust fund is cashing in, is because its outgo exceeds its income, when the liability becomes real, in the sense that money actually is paid out of general revenues.
When it cashed in the $16 billion of revenues, it did not get the cash from the trust fund; rather additional Treasuru securities had to be issued to the taxpayerrs, which added to the debt to the public.
It wasn’t like the trust find paid the $16billion out of its “reserves.”
you clearly don’t understand the first thing about money.
If I lend you a thousand dollars and you give me an iou for “principle plus interest,” and next year you say, well gee, i don’t have the money to pay, and i say, well, that’s okay i don’t really need the money now, but i’m gonna charge you interest on the “new principle” which equals the old principle plus the interest you were supposed to pay me today.
Then next year rolls around and i say, well, don, i need you to pay off some of this note, i don’t care whether you get the cash from getting a job or borrow it from your uncle or steal from some old lady. Your repaying me is “satisfying a legal obligation.” Only when the government does it, it does it with Bonds. … just to keep track. you know, sort of a bookkeeping device.
Don a liability pretty much by definition is resolved in the future. Otherwise it wouldn’t be a current liability, you can’t save your argument by swapping in “payment”.
When you cash a check at the bank they don’t get money out of your account, they get it out of the cash drawer and debit your account. How the bank refills that cash drawer is of no particular concern to you. In the case of Social Security redeeming a Special Treasury the Treasury issues a check and retires a Treasury from the Trust Fund. The ultimate source of that cash is a mixture of non-Social Security revenue and borrowing with the respective percentages being no more or no less than the overall ratio of revenue to borrowing. To say that every dollar is directly raised by borrowing is just as ridiculous as claims to the reverse, that Social Security and Medicare currently suck up all revenue leaving nothing over for discretionary spending. And i see both claims being made alternately by some of the same people as convenient for that attack on Social Security.
And while “added to the debt to the public” is an improvement over “added to public debt” the correct formulation would be “added to Debt Held by the Public”. And that debt may or may not be in the form of securities literally “issued to the taxpayers”. 40% plus of such debt is held overseas by people who don’t pay taxes while substantial parts are held by such things as public pension funds or non-profit foundations who as far as I know don’t pay taxes. I know what you meant but your language is way too sloppy to bear the kind of authority you would like to have it carry.
The Treasury issues a check and retires a Treasury from the trust fund.
So, what has transpired is that the total debt stays the same,, but a higher portion of it is Debt Held By The Public.
This debt is more costly than intragovernmental debt, in that interest must be paid from current revenues, whereas interest on intragovernmental debt is “paid” by issuing more debt.
Principal is simply rolled over, a new Treasury security is offered when the old one matures.
The ideal approach would be to lower total debt, not keep it the same.
You are correct in regards to a private transaction between you and I.
I don’t have a lot of cozy feelings toward you, so if I ever lent you money, it would be at an usurious interest rate.
The difference between intragovernmentall debt and debt between you and I is twofold:
1. Intragovernmental debt “pays” interest by issuing more debt. I have to pay you in cash.
2. Intragovernmental debt (and debt held by the public) is typically rolled over.
Most loans I am aware of, even interest only loans, eventually require payment of principal, not rolling it over ad infinitum.
and the crying and howling you hear is the Congress coming face to face with the fact that they can no longer keep rolling over the debt to Social Security. It has to come up with the cash.
Whether it gets the cash by taxing, by borrowing, or by cutting other spending, is not the problem of social security.
So what exactly are you advocating?
Why do you say that getting the cash by taxing, borrowing, or cutting other spending is not the problem of Social Security?
Is that because you believe it is the Treasury’s problem to come up with the money?
People are entitled to Social Security and Medicare, not because they paid taxes.
They are entitled to the programs if they meet the qualifications.
The programs could have been enacted without the accompanying taxes, which pay for the general welfare anyway.
The programs can be altered, amended, or terminated each year.
That’s why the liability, according to the government, is only for one year
Of the 3 alternatives, I would go for either raising taxes or cutting other spending.
I am advocating that from now on, any Social Security and Medicare surplus be used to reduce the public debt.
I wish that made sense, because at least you answered the question.
People are “entitled” to their Social Security BECAUSE they paid the tax. That is the only qualification.
It is not the treasury’s problem to come up with the money to pay for Social Security. That is the people’s problem. They need to persuade congress to raise their tax by a quater of a tenth of a percent each year until the demographics stabilize.
The Social Security surplus has been used to reduce the amount of money borrowed from the public, but it is coming time to pay back the money borrowed from the Social Security surplus. Borrowing is borrowing.
The programs could not have been enacted without the accompanying taxes. that would have been a different kind of program entirely. The whole point was to proved workers with a safe way to save their own money, NOT to provide welfare to aged americans.
i agree with you perfectly about raising taxes or cutting other spending.
You wrote “People are entitled to Social Security because they paid the tax.”
That is the general understanding among the public, but that is not the federal government’s official position.
From a paper entitled “Analytical Perspectives, Budget of the U.S. Government, Fiscal Year 2009”
Page 183 “Why are Social Security and Medicare not shown as Government Liabilities in Table 13-01?
