On-budget vs "Unified Budget": Where Social Security Fits.
by Bruce Webb
If I had to pick out the two biggest sources of confusion about Social Security finance it would have to be one, the relation of the Trust Funds to Public Debt and two, the relation of Social Security surplus/deficits to Budget Scoring. At Angry Bear we have discussed the equation Debt Held by the Public + Intragovernmental Holdings = Public Debt enough that most regular readers probably get it. So today I want to lay out some definitions and explanations of ‘on-budget’ directly from the source.
Office of Management and Budget: Budget Concepts and Budget Process This comes from Section 12 of OMB’s Analytical Perspectives on the Budget which is the explanatory supplement to the Budget itself. The best guide to it is List of Charts and Tables where the lead number refers to the Section, with Section 5 being ‘Long Term Budget Outlook’ (compare with CBO’s report with the same title), Section 6 being ‘Federal Borrowing and Debt’, and Section 27 ‘Trust Funds and Federal Funds’. Not exciting reads, but full of good to know information. Under the fold I have extracted from Section 12 ‘Budget Concepts and Budget Process’ the portion discussing the difference between ‘On-budget’ and “Unified Budget” ‘.
Every year since 1971, however, at least one Federal entity that would otherwise be included in the budget has been declared to be off-budget by law. Such off-budget Federal entities are federally owned and controlled, but their transactions are excluded, by law, from the rest of the budget totals, which are also known as “on-budget” totals. When a Federal entity is off-budget by law, its receipts, budget authority, outlays, and surplus or deficit are separated from all other (on-budget) receipts, budget authority, outlays, and surplus or deficit. The budget reflects the legal distinction between on-budget entities and off- budget entities by showing outlays and receipts for both types of entities separately.
Although there is a legal distinction between on-budget and off-budget entities, there is no conceptual difference between the two. The off-budget Federal entities engage in the same kinds of governmental activities as the on- budget entities, and the programs of off-budget entities result in the same kind of outlays and receipts as on-budget entities. The “unified budget” reflects the conceptual similarity between on-budget and off-budget entities by showing combined totals of outlays and receipts for both types of entities.
The off-budget Federal entities currently consist of the Postal Service Fund and the two Social Security Trust Funds: Old-Age and Survivors Insurance and Disability Insurance. Social Security has been classified as off-budget since 1986 and the Postal Service Fund has been classified as off-budget since 1990. A number of other entities that had been declared off-budget by law at different times before 1986 have been classified as on-budget by law since at least 1985.
So in examining Table 12-1 we can see that for all practical purposes ‘Off-budget’ = Social Security (the Postal Service Fund showing little activity) while ‘Total’ Surplus or Deficit = the so-called “Unified Deficit”, in quotes because in law there is no longer any such thing, it is just a very convenient reporting number.
Hopefully this will help clear up some rampant terminological confusion, if not fuller explanations are available in the various sections of the Analytical Perspectives.
In passing note that the Medicare Trust Fund which funds Medicare Part A is on-budget along with Medicare Parts B, C, & D.
There are CFOs across the country that would kill to account for their pension funds like the federal government treats social security. Alas, those CFOs would be thrown in jail for using accounting gimmicks the federal government uses.
Jay,
What in particular do you mean?
There are CFO’s across the US whose pension funds are fictions. Not in the US G, except for DoD agencies’ accounting have successfully met audits.
The CFO act was put into law 15 or more years ago. US G assets are accounted for IAW the act; audited and certified by OMB.
Except the DoD whose assets, costing trillions to get, cannot be “priced” and outlays linked to delivered services.
Because for Dod nothing is as it is. Equipment especially high valued weapons were not built to detailed specifications, at least none where any one would represent the product matched the requirements of the specification.
Same for services rendered to DoD. There are no performance work statements which were accepted that met quality standards.
Do you think the funds side of the CFO is a mess.
A thorough audit of DoD would put everyone in jail.
But what do you think is wrong with SS accounts? Please help me out here.
Changing the subject by bringing up the DoD. I wouldn’t mind an audit of the DoD. Every member of congress with a military base or large contractors in their district would be thrown in jail (many liberals too; crack wh*&^ Jack Murtha comes to mind). Back to the subject of defined-benefit accounting, Look up the difference between cash and accrual basis accounting.
FOX news talking points. I have heard those blitherings.
Explain the sound bites.
Bruce:
I am glad you provided this information.
Remember those 3 years during the Clinton administration when we had our first “surpluses” in almost 30 years?
Well, technically, we had a surplus, I guess, since debt held by the public went down.
But that was only because the trust fund surplus exceeded the deficits.
Thus, intragovernmental debt went up more than debt held by the public went down.
Thus, our total debt increased even though we ran a surplus.
Whew!
That’s a lot to digest!
Don Levit
In 2000 the General Fund ran a surplus.
In 2000 Social Security ran a cash surplus. That is not “technically” a surplus, combined it makes for a surplus period. The end result was American workers having a bigger claim on future productivity and billionaires and the Chines Central Bank less. Forgive me if I don’t see that as a problem.
Bruce–I think we should just let Mr. Levit think whatever he wants to think. No matter how well substantiated your statements are, Mr. Levit argues that A is not A, but B and B might as well be C which is bad or D, which is worse. However, I’ll just shut up now. Nancy Ortiz
Bruce,
Good post. I have this deja vu all over again feeling as I read it. Where have I read this concept before? Don seems not to suffer from the same sense of repetition though the very same concept has been served up to him morfe than once in the past week or two.
