Debts, Deficits, and Social Security: Once Again
There are a couple of easy ways to check out current Federal Public Debt to the dollar or even the penny. One you could check out the National Debt Clock which also is conveniently mirrored (in simplified form) in Times Square. In the top left you will find the number for ‘US National Debt’ at $17.1 trillion and counting. If you wanted to cross check that number via official sources you could check the Treasury’s Debt to the Penny website which is updated at the end of the previous business day. This would also show a ‘Total Public Debt Outstanding’ as of the close of business Friday of that same $17.1 trillion. This also is within rounding error the same figure that makes up ‘US Debt Subject to the Limit’. Which is to say if anyone asks anyone with any amount of knowledge what is the total amount of Federal Debt as of today the universal answer is “$17.1 trillion”.
Now if we return to the Treasury version of this we see that ‘Total Public Debt Outstanding’ is simply the sum of two other numbers: ‘Debt Held by the Public’ and ‘Intragovernmental Holdings’. And if you clicked the explanatory link on ‘Intragovernmental Holdings’ you would find that it consisted of a variety of funds and predominantly ones classified as ‘Federal Trust Funds’. And a little further digging would show that the plurality of the $4.9 trillion in ‘Intragovernmental Holdings’ consisted on the $2.8 trillion in the Social Security Trust Funds.
Alright, simple enough. But complications under the fold.
A nifty feature of the Treasury’s Debt to the Penny web tool is that it lets you test for past dates. Now there are some limits as follows:
The data on total public debt outstanding is available daily from 01/04/1993 through 11/07/2013. The debt held by the public versus intragovernmental holdings data is available:
Yearly (on a fiscal basis) from 09/30/1997 through 09/30/2001.
Monthly from 09/30/2001 through 03/31/2005
Daily from 03/31/2005 through 11/07/2013
Now as most of us know the U.S. government has run budget deficits in almost all years for decades. But there was a brief exceptional period in the late 90’s when the top line figure for the federal budget showed a surplus on a combined basis between ‘on budget’ and ‘off budget’ surplus/deficits. Moreover in FY 1999 we saw surpluses in both the General Fund and in Off Budget Funds, which latter primarily consisted of increases in assets to the Social Security Trust Funds. Now it doesn’t take a genius to figure out that surpluses on both the General Fund and Off Budget/Social Security sides should result in a reduced number for ‘Total Public Debt Outstanding’ and we could easily confirm that by entering the dates for the last day of FY 1998 and FY 1999 into the ‘Debt to the Penny Website’. Please be my guest.
OOps when I did it I got the following results:
September 30, 1998 $5,526,193,008,897.62
September 30, 1999 $5,656,270,901,633.43
with both numbers cut and pasted from the web-site.
Yes indeed. In FY 1999 the General Fund ran a surplus, and Social Security ran a surplus, and the combined figure for THE Federal deficit/surplus was a surplus. Yet ‘Total Public Debt Outstanding’ went UP by $130 billion. And the explanation is actually pretty easy. But so too is the following conclusion:
Public Debt is NOT the Sum of Federal Deficits. The two figures track but are NOT identical. Which has implications for the debate over Social Security. Because certain debt and deficit numbers just don’t move in the ways that ‘simple’ logic would have it. And so too certain proposals to move those numbers by programmatic cuts.
I didn’t offer an explanation because I am hoping that both ‘Reformers’ and ‘Defenders’ think hard about their assumptions about the relations of Social Securiyt to ‘debt’ and ‘deficit’ as defined. Because neither side has an easy explanation for that increase in Total Public Debt of $130 billion in the face of surpluses on both sides of the normal equation.
General Fund = modest surplus
Social Security = impressive surplus
Combined = significant surplus
Public Debt = up by $130 billion
Once you can wrap your head around these equations a lot of mysteries about Federal budget scoring become clearer.
Well you gave away the answer in a post last week. By law the social security surplus had to be invested in the special treasuries which are debt instruments and therefore are added to the national debt. What I can not get my head around is where the credits went. My employer and I sent my contributions into the federal government. Some got paid out to my folks, but at the end of the day there was that $130 billion left over and the government issued a special treasury in that amount to the trust fund. I do not know where the $130 billion–it was not cash, but would have been checks–went. We know it was not a lock box and if it had been used to retire other bonds then total debt should have gone down not up. Did it reduce the Fed’s balance sheet?
Terry
I have taken an oath not to get involved in this. But the explanation is a lot easier than Bruce makes it sound.