There is no bright line dividing Social Security and Medicare from other programs that promise benefits to people, and all the Government programs that do so should be accounted for similarly. Furthermore, treating taxes for Social Security or Medicare differently from other taxes would be highly questionable.”
Go To: http://www.gpoaccess.gov/USbudget/fy09pdf/spec.pdf.
Coberly wrote “The whole point was to provide workers with a safe way to save their own money, not to provide welfare to agedAmericans.
That is correct, that was the original in tention.
In fact, Roosevelt stated “If I have anything to say about it, it will always be contributed both on the part of the employer and the employee, on a sound actuarial basis. It means no money out of the Treasury.”
Go to: http://www.ssa.gov/history/genrev.html.
However, when the trust funds earn interest, that interest is provided by issuing Treasury securities. When those Treasury securities are cashed in, it will be paid by general revenues, unless the budget runs a surplus, revwenues are increased or expenses are reduced.
And, this interest income, the intragovernmenmtal transfers are not chump change.
In a paper entitled “Long-Range Fiscal Policy Brief No. 5, published by the CBO, The Impact of Trust Fund Programs on Federal Budget Surpluses and Deficits,” it states on page 2 “Even Social Security, largely supported by taxes on employees and employers, is credited with substantial amounts of intragovernmental income, the largest being ‘interest’ accrued on its holdings of federal securities. But no public or outside entity pays that interest; it is a credit from the government’s general fund to the Social Security trust funds.”
Page 3 “For the next 10 years, trust fund programs overall are projected to run a cumulative surplus of $3.4 trillion. However, with intragovernmental transfers excluded, the funds’ activities are expected to generate a cumulative 10-year deficit of $1.2 trillion. And those deficits only grow larger as one looks farther out.
Go to: http://www.cbo.gov/doc.cfm?index=3974&type=0.
Let’s first discuss a few common myths regarding Social Security:
1. Social Security is NOT a benefit; it is a tax–That right, just ask the IRS. and they will tell you that Social Security is indeed a tax. Furthermore, the courts have declared the only way Social Security can be interpreted as constitutional is if it is a tax.
2. Your Social Security payments are not guaranteed— There is no requirement that the government pay you your social security check. Congress can cancel, abridge, or alter the social security system anytime it wishes. This was summed up nicely by the courts in Flemming v. Nestor which said “entitlement to Social Security benefits is not a contractual right.” Theoretically, you could pay your social security taxes all of your working life and then be denied the monthly checks. While this is unlikely, you notice that the government is always increasing the retirement age. Eventually you will only be able to retire at 85 and get 50% fewer benefits.
3. There is no Social Security Trust Fund–Contrary to what you hear from the media and politicians, no trust fund exists (it is only an accounting entry). All Social Security taxes are sent directly to the government’s General Revenue Fund and is spent by Congress on anything they want to. Even if there is a surplus (more collected than paid out in benefits), Congress can spend it and write an IOU to Social Security. Congress (Republicans and Democrats) have looted the surpluses from Social Security over the last 75 years, and all that is left are useless IOUs.
4. Social Security “benefits” are taxable–One of the more hilarious aspects of Social Security is that if you work after you retire (say part-time) and earn depending on your filing status more than $25,000-32,00, your social security payments will be taxed. LOL!!! And you thought this was a generous benefit from your government. Instead, it is really a system to keep you in poverty.
5. Social Security is a Ponzi-Scheme–According to Wikipedia, “a ponzi scheme operation pays returns to separate people from their own money or money paid by subsequent people, rather than from any actual profit earned.” That pretty much sums up Social Security, which pays current recipients with money from taxes collected by current workers. Social Security is a ponzi scheme that Bernard Madoff would envy. Is it all right that the government is operating the largest ponzi scheme in US history?
Now that we have discussed various misunderstandings concerning Social Security, allow me to show why it is such a bad deal for Americans and keeps them poor. First off, the rate of return on your Social Security contributions is incredibly low (estimated at 1-2% nominal return) as compared to the investments. There was a famous example of county employees in Galveston, Texas, who were fortunate enough to get out of paying social security taxes. Instead the county set up an alternative plan and invested their monthly contributions in safe low risk investments. The results were startling and are reported in a GAO report. Assuming a worker made $50,000 and paid into […]
I am reading a book by Erich Fromm entitled “Escape From Freedom.”
Fromm had similar ideas on real freedom as you do.
“The Fed is an illegal institution which violates the US Constitution. Since 1913 the dollar has lost 98% of its purchasing power. This is an important fact because between 1787-1913 the dollar maintained its purchasing power (there were of course periods of inflation followed by deflation). Its not politicans who have destroyed the dollar, it is the criminal PH.D’s at the Fed.”
Quote from Nathaniel’s website
Now the Fed may be too powerful today, and needs at least an audit, and recent promotions do not augur well for its efficacy, but to also declare the 20th century illegal and pine for the stable old days of the late 18th cenutry which included some rather severe and frequent depressions and recessions is not a point of view I would listen too.
Now you are attacking the messenger, Nathaniel, by referring to his web site.
Why don’t you allow Nathaniel to post from his web site for another blog?
Or, you go to his web site and post something in a different blog.
Respond instead to the message he posted. Fous, focus!
No attack at all.