Nancy:
🙂 agreed
Which leaves Jay
who seems to not understand the difference between an immortal sovereign nation and a private company which can go bankrupt and cheat its creditors.
and OMB
which can very carefully say that SS is legally off budget
and then turn around and say there is no difference between on and off budget.
contrary to some folks, i don’t automatically believe that the “experts” always know what they are talking about, or aren’t just a little trying to fool you.
If you hold up two fingers in front of a guy who has been driving erratically and he can’t tell the difference, then he has a legal problem.
Bruce and Nancy and others:
Go to http://www.craigsteiner.us/articles/16.
There you will see that in each of the 3 years of the so-called budget surplus that total national debt increased each year.
How can you have a surplus if the total debt increased?
Don Levit
Don
don’t bother your pretty little head about it.
It’s too complicated for you. It doesn’t help that the politicians are trying to fool you, and the reporters and columnists who cover them are fooled themselves.
But see, it goes like this. Clinton raised taxes and brought the budget deficit down. Either to the point where with the Social Security “surplus” not being counted as debt.. which it is… the “unified budget” came out in the black or very close too it… Or, to the point where the on-budget budget was in actual balance or surplus, and the Social Security surplus just went in the bank… adding to the debt that the government owes Social Security.
This is only hard to understand if you keep thinking that Social Security is “on budget.” Which it is not.
Jay,
John Murtha died in February. Do try to keep up.
Don,
Do you have an actual, you know, point?
George HW Bush raised taxes after a budget summit at Andrews AFB, Md. He also began reining in the war machine aided by the shuttering of the Soviets.
Clinton did raise taxes and he did reduce empire security spending to about 3% of GDP mainly by keeping increases to less than inflation and enjoying no adversary.
The combination of tax increases, a favoring economy and reining in the command economy selling to the federal government encouraged growth outside the military industrial complex improving productivty.
I suggest that GHW Bush did a little to reverse voodoo economic. But Jr reversed Dad’s good works in spades.
INteresting analysis, I have not picked it apart but would suggest Stiener may have added to his intragov accounts Medicare, OPM civil servcie retirement and the military retirement accounts.
Note of those which are the largest of the intragov holding only military retirement is not funded by taxes income or payroll. And military retirement it not a trivial futire obligation.
Joel:
I made my point.
How can there be a surplus when the tital debt increases each year?
If you go to the links at the end of the article, you will see that debt held by the public did reduce, but intragovernmental debt increased each year by a greater amount.
Since, the total debt is composed of debt held by the public and intragovernmental debt, how can you have a budget surplus when total debt increased?
What is your point, Joel?
Don Levit
@Don,
My point, my poor hapless friend, is that the federal deficit was reduced dramatically during the Clinton Administration. Your lame attempts to diminish that acievment nonwithstanding.
Hope that helps.
Joel
Coberly and Joel you might want to avoid the text string ‘J*y’ for the time being. Because like mentioning ‘Voldemart’ your comments might fall victim to the Dementors, or maybe the troll filter.
Dale for that matter you were taking a risk referencing Brooks the other day. I call them the “Commenters who must not be mentioned”.
Angry Bear is all about open, vigorous, and even borderline nasty disputes. Else some people would no longer be here and still less be offered front page space if they didn’t bring something. But AB is blessed with an unusually high IQ level set of trolls and we don’t want to chase them away. But some commenters test the limits.
Don
I answered your point at 18:35:10. I didn’t think you would understand it.
Look at it this way:
The Federal government borrows the Social Security surplus every year, including the interest that would otherwise have to be paid.
It more or less has to do this, but since it would otherwise have to borrow from the public anyway, there is no harm done… except for the confusioni created by the Petersons over the issue. The reason it has to borrow the SS surplus is that SS is laying away that surplus against hard times… most especially the retriement of the baby boomers. This has been the general understanding for the last 20 years or so, though some will now say that the baby boom was not the “reason” the Trust Fund has been allowed to grow to three or four times its “normal” size. Effectively that IS the reason… the understanding… that people have had about it for a long, long time.
But because the budget deficit… beyond that created by borrowing FROM Social Security has become problematic…. hey, even David Stockman agrees with me about that… there was some rejoicing in Washington when Clinton reduced the budget deficit to the point where no new borrowing from the public was needed… called a “balanced budget” by those who use the “unified budget” concept… even though the government was still increasing its debt by borrowing from Social Security.
This is not hard to understand unless you insist upon starting by thinking that there is no difference between Social Security and “government spending.”
You see, when real thinkers come to conclusions that don’t make sense, they go back and examine their assumptions. You are incapable of that.
“How can you have a surplus if the total debt increased? “
For a guy that is totally willing to lecture me on the time value of money this comment is laughable beyond belief.
Under the Northwest Plan for a Real Social Security Fix (i.e Dale’s and my proposal) Social Security runs a surplus every year even as total debt owed to Social Security increases year over year. And the end result is that debt repayment is actually discounted by about 75% by the need to maintain a minimum Trust Fund Ratio.