It helps if you think of “the budget” as a working paper. Kind of like your household budget if you make one. It tells you what you ahve to spend and what you need to spend it on. You may not bother to write onyour budget that some of what you hav to spend is borrowed, or that some of what you spend is money that is paying off loans. Neither does congress. But that “deficit” is just the difference between what htey ahve to spend… including money borrowed from Social Security. It is perfectly reasonable to do this. But perfectly dishonest to pretend that SS causes “thedeficit” or that the money doen’t have to be paid back.
writing too fast to avoid being cut off by the gremlins in AB. you may have to fill in some of the blanks.
and there is that oath.
” neither side has an easy explanation for that increase in Total Public Debt of $130 billion ”
There are on-budget trust funds in the federal budget that can accrue debt. Weird as that seems, that is where the money went.
Terry
i don[‘t know what ARne means. but that 130 million was spent by congress. SSTF got the bond, congress got the money. No problem as long as congress pays back the money when needed.
Arne and Coberly, I get where the surplus in social security gets transformed into debt. In most years the money gets spent by Congress and acts to reduce the deficit which would otherwise result by Congress spending more than it takes in. The question Bruce posed is not that simple because in 198-1999 there was no deficit. Congress actually took in more than it spent without looking to social security’s surplus collections. Now as just a simple math guy I would think–like Bruce posited–that the debt would go down and if the social security money was simply spent by Congress instead of general fund revenue it would have gone down assuming the now much larger surplus was used to pay down debt. The only other thing that could have happened is that it was used to buy assets owned by the federal government. The ones that come to mind would be strategic oil reserve, gold at Fort Knox or something to do with the Fed’s balance sheet.
The $130 billion is off-budget spending.
SS does not impact the deficit. If the government could not borrow the money from SS, it would have had to borrowed the money for elsewhere. The deficit would have been the same either way.
Terry
I guess I don’t honestly know the answer to your question. If the deficit was zero without counting the money borrowed from Social Security, then no money would have been borrowed from Social SEcurity. I am fairly sure the Social Security surplus would still be “lent” to the government and the government would use the money to retire other debt. That is buy back some of it’s marketable Treasury bonds.
Buying back the marketable bonds would reduce the debt, but issuing non-marketable Treasury bonds to Social Security (this is what borrowing the money from SS means) would increase the debt by the same amount. So you may have to do the arithmetic with that in mind and see if it comes out right.
Jerry Critter
not quite. “the deficit” is just the difference between what Congress thinks it has to spend… including money from taxes and money borrowed from Social Security… and the amount of money it decides to spend. That is the amount of money it will need to borrow “on the market.” There are probably perfectly good reasons for accounting for it this way. But it is still dishonest to pretend that Social Security adds to the debt by saying it adds to “the deficit” without also explaining that all “the deficit” is, is the difference between what Congress takes in and what it spends… without Congress caring or acknowledging that some of what it takes in (from SS) is borrowed, that is it is debt, that is, it has to be paid back.
And while when the time comes that it has to be paid back, Congress will count it as an expense without acknowledging that it is paying back a debt.. and therefore reducing “the debt” at the same time that it is increasing its deficit.
i am trying to be clear here. if i am not succeeding, tell me.
Perhaps I should replace the word “deficit” with “debt”. Debt is the important number anyway. That is the money owed. The deficit is, well, just the deficit.
Coberly, We are now on the same page and I trust that Bruce will tell us the answer at some point. I suppose Jerry could also have hit on it–the money could have been spent by Congress “off budget” That means there would still be a surplus in both the general fund and in social security but when the social security surplus was converted to debt, the proceeds were spent on off budget items. Sort of like the way Dumbya financed the Iraq war–just issue bonds because otherwise people might have complained about why were running such large deficits.
This is old stuff that you can find if you google about whether Clinton really ran a surplus. Total debt went up, so no.
Some people also said that without the SS surplus even the standard accounting would not have shown a surplus, but this turns out to be wrong, because there were other trust funds, that are ON-budget, which also ran surpluses, and they were enough to make the difference even without SS.
(To a first order,) if the general fund had not had SS (and other trust funds) to borrow from, it would have had to borrow from the public. This makes no difference to SS. It makes no difference to total debt. It does make a difference to how some numbers are reported.
You can sort it out, but it can also be very wierd. If the government sets aside $10B into what is essentially a pension fund, does the government owe more than if it allowed the pension fund to be underfunded? The quaetion and answer is certainly confusing enough to be exploited.
All of the extra detail does not change the fact that SS can be and should be treated separately from the general budget.
Terry
sounds about right to me. i have a hard time responding to comments because AB cuts me off about once a minute… except never during an ad.
The gross federal debt, that $17+ trillion, includes both public and intragovernmental debt. That is why payments out of the SS trust fund does not impact the total debt. Payments just transfer debt from intragovernmental to public. It is like using one credit card to pay off another one.
Well Jerry is closest perhaps. And Arne is wrong, Clinton really did run a surplus and you can see it right at the same link. It just turns out that ‘Total Public Debt’ is the wrong metric.
If the General Fund runs an actual surplus what you would expect is to see ‘Debt Held by the Public’ decrease. And decrease it did in FY 1999
On the other hand when Social Security runs a surplus what you would expect to see is an increase in its Total Assets. And so you do, but NOT at this link. Instead you see a corresponding increase in Intergovernmental Holdings with in turn adds to ‘Total Public Debt’.
Which leads to the rather odd result that no matter how large a given General Fund surplus might be in any given year and not matter how much that serves to reduce Debt Held by the Public if the Social Security surplus is larger than the General Fund surplus then Total Public Debt still goes up.
That is we could enact the full Progressive Dream Tax and Spendng Bill by increasing taxes on the 1% while slashing defense spending in a way that eliminated the General Fund deficit forever. And enact the Northwest Plan that would also eliminate every single penny of Unfunded Liability without a single cut in benefits.
Who hoo! Balanced budget and a Social Security system in a state close to ‘Sustainable Solvency’! But what happens to the nominal dollar number for Total Public Debt in this ideal scenario?
It goes up. Just like it did in FY 1999 and for the same reason. A Social Security system in perfect actuarial balance, that is one that has a Trust Fund ratio exactly at 100 for every year in the projection period and so neither overfunded or underfunded, will see the nominal value of the assets in the Trust Fund increase year over year in the amount needed to maintain that TF Ratio at 100. And that increase will score as an equal increase in Total Public Debt.
I first noticed this on examining the results of the Low Cost alternative in a late 90s Report. Back then Low Cost projected an over funded Social Security system with total income exceeding total cost in each year of the projection period. Which meant a Trust Fund that grew both in nominal and TF ratio terms and left the long term actuarial window with a TF Ratio of over 600 and a Trust Fund balance of $100 TRILLION. In current dollars. In constant dollars it was more like $13 trillion. And every penny scoring as Total Public Debt and BTW as Debt Subject to the Limit.
Yep this means that we could balance the General Fund tomorrow and put Social Security into a perpetually solvent state and we would STILL have the raise the Debt Ceiling every year. And this would also be true if we acchieved both goals via the Ryan Roapmap to Fantasy Land Act and ‘saved’ Social Security by slashing benefit formulas.
Under current law definitions and metrics a fully Solvent Social Security system will add to Total Public Debt every year. And that fact has nothing to do with other off budget spending or the state of the General Fund. Instead it is a direct consequence of the requirement established with the 1939 Amendments that all SS revenue in excess of cost be held in instruments fully guaranteed as to principal and interest by the U.S. government coupled with the requirement that the Trustees target a certain level of annual reserves. Both decisions were and are perfectly sound ones, any insurance plan needs a level of reserves (or good reinsurance) and ideally has those in safe and liquid investments. And outside the minds of Gold Bugs there are no safer and more liquid investments that Special Issue Treasuries. So that is all good.
It just ends up playing havoc with our idea of what Total Public Debt means in real terms. As opposed to the similarly named but quite different thing that is Debt Held by the Public.
Bruce,
If debt goes up when the SS trust fund goes up, wouldn’t the debt go down as the SS trust fund goes down?
Doesn’t off-budget spending show up as an expense paid from the General Fund? In other words, does off-budget spending contribute to general fund expenses, and thereby contribute to the General Fund balance?
Jerry
I don’t understand your second question and you did not ask me the first.
But Bruce loves a paradox, and I don’t. As long as the Trust Fund maintains a reserve equal to one years benefits, and benefits go up with rising population and rising income, that one years reserve will increase in dollars. But it should hold steady as a fraction of the economy… certainly not rise ominously as Bruce seems to be implying. And since the government would be borrowing the money anyway, it might as well borrow it from SS, and of course pay the interest on what it has borrowed.
So please don’t buy into any scary stories, even from your friends.
the answer to the question you didn’t ask me is “yes.” But while the Trust Fund will come down as a percent of one year’s reserve, it will not come down in absolute dollars because the size of one year’s reserve will increase… with the size of the economy. This may not be strictly true if the Trust Fund is drawn down below the required one year’s reserve.
Coberly,
Thanks for answering the question I did not ask you. As a follow up to your answer. Is the answer still yes if the government had to borrow the money used to decrease the trust fund (pay benefits with trust fund money).
Let me try to clarify question two. Do off-budget expenditures contribute to either the deficit or the debt?
Jerry the short answer to both questions is “yes”.
If you examined the pages of the major media and found instances of numbers being placed on ‘debt’ and ‘deficit’ without further qualification, for example ‘total Federal debt is $17.1 trillion’ or ‘the 2013 federal deficit declined to $648 billion accourding to CBO’s latest estimates’ and examined the actual components of those numbers then you would find that off-budget expenditures figure into both.