You just don’t get it. Under the Trustees’ most optimistic scenario, one that has Social Security fully funded with no changes in retirement age or cuts to the benefit schedule the total contribution to Public Debt because of Social Security at the end of the 75 year actuarial window would be $119 trillion. http://www.ssa.gov/OACT/TR/2010/VI_OASDHI_dollars.html#150920
Exactly how over funded Social Security in the short to medium term ends up with a $120 trillion dollar addition to Public Debt at the end of the 75 year actuarial window requires some analysis of the numbers and concepts. Like almost everyone who has addressed this you seem to assume that ‘debt’ ‘deficit’ and ‘unfunded liability’ and ‘SS solvency’ track. They don’t.
m’kay
Don,
Almost any way you cut it, unless the meat in the war machine and other parts of the USG command economy are cut USG debt is increased. The war machine and ilk plunder US productivity.
There should be a intragovernment trust fund financed by income taxes and tariffs to pay ahead for the bow-wave created when a jobs program for Lockheed delivers 2000 airplanes the US does not need.
I think you are missing the a point I had above with Jay. Accounting standards have very little to do with estimating future outlays. That is economic and system engineering.
If I were using the future cash needs of current decisions I would stop telling you that buying the F-35 ill described “Lightning II” is a $233B cost. It is not just buying the F-35 is committing the US to an additional $470B over 20 years to just keep the poorly designed and manufactured thing running in case some fictious adversary or a buyer of the F-35 wants to fight the US WW II style.
By that kind of thinking Clinton saved more than shown because he kept the kleptocracy in the pentagon and congress from locking in growth of the useless war machine.
OMB says there is no conceptual difference between on budget and off budget. I think they are dangerously desperately wrong. But perhaps this is all they meant [made up numbers]:
On Budget
Government expenses 3.4Trillion
Tax income: 3 Trillion
borrowing from public 200 Billion
borrowing from SSTF 200 Billion
Deficit (new debt) 400 Billion
Off Budget
expenses 500 Billion
tax income 700 Billion
Borrowing 0
Lent to government 200 Billion
Net assets (Treasury Bonds) 200 Billion
so far so good.
but where you get in trouble with the “unified budget” is when you count the borrowing from the SSTF as “income” and don’t record it as “debt” which it is.
Coberly wrote But since it would otherwise borrow from the public, there is no harm done.
Coberly, there are differences between debt held by the public and intragovernmental debt.
The most glaring difference is that intragovernmental debt reduces the deficit, even to the point of a “surplus.”
If public debt had been issued instead, there never would have been a surplus.
Coberly wrote SS is laying away that surplus against hard times … most especially the rertirement of the baby boomers.
As you acknowledged, the trust fund surplus has been spent for current governmental expenses AND it still reduces the deficit – wow, that’s getting real bang for the buck!
From a paper entitled “Analytical Perzaspectives, Budget of the U.S. Government, Fiscal Year 2009, which I believe, Bruce posted, it says on page 195 “The trust fund surpluses could have added to national saving if overall government borrowing from the public had actually been reduced because of the trust fund accumulations.
At the time Social Security or Medicare redeems the debt instruments in the trust funds to pay benefits not covered by income, the Treasury will have to turn to the public capital markets to raise the funds to finance the benefits, JUST AS IF THE TRUST FUNDS HAD NEVER EXISTED.”
Go to: http://www.gpoaccess.gov/USbudget/fy09/pdf/spec.pdf.
Don Levit
“I have not picked it apart but would suggest Stiener may have added to his intragov accounts Medicare, OPM civil servcie retirement and the military retirement accounts.”
Nailed it. All of those are in fact included in Intragovernmental Holdings. As of close of business Thursday total intragovernmental holdings were $4.533 trillion of which $2.6 trillion was in Social Security Trust Funds
http://www.treasurydirect.gov/NP/BPDLogin?application=np
Most of the rest is precisely in the accounts ilsm references
ilsm certain key words will snag you in the Angry Bear kill filter. As a general tip if someone is trending into troll territory on a consistent basis you might want to avoid putting their name into the post. Of course JS-Kit sometimes has a mind of its own. Either way I unblocked this post.
“The trust fund surpluses could have added to national saving if overall government borrowing from the public had actually been reduced because of the trust fund accumulations. “
Which is what happened under Clinton and what was at the core of Gore’s proposal (which he labeled under the horribly misleading rubric of ‘Lock Box’) but which was abandoned by Bush.
It is a little frustrating, you keep pointing to the right spots on the map and yet misstating the implications of your findings. And you can only appeal to the adage “Even a blind pig finds an acorn once in a while” so many times. I don’t know whether you are just oblivious or holding to the belief that if you just stick to it long enough you can make the sale. But really when it comes to this topic Dale and I didn’t just fall off the turnip truck and will not be fooled by fast talk by the city slicker.
Dale my reply to you is part of my reply to Don below. Debt and Deficit are not the same thing and you only get in trouble when you take measures of one and try to draw precise implications for the other.
Bruce:
You seemed to conveniently skip over the sentence that said “At the time Social Security or Medicare redeems the debt instruments in the trust funds to pay benefits not covered by income, the Treasury will have to return to the public capital public markets to raise the funds just as if the trust funds never existed.”
What is your take on that (and others, also)?
My take is that debt to the public must be issued, and it isn’t any cheaper if we had trust funds or not.
Don Levit
Bruce–Sing, Oh, Holy Muse! NO
Bruce
maybe i’m in the same situationi don is. but when people use words in ways that don’t make sense, i don’t feel obligated to twist my mind to make sense for them. Debt is just accumulated Deficits. Deficit is net addition to the Debt for any given year.