Now there are reasonably good reasons to argue why this usage, which is well nigh universal in both official budget reporting and its reflection in every major media outlet out there is ‘confusing’ and is an inproper usage of both ‘debt’ and ‘deficit’ because of certain technicalities that have Social Security for certain purposes ‘off budget’.
Personally I think the confusion shoe is on the other foot here, if the top line numbers everyone uses to refer the THE ‘federal debt’ and which is also the same number that is ‘debt subject to the limit’ and that $17.1 trillion includes the $2.8 trillion in Special Issues held by Social Security in trust then it seems to be logic chopping to use a legal technicality to insist that it ‘really’ isn’t so.
And the same for the top line deficit number. In its reporting CBO regularly gives three different numbers for ‘on budget surplus/deficit’ and ‘off budget surplus/deficit’ and what they simply call ‘budget surplus/deficit’ and almost universally if is that latter number that is used in headlines about the impact of ACA or anything else on 10-year deficit numbers. Maybe this near universal usage by policy makers and the reporters reporting on policy making is ‘unfair’ and ‘confusing’, me I just view it as being a matter of consistency.
Jerry
off budget does contribute to debt. but not to deficit, since deficit is strictly “on budget.”
however the people who like to confuse you take the on budget deficit and then subract the SS surplus to get the unified budget deficit (smaller than the on budget deficit). this will change when SS needs to cash its bonds. they will call this an SS “deficit” or “cash flow deficit”, and that will contribute to the budget deficit, but, as far as i know, they can’t count it twice, so my guess is the “on budget deficit” does not include the SS surplus or “deficit” until they combine the off budget surplus or deficit (SS) with the on budget and get the unified budget deficit, which if SS is cashing it’s bonds will be larger than the on budget deficit.
i’ve been doing this so much now it all makes perfect sense to me. but it will trick the unwary. the fact remains that SS does not affect the DEBT except by lending money TO congress, which is a very strange way to “affect” the debt.
if the government borrows the money to pay back the trust fund (what i think you are calling pay benefits with trust fund money) that would be because paying back that money showed up as an expense on the budget, which the treasury would have to borrow money “on the market” to pay for, since congress will never raise taxes.
sorry if this sounds confused. “they” are confused. not me. but i am tired.
actually, i think you understand it now.
thing is not to get lost in the forest of words. just keep your eye on the money. where it comes from. where it goes when it is borrowed. where it comes from when it is paid back. but never accuse the guy you borrowed money FROM of increasing your debt, or deficit, when you pay him back. even if congress does.
the math when SS is back to pay as you go with one year’s reserve would be something like this.
wages subject to payroll tax are about 50% of GDP
12% of those wages is 6% of GDP. that is the
cost of Social Security. it is also the size of the Trust Fund. it is also the size of the Debt owed TO Social Security… and that will hold reasonably steady over decades.
if interest on that debt is 5% that would be 5% of 6% of GDP or about 3 tenths of one percent of GDP.
nothing to get upset about.
Taking your other questions in reverse order.
Off budget spending doesn’t show up as an ‘expense’ for the General Fund. Though the question is not perfectly posed.
On my reading of OMB’s budget documents neither redemptions of Special Treasuries or interest payments on them are scored as ‘outlays’. And this seems to be true even if those redemptoins or interest payments actually result in cash transfers from Treasury to Social Security to make up the difference between ‘cash’ receipts from dedicated tax revenues and ‘cash’ benefit payments. There may in fact be a valid argument that those cash transfers somehow are the product of off-setting borrowing from the public dollar for dollar, but the actual path of transmission isn’t that clear and sometimes I fear that an accounting identity has been elevated to some deep truth about the underlying cash operations. Certainly I don’t see the automatic offsets that others do.
But you will not find a line item in the General Fund that has those transfers showing up as expenditures.
Which begins to answer your even earlier question as to whether debt declines as the Trust Fund is paid down. Well certainly Intragovernmental Holdings decline and they are scored as debt. For example the DI Trust Fund started taking a portion of its interest in cash starting in 2005 and redeeming its principal on net in 2009 and so has its contribution to Intragovernmental Holdings shrinking and so reducing debt on net. Yet DI was still showing as running a surplus right through 2009 for top line deficit calculations. Because strange as it seems it appears that interest on the Trust Funds whether actually paid out in the form of a cash transfer in partial payment is scored as revenue but not as an outlay. That is Social Security scores as being in surplus every year that its balances go up even if its cash flow is negative. On the flip side it will score as a defict the instant it starts cashing in its $2.8 trillion in combined assets on net.