The”government” borrows from the SSTF, That adds to the deficit/debt. The problem comes from people who, for reasons of their own count the borrowing from SSTF as “income” to the general budget without noting that it is “debt.”
Well Bruce,
the fact is that I agree with you. can’t see why you think you disagree with me.
well, maybe i don’t think it’s all that complex.
But Don definitely begins with his conclusions and then says “QED!” There is no reasoning with him.
Don
the money in the trust funds was borrowed from SS over the period from 1983 (to simplify a bit) to the present. this is money that would otherwise have been borrowed “from the public.”
Now, if in order to pay back the money borrowed from SS over that time, it is decided to borrow the money from the public, that is a perfectly ordinary business practice. Retire one debt. Acquire another. Of course it might be argued that it would be better tust to get the cash from taxes and pay down the total debt… without borrowing more from the public. But that is a decision that has nothing to do with Social Security.
I don’t know who wrote the paper you cite, but they appear to be idiots. Yes you could have borrowed the money originally from the public, but you didn’t. You wanted to borrow it from Social Security so that the Baby Boomers could effectively prepay part of their retirement costs and resolve the “intergenerational inequity” otherwise caused by their greater numbers.
This is not the same as “makes no difference.” Though it does in effect “make no difference” to the borrower. The borrower, one US, borrowed the money from A, now he will borrow from B to repay A. It would have made no difference to US if he borrowed the money from B… because today he would either have to borrow from C to repay B, or just borrow more from B to repay the earlier borrowing from B… not at all an unheard of business practice.
No it isn’t any cheaper. What ever made you think it was supposed to be?
Our current score of ‘deficit’ summed up over any given range of years doesn’t equate to our current score of ‘debt’. They mostly trend in the same direction but don’t work as an arithmetic sum.
Coberly:
When you acquire a debt, and then to pay it back you go to the public, you don’t need a trust fund to do that.
The government can always go directly to the public to ask for more money, although the public may not respond if it lacks confidence it will be repaid.
The point is that once the trust fund was borrowed from, it made no difference it even existed once the government needs to go to the public.
And the government would need to go to the public for the trust fund which was borrowed from has no cash or cash equivalents – so, in effect it is a fund in name only.
The government printing offive is a pretty reliable source.
Ceetainly better than any sources which you have cited, which I think are zero.
It’s a lot easier just to call people idiots if they disagree with you.
Don Levit
Levit
nah, i only call them idiots when they persist in failing to understand something they claim to understand.
it is true you don’ot need a trust fund to aquire a debt and pay it back. but you do need a trust fund if you are taking in more money than you need at the moment, but want to keep it in reserve for a time when you will need it. This is what Social Security does. Social Security is not “the government.” Once you understand that fact, you will be on your way to understanding what currently eludes you.
The trust fund “makes no differece” to “the government’s” borrowing from the public… except that by borrowing from the trust fund, it doesn’t need to borrow that amount from the public. It still has the same total debt. what it owes to the publc and what it owes to the trust fund.
the “cash” in the trust fund was borrowed… and replaced with “bonds”… that is normal business practice. you are very very sadly confused if you expect the trust fund to hold cash. all trust funds lend out their cash in return for interest bearing securities… like government bonds.
the government must either tax or borrow the money to repay the trust fund when the time comes that the trust fund needs to be repaid. this is a very simple fact that you can’t seem to understand because you have a fixed idea that the Trust Fund is supposed to be some kind of asset of “the government.” it is not. it is a legal entity that has been lending money TO the government, and will need to be repaid BY the government.
you can cite sources until you turn blue, but until you understand what you are talking about you are just spinning your wheels and wasting my time.
The problem starts because there is no difference between “payroll taxes” and federal income tax. It’s all counted as revenue and congress promptly spends it. Now if people knew we were all in a 50% tax bracket AND were usually still running mammoth deficits, then maybe we would get worried.
Canada changed their system to a real managed pension fund to keep the accounting straight and make things simple so that Canadian minds get it. The problem with them is pension funds haven’t been doing too well for the last 10 years. So nothing is perfect.
The 75 year acturial window is BS. We can’t forcast Q to Q let alone 75 years. We’ll be part of China long before then and Peterson or his stupid kid will be US Governor. And as far as intent to take care of the baby boomers, the Greenspan chaired SS commitee raised SS to account for that back in 1984. So we have been paying for it. Maybe life time went up a couple years, but close enough for horseshoes and tombstones. And who knows, the way health care is going maybe lifetime goes back down again and we are all cool!
But speaking of pensions, I just heard a John Mauldin piece where he quoted some presumably accurate study that totaled 3 trillion for state and local unfunded pension liability.
So we pay 2 trillion for the federal pension part of intergov federal debt and raise taxes to bail out the 3 trillion in state pensions and cut SS??? I vote NOT. Almost forgot all the bankrupt corp plans the gov buys already. NIX to that as well.
I realize I’m talking to an old thread, but that was the dumbest discussion I’ve read in a long time.
So I guess when corporations retire people (the few that still have pension plans), then they raise prices to cover the pension liability?
Granted it is cheaper for the gov to steal the trust fund than pay it back, but we didn’t need a clever civil servant to tell us that.
Oh well. It’s bedtime and I’m going to have nightmares about Americans voting.
Well I am still confused. The chart from the CBO lists those off budget expenses (primarily SS). Okay, but what numbers are those?
From the SS 2010 forecasts and the CBO (outlays).
2010 CBO =557, SSTF= 697
2011 CBO= 578, SSTF= 723
2012 CBO= 600, SSTF= 758
2013 CBO= 630. SSTF= 803.
That is a big difference, $600b in just 4 years. So what is on that budget?
Cedric
I think your heart is in the right place, but try not to get panicked by all those Trillions, and words like “unfunded.” And note that the market based pension plans have problems which appear to be worst just when you don’t need more bad news. There is nothing wrong with Social Security…. or State pension plans… except that they are apparently too difficult for Americans to understand when all they get in their news sources is lies.
Unfunded just means the taxes have not been raised yet, because in a pay as you go system, it is unwise to raise taxes before you need them.
Trillions is not a lot of money divided by hundreds of millions of taxpayers and seventy years or more.
State Pensions are just wages for state workers deferred because state workers tend to be the kind of people who prefer security over higher wages “now.”
There simply is not a damn thing wrong with Social Security. Except the lies.
Cedric
i hope it’s the other end of the discussion that is the dumbest you’ve read in a long time. I try to keep up my end. Really I do.
The corps budget for their pensions. Carefully in the case of high execs. A little carelessly in the case of the proles. After all, their pension funds can always go “bankrupt”. But the point i wish to make is that you don’t have to “raise” prices “when,” if you count pensions as deferred wages and price them in “while.”
I can’t see a corp maintaining a defined benefit pension plan. Too much uncertainty even for big corps. But all the more reason fot the government to provide Social Security, so when those defined contribution plans have their bad days, grampa can still eat.
Krasting
sticking my neck out here a bit, but off the top of my head those look like the projected numbers for SS benefits. We are expecting those to grow as more of the baby boomers retire. This is the SS “budget” and has nothing to do with the “on budget” federal budget.
Except of course that the time is coming, and is even here, when the federal budget will have to start repaying the money it has borrowed from Social Security (the SSTF, whose numbers don’t look anything like the numbers you cite…. oh, wait. is your point that the CBO estimates are different from the Social Security Trustees Report? could be, i don’t know why you would add them up for four years… to prove that four years of guessing is about four times as big as one year of guessing?
I believe Don and his friend Nathaniel believe the 20th century is illegal.
Bruce:
Could you provide the link and the page, so we can see the context of these figures?
Don Levit
yes, that’s Bruce Krasting,
it it would be easier if we knew where the numbers came from so we could see what it is you are talking about.
I don’t understand all the wrangling with Don Levit. The 2000 on-budget surplus is listed as $86.4B. The reality is that this includes excess receipts for several programs which have on-budget trust funds. The way CBO has accounted it for years, there is a surplus. The way most people think of it that surplus all comes from borrowed money. Don is correct.
But the point of this post was to try to reduce the confusion that arises from on-, off- and unified budget, and all the wrangling about 2000 just plays into that confusion.
Arne
possibly you don’t understand. Don is not correct. His “reasoning” is completely circular. Reading “the literature” about budget deficits can lead to crossed eyes. The danger is in trying to keep track of what the experts mean by their special uses of words. Back away from what they say far enough to see what the reality is:
The government spends a certain amount of money each year on things it buys. It takes in a certain amount of money each year in taxes. The difference is the deficit (sometimes negative, but not often.) The deficit is “funded” by selling bonds to the public. And by selling bonds to Social Security.
Meanwhile, a certain off-budget program, legally defined as off budget, and known to the public as Social Security, spends a certain amount of money each year, by far mostly on benefits. It takes in a certain amount of money each year in “payroll taxes.” The difference is the surplus (sometimes negative, but not often. note the difference between SS surplus and on-budget deficit.) The surplus is “placed in” a Trust Fund, with the cash lent to the government in exchange for bonds. That is, SS buys bonds from the government. That is, the government sells bonds to SS, same as it does to the public.
You get into real conceptual trouble here when you try to count SS as “just government”, “payroll taxes” as the same as on budget taxes, and the SS surplus as “income to the government,” without accounting that it is debt the government wil have to pay back.
There are reasons for the semantic confusion in that the government needs to keep track of how much it borrows from “the public.” And there has been a tendency to take SS surplus for granted. Now that that can no longer be done, it leads to moral confusion about “what can we do about the SS “deficit,” meaning how can we avoid paying back the money we borrowed from SS.
The answer is that we can’t honestly. Though Don is wandering around in the wilderness of his logic trying to explain how you can get a “surplus” in the on-budget account, while increasing the debt in the “official debt” account. And expecting that somehow the “Trust Fund” was supposed to be “saving money” for the government.
Arne, who should know better than this, cannot come into the conversation at this point and say “Don is right” without damaging his own credibility.
coberly, you are attributing more to what Don Levit was saying than was there and then you are arguing with it.
Don’s initial comment on this thread did nothing to clear up understanding the difference between on and off budget. It was pointless in the context of Bruce’s post, but it was not wrong. From there it went downhill.
Don I don’t suspect this will help you, because you seem to be roughly twice as stubborn as a Missouri mule but maybe other people will take something away.
________________________________________
After a dozen years of running cash deficits from 1971 to 1983 and in the process running the Social Security Trust Fund down to near zero Congress, acting on a proposal hammered out by the Greenspan Commission (plus some extra-curricular deal making between Bob Ball and Dick Darman-story for another time) raised taxes and changed benefits in ways that put Social Security into cash surplus. Under the Social Security Act of 1935 those surpluses were restricted to investments fully guaranteed in principal and interest by the Federal Government and so in practice Treasuries.