Which kind of gores both sides oxen. It is just not true that Social Security can never add to the deficit. It is also not true that the state of Social Security or either of its two components being cash flow negative means that it currently IS adding to the deficit. Not as long as tax revenue plus accrued interest continues to exceed cost.
The issue is confused because people like Biggs insist that ‘of course SS adds to the deficit, it is cash flow negative’ while folks like Coberly insist ‘SS can’t add to the deficit because it is off budget’ while the official scorekeepers of such things use a different operational definition of ‘deficit’ than either.
actually I don’t insist.
I have tried to say that the budgeteers will say that SS is adding to the deficit when they have to find the money to pay back what they have borrowed FROM SS.
“the budget” is not a legal description of the financial status of The United States of America. Simply because it does not acknowledge the difference between “money in” and “money borrowed.” and will not acknowledge the difference between “money out” and “money paid back.”
The money borrowed legally has to be paid back. On the other hand Congress has the power to change the law or just avoid the law by, say, cutting SS benefits which would at least delay the payback beyond the time where it could do any good for those who lent them the money.
You need to try to keep them from cheating you like that. It won’t help you if you have been confused by their use of misleading language to describe “the deficit”, or to use “affects the debt” to imply “increases the debt.”
Social Security pays for itself and does not increase The National Debt in any way…. except in the twisted sense of lending TO the government.
I am not disagreeing with Bruce here. I am trying to point out how the “budget language” is misleading.
Bruce knows more than I do. But he seems to feel that it is sufficient to point at the misleading use of language by the budgeteers without either making clear that it IS misleading or attempting to explain why it is.
I promised to stay out of this argument. I seem to have broken my promise. Apologies to Bruce. But I hope people will at least get it that they are hearing language that is likely to mislead them if they are not careful.
I was not asked to stay out and I find that I can’t because Bruce has entered a very confusing arena and has gotten several things wrong.
Total debt does not even depend on SS. At the moment that Treasuries are issued accounting identities give the correct answer where Bruce got the wrong one. If SS runs a surplus (including interest accrued) more Special Treasuries will be issued than retired and intragovernment debt will increase. If there is an on-budget balance, the amount of Treasuries retired will balance the amount of Special Treasuries issued and Total Debt will be unchanged. If there is an on-budget surplus then even more regular Treasures will be retired and Total Debt will go down (independent of SS).
While there are screwy parts of the budget (especially around accounting for on-budget trusts) that allow claiming a surplus even though the balance of Treasuries is going up, the passthrough of SS does not impact Total Debt.
Based on the initial framing of this post, increase in debt, Clinton did not run a surplus. Summing deficits gives you different answers from comparing debt increase for Reagan, Bushes, and Carter as well. This is a problem with the way we do accounting that only confused people think has anything to do with SS.
In the world of fluid flow, engineers are careful about defining control volumes if they want useful answers. In the world of public opinion, careful answers are not always what politicians find the most useful. If you draw a box around SS, it does not matter to whom the money is lent. The interest and principal are repaid based on rules that are internal to SS.
(Yes, there is evidence that easy borrowing changes the demand for borrowing, but that only changes what is outside the box, not what is inside.)
Social security surplus being “borrowed” does not contribute to the deficit or the debt any more than the providers of goods and services to the government do. It is the decision to borrow or buy that contributes to those categories. Providers and lenders have to be paid unless their good, services. or money are allowed to be stolen.
Jerry you can parse these things however you want. But if you go the the Treasury Departments Debt to the Penny web tool you will see the equation ‘Total Public Debt’ (almost the exact same as ‘Debt Subject to the Limit’) = ‘Debt Held by the Public’ plus ‘Intragovernmental Holdings’. If you click on the explanatory link for the latter you will see that some $2.8 trillion of the overall $4.9 trillion of Intragovernmental Holdings consists of the principal in the Social Security Trust Fund.
http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm#DebtOwner
It is indisputable that the standard number used to report total Federal Debt is this same sum of Debt Held by the Public and Intragovernmental Holdings. All you have to do is to revisit any of the reporting around the raising of the Debt Limit where you had the same $16.9 trillion figure being used that you would have found using this tool in real time.
Social Security balances are included in Intragovernmental Holdings. Intragovernmental Holdings are summed with Debt Held by the Public to give a number for Total Public Debt. Total Public Debt is within amounts that are on the order of rounding errors of being the same dollar figure as Debt Subject to the Limit.
None of that is even subject to dispute. As such Social Security PRINCIPAL is counted as Public Debt. And Social Security PRINCIPAL increases each year by exactly the amount of the SOCIAL SECURITY SURPLUS. Meaning that every dollar of SURPLUS is converted to PRINCIPAL which is scored as a portion of INTRAGOVERNMENTAL HOLDINGS which is one of two components of TOTAL PUBLIC DEBT.