As is the case when purchasing any Treasury instrument the hope is that the utility of the current dollar borrowed will create enough societal utility so as to justify repayment with interest later on. If the utility of that current dollar serves to increase future productivity in real terms sufficient to generate enough GDP to outweigh the cost of servicing that increased debt then that borrowing in effect paid for itself. To turn around then and claim that the resultant debt is just a dead weight loss and that no credit should be given to the borrowing’s contribution to future productivity is simply to discount all of the utility of that spending over time to zero.
Now we can, and maybe should, debate how much utility we really got from say tax cuts or weapons acquisition but I suspect few people on the Right are going to concede that was just money thrown down the rat hole, that this country would be better off if none of that direct spending or tax expenditure had happened. But that is exactly what opponents of Social Security are doing when making the argument “it made no difference it even existed once the government needs to go to the public.”, they have simply discounted the current value of that past utility to zero. And by the way cast all the people who pushed for offsetting tax cuts at the time to be self-confessed thieves and liars.
Ilsm and I might be comfortable reaching that conclusion, but I am not sure Mr. Levit will like the clear implications of his argument.
The first set of numbers is from the Analytical Perspectives which is work product of the OMB and not CBO. The second set of numbers comes from I know not where, certainly not the 2010 Report whose numbers can be inspected here:
http://www.ssa.gov/OACT/TR/2010/IV_SRest.html#271967
and where the respective numbers are 586, 607, 638, 680. The difference between the SSA numbers and the OMB numbers is probably mostly due to time shift, OMB using fiscal years and SSA using calender years meaning that the latter captures more of the cost increases that happen over time.
So I am baffled, and not for the first time when dealing with BK’s cited numbers.
Coberly wrote: The surplus is placed in a trust fund with the cash lent to the government in exchange for bonds. That is, SS buys bonds from the government. That is the government sells bonds to SS, same as it does to the public.
You are correct, Coberly.
So, the cash was lent to the government, so therefore, the trust funds are not holding cash, but Treasury securities.
Now, the government has already spent its cash lent to it for current expenses., so that money is not available
Therefore, the only way for the trust fund to redeem the securities is for the government to either reduce expenses, raise revenies, or have a surplus.
The typical option is to go to the public and ask for them to buy the Treasuries, thus adding to the debt held by the public.
According to a paper entitled “Analytical Perspectives, Budget of the U.S. Government, Fiscal Year 2009,” which I beliee Bruce has quoted from, on page 195 “The trust fund surpluses could have added to national saving if overall government borrowing from the public had actually been reduced because of the trust fund accumulations.
At the time Social Security or Medicare redeems the debt instruments in the trust funds to pay benefits not covered by income, the Treasury will have to turn to the public capital markets to raise the funds to finance the benefits, JUST AS IF THE TRUST FUNDS HAD NEVER EXISTED.”
Go to: http://www.gpoaccess.gov/USbudget/fy09/pdf/spec.pdf.
Don Levit
But Arne it WAS wrong.
Don: “Remember those 3 years during the Clinton administration when we had our first “surpluses” in almost 30 years?
Well, technically, we had a surplus, I guess, since debt held by the public went down.
But that was only because the trust fund surplus exceeded the deficits.”
The General Fund ran a smallish but real surplus in those years. It may not have made up the totality of that $86.4 billion, much of which may have come other on-budget trust funds, but somewhere in the back of my head is the number $24.8 billion for actual GF operations. And since Don’s usage of “the” trust fund leads me to believe that the meant that the unified budget surplus in 2000 was solely from Social Security, which fact is simply wrong.
Not to mention that Social Security can run a surplus without changing the level of Debt Held by the Public. This happens any year in which income excluding interest trails cost while income including interest outpaces it. In the latter case what scores as a Social Security surplus for unified budget purposes can actually add to Debt Held by the Public AND total Public Debt in different amounts.
Don your link is bad. A better one that is right from the source and breaks out the Analytical Perspectives in more convenient ways is this one: http://www.whitehouse.gov/omb/budget/Analytical_Perspectives/
In the narrow context of discussing national savings your quote is relevant but it has exactly zero to do with the soundness of Social Security.
But either way this line of argument requires that you discount the current utility of that past borrowing of Social Security to zero. Whether or not it netted out as an increase in national savings we can assume that it made SOME contribution to current productivity and so is entitled to a slice of the subsequent distribution of the gains from that productivity. if the money had not been available then past spending would have had to be cut or borrowing from the public increased, you are imposing a test on the present and future without quite see that it also works in retrospect. Was every penny of that past spending and tax cuts simply wasted with zero effects flowing forward? If not your argument loses all force.
Bruce:
You are correct that those borrowed funds were put to use, and we can assume they were put to good use.
And, you’re right, if the funds didn’t come from Sovial Security, they would have come from somewhere else.
But once those funds are lent, it is as if the trust funds don’t exist for Social Security can ask for money from the public without having a trust fund.
A couple of other points.
The financing of these current expenses is done internally, between 2 departments, the Treasury and Social Security. The citizens have no say so in this type of internal arrangement.
When Social Security was being deliberated, Wadsworth, a House member stated “Heretofore, the Government has financed its undertakings primarily as the result of the confidence of the individual citizen of the soundness of the Government’s undertaking, but from this point on, we are apparently going to abandon that philosophy of public confidence and resort to a very different practice. The Government is to impose a payroll tax, collect the money into the Treasury, then the Treasury with its left hand on the proceeds of these taxes is to turn around and buy bonds of the U.S. Government issued by the Treasury’s right hand. Thus, the Government is no longer to be financed directly by its citizens, but it is to be financed instead by arrangements made within the bureaucracy – an undemocratic and dangerous proceeding.
Go to: http://www.ssa.gov/history/pdf/h419.pdf.
Secondly, I think the money should have been used to reduce the debt held by the public, but that is simply my personal preference.
Or, the non-Social Security and Medicare part of the budget should have been utilized assuming those surpluses would have been used down the line for the beneficiaries it was intended for.
Don Levit
Bruce:
That link (statement of Wadsworth) will work. Go to page 6061.
And, the link didn’t work for the gpoaccess, etc. but if you typed it in yourself, you should be able to get to it.
Don Levit
Bruce,
You would be better off looking for what commenters have right instead of what they have wrong. The more often quoted $236B surplus did not exist without the contribution of what you and I think of as The Trust Fund, so there is more than a kernel of truth there. Once you accept that you can provide a more valid response such as:
OK, Don, but that has nothing to do with the value of SS or our ability to continue SS. Why bother to bring it up?
Don,
All this quote does is explain that the TF is not a mechanism for reducing the costs of borrowing. We already knew that. Neither does it increase the cost of borrowing.
Why should this concern me?
Don my link to the Analytical Perspectives is a lot more convenient for most users.
No, Don.
Social Security cannot ask for money from the public without having the trust fund. Except for the payroll tax, of course.
otherwise your comments are a mixture of sorta-trues and bizarre conclusions that leave me agreeing with Arne: “why should I care about this?”
don’t know why we shold care about Wadsworth either.
if you mean that Wadsworth foresaw that the “extra” tax collected for Social Security would be “borrowed” by the government and not paid back…. well, that is what we are here trying to prevent. To that extent it’s called democracy.
I am the only person that I know of who says it doesn’t matter much if it is never paid back as long as they otherwise keep their hands off Social Security. My argument is based on the concept that it is better to be robbed than to be robbed and murdered.
Oh crap, my last comment posted twice and yet one delete wiped out both.
Trying again.
The existence of the Trust Fund established the legal basis for the equitable claim. If FICA was a simple tax and benefits were exposed to the annual Budget and Appropriatiins process, as Wadswoth apparently advocated, we would have to deficit the battle every year. As it is the DI program went cash flow negative in 2006 and the Republicans were not able to hold it hostage to the rest of their agenda like they do on everything else. That is the value of. Trust Fund structure.
IPhone edit limits
Deficit should read Debate and the last sentence should punctuate differently.
Arne I don’t see where I used that exact language. And it stiles me that a little bit wrong is kind of like a little bit pregnant. Defending Don because en route to an incorrect conclusion like the blind pig of legend be came across an acorn of truth doesn’t save his argument.
don’t mind the punctuation, and even understood the deficit debate battle.
i think you are explaining it better than i am. but that doesn’t mean the recalcitrant will understand it any better. mybe some innocent bystanders will achieve enlightenment.
could not to Don, again, that his whole argument disappears (if it ever appeared) just by the fact that the treasury is currently repaying the Trust Fund. doesn’t matter whether they get it from taxes, borrowing from the public, or looting King Tut’s tomb… “the system works.”
well, that was NOTE to don.
Bruce wrote:
If FICA was a simple tax and benefits were exposed to the annual budget and appropriations process, we would have to deficit the battle every year.
You are correct that Social Security and Medicare are mandatory appropriations. The amount in the trust fund is what is supposed to be available for the trust funds from the Tresaury.
However, the benefits are not paid from the FICA tax.
The benefits are paid from all revenue collections.
You cannot tie a specific tax to a specific benefit.
Don Levit
“You cannot tie a specific tax to a specific benefit. ” Don Levit
Except when it’s the law of the land as established by an act of Congress. Don, you don’t get to make things up as you go along just to suit your asinine ideas about how borrowing and lending relate to one another.
“But once those funds are lent, it is as if the trust funds don’t exist for Social Security can ask for money from the public without having a trust fund.” Again Don Levit just making stuff up.
The recipients receive their benefits from the Social Security program. The program receives its basic funds from FICA revenues. Those revenues are then supplemented by the Trust Fund, the assets of which had been accumulated from earlier surplus FICA contributions and the accumulated interest earnings of the Trust Fund assets. It isn’t that complicated unless one tries to confound the relationships between the various accounting entities that make up the entire Social Security program. Your continuous efforts at confounding the issue are tiring in the extreme. I’m beginning to get the impression that you may be receiving some form of financial support from one of the Peterson related organizations, all of which play interacting roles in formulating and disseminating exactly the distortions of the Social Security program which you have been presenting here. In spite of each and all of the efforts to correct your deceptive explanations by others commenting here, you insist on ignoring those corrections and simply go on as though from a pulpit as though you were preaching the “truth” to the nonbelievers. It is you that is misinformed. Or, is it you who is simply trying to misinform all others?
I want to give you the benefit of the doubt, but this is silly.