So to say that Social Security surpluses don’t contribute to debt is operationally wrong. Plus there is no decision to borrow from Social Security. Instead the law since 1938 has forced the Trustees to lend to Treasury whether or not Treasury actually needs the money. This is because the law mandates investment of all surplus funds in securities fully guaranteed as to principal and interest by the Federal Government. Which means Treasuries. In fact the mandatory nature of this transaction makes it fairly useless to talk about lending or borrowing at all and still less ‘decisions’ to do so.
You are trying to insert some ethical dimension into what is a cut and dried practice since the beginning of Social Security itself, in fact predating the Amendments of 1939 which created the Trust Funds as such.
If Social Security tax revenues come in in excess of Social Security cost the excess cash flows to other accounts at Treasury and are replaced by interest earning notes and bonds. Automatically. Now it may be the result of these extra dollars that borrowing from the Public is reduced or it may be that these extra dollars and the accounting that comes with them serves as cover to cut other taxes. This is precisely what happened in 2001. But the decision as to whether to use this extra cash to lower the amount that otherwise would be borrowed from the Public or to allow that borrowing from the Public to continue at the same level it would have and use the extra tax to fund tax cuts has nothing to do with the non-decision of the Trustees to ‘lend’ or the Treasury to ‘borrow’ the money to start with. That is just part of the structure of Social Security and its accounting.
Exactly none of that has anything to do with post facto decisions on spending and in my opinion little to do with actual decision making on borrowing. The belief that there is such an offset is to my mind the injection of an accounting equation into a reality that doesn’t quite match its terms.
Of COURSE Social Security contributes to the debt and deficit and certainly to the standard numbers by which those are reported in the media and in top line CBO scoring. Now there is a good argument that we should not be using ‘Total Public Debt’ as our policy guide but instead simply use ‘Debt Held by the Public’ and so start talking about $12 trillion dollar debt vs. $17 trillion dollar debt. BUT NO ONE DOES.
So the claim that SS doesn’t ‘really’ contribute to either because it violates some sense of equity doesn’t really get us anywhere that I can see. If you use the word ‘debt’ in the way that CBO and SSA and OMB and the NYT and the WaPo and the WSJ do then Social Security is included. And its is kind of crankish to insist that it isn’t. Not ‘really’.
Bruce,
I agree that the money from the SS trust fund shows up in the intragovernmental holdings which is part of the total public debt.
However, I can say that the SS trust fund does not contribute to the debt because if SS did not a surplus, the government would have just had to get the money from somewhere else.
For example, let’s say the government needs to borrow $500 billion dollars and SS has a $50 billion surplus. SS buys $50 billion in Treasuries and the government borrows $450 billion. Total increase in the debt is $500 billion.
If on the other hand, SS has no surplus, then the government would borrow $500 billion, and the increase in the debt would still be $500 billion. The increase in debt is the same no matter what the SS surplus is.
Thus SS has no impact on the amount of the debt. It only impacts where the government gets their money.
And Arne I am having a hard time with parts of the following:
“If SS runs a surplus (including interest accrued) more Special Treasuries will be issued than retired and intragovernment debt will increase. If there is an on-budget balance, the amount of Treasuries retired will balance the amount of Special Treasuries issued and Total Debt will be unchanged. If there is an on-budget surplus then even more regular Treasures will be retired and Total Debt will go down (independent of SS). ”
Because starting from the back ‘Total Debt’ is NOT ‘independent of Social Security’. Instead ‘Total Public Debt’ is a pure sum of ‘Debt Held by the Public’ and ‘Intragovernmental Holdings’ to the penny.
Now if I reformulated your sentence to say that “If there is an on-budget surplus then even more regular Treasures will be retired and Debt Held by the Public will go down” then I would have to agree. And try to confirm that by a search on the Debt to the Penny website with starting date Sept 30, 1998 and ending date Sept 30, 1999 as as to capture the last full FY of the Clinton Presidency. And did so tonight.
On Sept 30, 1998 Debt Held by the Public = $3.733 trillion
On Sept 30, 1999 Debt Held by the Public = $3.636 trillion
Meaning there was a net redemption of principal in the amount of $97 billion. And so a corresponding reduction is U.S. exposure to the world market for Treasuries.
Now maybe the word ‘surplus’ is the wrong one to apply to whatever factor actually served to have this reduction in Debt Held by the Public. But it would seem pretty hard for even the hawkiest of debt hawks to deny that it was a postive development and equally churlish to deny that the spending and tax policies of the Clinton Administration hadn’t somehow contributed to it.
So maybe I will have to concede that Clinton didn’t produce ‘surpluses’ even though I don’t quite understand why. But I am not going to just give up the fact that Debt Held by the Public declined in that last full year. Because fact it is, even if I have somehow screwed up the transmission mechanism and subsequent terminolgoy.
And as you say that is ‘independent of Social Security’. I think.
“However, I can say that the SS trust fund does not contribute to the debt because if SS did not a surplus, the government would have just had to get the money from somewhere else. ”
Jerry it seems to me that this argument and perhaps similar ones advanced by Arne (and in another forum by Henry Aaron to me) assumes that there is some set amount of borrowing determined in advance determined by the gap in proposed spending and projected revenue. And if this was true and that this level of borrowing was unaffected by the costs of that borrowing and its balance then the kind of offsets you are talking about would be true.
But this ignores some asymmetries. Because there is no current year financing of the debt service on money borrowed from Social Security surpluses. That interest does not score as an outlay and is not part of the budget line item for debt service. Not at least when Social Security is running cash surpluses less interest over cost. Instead that interest is just credited to SS in the form of extra principal which might well be paid off on the 15th of Never as far as that current Congress knows.
Now if we start from a different place, and believe that the amount of new borrowing from the Public is controlled in part by the cost of current year debt service then the existence of those SS surpluses might not have any effect on that demand.
For example say that Congress had a demand for $180 bilion in new spending on program X and a demand for $180 billion in tax cuts on capital Yand yet came to the conclusion that there was only enough appetite on the part of the ‘Public’ for $180 billion total and that any amount over that would cause interest rates to spike. Well it seems to me that that lack of appetite by the ‘Public’ could and would drive down how much demand for program X or tax cut Y could actually be satisfied. And we could expect that to be reflected in budget authority passed for the upcoming FY. And for the sake of argument say that borrowing authortiy was limited to $180 billion and tradeoffs made between X and Y. But say that four months into that Budget and Fiscal Year it was announced that Social Security was going to deliver an unanticipated $180 billion surplus. Are we really expected to believe that the result would be a reduction in borrowing from the Public because of this unexpected windfall? Or that Congress would decide to borrow up to their full amount of ‘credit’ (in this case the limit on ‘Public’ demand for Treasuries at a reasonable rate) anyway and use that $180 billion to fully fund the unmet portions of X and Y?
Well it seems to me that this is exactly what Bush did in 2000. His team just determined what the market would bear in the way of borrowing to fund his version of X and then used the SS surplus to fund his version of Y without ever reducing the amount of borrowing from the Public. With the result that Total Public Debt went up on both fronts as Debt Held by the Public increased by the amount that the market would bear while Intragovernmental Holdings increased by the amount of the surplus in SS while that excess cash was spent.
Moreover it was the exact logic Clinton used in reverse with his demand to ‘Save Social Security First’. That is he insisted that Congress disregard the SS surplus and so fund both X and Y within the constraints of Public demand for regular Treasuries. Or within the constraints of the extra amount of debt service on regular Treasuries they were willing to take on.
That is Clinton stymied Gingrich while Bush didn’t stymie himself, the former wasn’t allowed to use the value of SS surpluses to justify tax cuts, while the latter freely allowed himself that room.
“Jerry it seems to me that this argument and perhaps similar ones advanced by Arne (and in another forum by Henry Aaron to me) assumes that there is some set amount of borrowing determined in advance determined by the gap in proposed spending and projected revenue. ”
Not at all. SS buys Treasuries with its surplus no matter what borrowing the government needs at the time. When the government needs money, it uses what it has and borrows what it needs regardless of what SS does.
You seem to be going through a very convoluted argument to say otherwise. Sometimes the correct answer is the simplest answer.
“Are we really expected to believe that the result would be a reduction in borrowing from the Public because of this unexpected windfall? ”
Yes.
The amount spent will be what Congress authorizes. The way it is funded will depend on receipts.
Do we think that next years authorizations will change? Sure, if they think they can ignore the debt limit. But that does not change how much is issued at current year Treasury auctions. More Special Treasuries leads to less regular Treasuries: 1 for 1.
Note: That is history. There will not be SS surpluses large enough to make a difference again.
“When the government needs money, it uses what it has and borrows what it needs regardless of what SS does.”
Jerry this formulation assumes that the need is steady state and total borrowing set at the level required to meet that need and that additional resources don’t allow maintaining the existing borrowing (edited).
But this doesn’t seem right at all. Instead wants are constrained by resources. And in this case one resource is public borrowing. Add another resource and that limit on want is to that degree less restrained. But that the result would be less public borrowing just doesn’t follow. Instead you might borrow the same amount to meet that previously constrained want and use the new resources to if you will ‘unconstrain’ that previously existing want.