For what it is worth I don’t think Don is a shill here, not exactly. I am going to stick to my own characterization from up-thread:
“Roughly twice as stubborn as a Missouri mule”
Don just knows what he knows. To elevate the discussion a tad. Both St. Anselm and Descartes advanced an Ontological Proof of the Existence of God. And each argument is ingenious and worth thinking about but each is in the end empty. Because neither Anselm or Descartes actually reached their state of belief by following this argument, neither started with the proposition “Does God exist? Yes or no?” and then convinced themselves, in their case faith came before reason. Which is typical for all conservative thought from tax cuts to the definition of true marriage, you work your way back to the truth. Which is generally Revealed Truth with a capital R and T.
I doubt that either Descartes or Anselm was satisfied with their original formulation and suspect that both Proofs were the result of a number of iterations until they achieved a final polished result. But the result itself was not in question. Don is just stumbling and mumbling trying to do the same thing, it is just in his case the holy grail is Phony IOUs.
Folks:
The real question, in my opinion, is how full is the faith and credit of the government according to the public?
That we cannot answer.
In regards to the IOUs being worthless, they have no value from the standpoint of an individual paying directly for a Treasury that he has a legal right to cash in at maturity.
The trust fund lent the money to the Treasury. That is an internal transaction, between 2 governmemnt agencies.
It’s like Wadsworth said – the left hand dealing with the right hand.
Both Treasury and Social Security are subsets of the set, the Federal Government.
I am an outside entity, when I buy a Treasury bond.
It is more tempting for the right to say to the left hand, let’s put this payment off.
Up to now, this has not been done, but future payments depend on how much faith and credit people have in the U.S. Government.
Regarding pension funds that have bought Treasury bonds, there are 2 distinctions here.
First, they paid dollars for those Treasuries, just like i did. The pension funds did not spend those dollars on current company expenses. At least, they shouldn’t of. They should be able to liquidate them.
Second, they may hold 5% of their assets in Treasuries.
The trust funds hold 100% of their assets in Treasuries.
Don Levit
“The trust funds hold 100% of their assets in Treasuries”
Done so by law and a good and safe investment it has been for more than sixty years now. That current day connivers seek an opportunity to renege on a legal debt so as to reduce their potential tax liabilities is not a valid approach to deficit reduction. It’s called bankruptcy when an entity seeks not to pay on its legitimate bonds that are held by legitimate creditors. I repeat for your attention Don, the account relationships are set up by Congressional legislation. Changing that responsibility between accounts would justify changing the responsibility between any two accounts. Your T-Bills, if you hold any, are just as legitimate a target for welshing by the issuer. I wonder how the banking industry would react to the Treasury canceling all outstanding T-Bills for the sake of balancing the general budget. That is no different from canceling the special T-Bills held by the Trust Fund.
Jack
I think don has trouble understanding the concept of a legal entity acting on behalf of it’s “subscribers.”
He thinks that because I paid my tax to “SS” and SS lent money to the goverment, and because SS is “really” just the left hand of the government, I have no legal claim on “my” money. I think that as a matter of political reality he may have a point. but the law would have to be changed to make it “legal.” And he utterly fails to understand that what is indeed at issue here is the “full faith and credit” of the United States. He does not realize that his argument is part of the Big Lie that seeks to destroy that full faith and credit.
Instead of working so hard to convince us that the Trust Fund is not real, he should be working twice as hard to convince the voters that it IS real and it would be a crime and a sin not to honor it.
Because one thing you learn if you watch the law hard enough is that what is “legal” is only what people think is legal. The words in the law are ALWAYS “interpreted”. In this case we have the written law and 70 years of history on our side. What Don and the Petersons have on their side is about twenty years of well financed public relations work, known in the trade as lying.
“The real question, in my opinion, is how full is the faith and credit of the government according to the public?
That we cannot answer. “
For a clue we look at the interest rate.
Coberly,
That’s been the crux of my point all along, as you well know. I think tht it is worth noting that any attack on the validity of the Trust Fund assets, the “special T-Bills, is no more legitimate than canceling any publicly held T-Bills, which I’m guessing Peterson has piled high in his personal account. Treasuries have always been regard as a safest of safe havens for the little bit of extra cash on may need for a rainy day. In effect, just what the Trust Fund is intended for. Call a spade a spade and a liar a liar.
I want obama’s paycheck!!!!!
You guys aren’t still going on with this are you???
Coberly:
You’re right.
The trust fund is real, in that it has a real claim on the Treasuries.
More than likely, public debt will have to be increased to honor them.
And, you’re right, the full faith and credit of the government is at stake.
From the trust fund’s perspective, the money is gone, for it was lent to pay current epenses.
If I owned a Treasury, from my perspective, the money was paid for the Treasury, and I will simply cash it in. If the government has to go to the public to pay my Treasury, so be it.
I did not pay for the Treasury, so they could use it for current expenses. If that’s what the government does, so be it.
I paid for the Treasury as an investment for me, and I expect to get my money back when I cash it in. That’s the deal I struck with the government, and they are legally bound to honor it.
Don Levit
Yes Medicare parts B and D are on-budget. These are called SMI, have about 300 billion dollars of expnditure and received 222 billion from the general fund in the year 2011. I do not know the finances of Medicare C but suspect that it is partially parts A, B and D. The point I would like to make is that Medicare plan A (Hospital Insurance) must be off-budget also. The financials do not show any general fund involvement in the two Social Security programs or for Hospital Insurance, Medicare plan A. As insurace programs they must remain totally isolated from each other as well as other items in the budget except for interest payments on the U.S. treasury bonds in their individual trust funds. Those are the facts. Look them up. The unified budget concept is hogwash.