I want a new MacAir. But I am using my entire available credit to fund my renewed college education, in my case through Federal student loans. I can’t afford the laptop I want. But if I won an unexpected $1200 via a lottery ticket I might well decide to blow it on that MacAir and still plan on borrowing every dollar I can from the Feds to continue my education. Why wouldn’t I backfill that foregone want if given that new and unexpected resource while keeping my current level of borrowing constant? After all my future ability to repay that debt is not necessarily changed by the fact that I have a new laptop. Why wouldn’t I just accept that same level of projected debt service going forward?
I am groping here. Try this.
Your model assumes a fixed need.
My model assumes a constrained want.
It seems obvious to me that those two cases would react differently to an increase in resources from an unexpected quarter. In the former you reduce your reliance on the expected resource because of the existence of the unexpected. (Borrowing from the Public decreases). In my model you maintain your reliance on the expected resource to meet the constrained want and the new resource to meet the full want. (Borrowing from the Public remains constant).
I seriously doubt that government spending and borrowing is in any way like the way you and I spend and borrow. The government is not run like a household.
And Jerry I agree. But don’t think you addressed the part of the argument that WASN’T about me.
Say the part by me that starts:
“Your model assumes a fixed need.”
Because if your argument doesn’t so assume you might need to explain:
“When the government needs money, it uses what it has and borrows what it needs regardless of what SS does”
Because if this isn’t an expression of “fixed need” than what is it? And that is not an attempt at snark. For example I have learned a lot from Arne over the years, not least during some of the back and forth jousting. That is I take him and you very seriously. And asking for clarification and sharpening of YOUR argument is part of that.
Bruce said
“So to say that Social Security surpluses don’t contribute to debt is operationally wrong. ”
No. Lending money to someone does not contribute to their debt. Their borrowing money from you contributes to their debt. The distinction is critical.
and all of the semi-technical or proto technical arguing about what the government “would” do if such and so were the case…
might explain how much they borrow, or why they focus on “the budget deficit” and not the fact that the money from Social Security is “borrowed”
but it doesn’t change the FACT… not “ethical argument”… that Social Security does not contribute to the debt, at all, nor does it contribute to “the deficit” except in the special sense of the way congress accounts for the difference between the money it “has” and the money it “needs.” SS is used to reduce the deficit by borrowing money from it. When the time comes to pay the money back… that will “increase the deficit” but it is dishonest to say that without saying “paying back the money i borrowed from you increases “my” deficit. “you” are not increasing my deficit.
Bruce thinks the argument is about the technical language. No. It’s about “contribute”.
bruce keeps hammering away at the “fact’ that “Social Security is part of the debt.” well, we know that. but the critical fact that he can’t bring himself to say is that “part of the debt” means “we owe that debt TO Social Security.” The debt was not caused BY Social Security.
As for the deficit, what we (and they) SHOULD say, is “paying back the money we borrowed FROM Social Security increases our “deficit” because borrowing the money FROM Social Security REDUCED our “deficit” in the past.”
Saying simply “Social Securty increases the deficit” is simply a lie. It is the kind of lie told by expert liars: leave out some critical fact while pointing to some misleading fact or language in order to lead the hearer to a false conclusion.
I don’t think Bruce is lying. I do think he is hung up on “expert language,” while missing the point that we are not arguing about the expert language. We are arguing about what “contributes to” means.
we are also falling in with the bad guys when we say
SS contributes to the deficit, without making clear that this “deficit” is a very special usage of the word by the budget “experts” and does not mean what most people will take it to mean.
Bruce,
I don’t see how my model assumes a fixed need at all. Certainly “need” can change with time and circumstances. Perhaps I should have said,
When the government needs money, it uses what it has and borrows what it needs “at the time” regardless of what SS does.
It is the borrowing that creates debt, not the source of the borrowed funds. In fact, SS puts its surplus into Tresuries regardless of the government’s need at the time to borrow.
Jerry sorry if I seem obtuse buIt I don’t see that your addition of “at the time” helps anything. And you don’t seem to have taken my position seriously.
I am arguing that there is a distinction between ‘want’ and ‘need’ and that sometimes we are forced to redefine ‘need’ to ‘what part of wants I can afford to finance’. And where in this case ‘afford’ means that level of debt service needed to attract a given level of lending. Or we could say that we can only afford to borrow at the level that has the market clearing.
But if we still have the ability to borrow at that same market clearing price and are given the opportunity to satisfy previously constrained wants via a new resource stream then why would we just stick to austerity? Why NOT redefine ‘need’ to that part of ‘wants’ we can now afford for the same amount of debt service?. Your argument seems to assume that need gets frozen at some point of time (“at that time”) and can’t vary thereafter in response to actual buying resources.
That is we can fully agree on TANSTAAFL as a general principle without saying that it is impossible for a third party to BUY you that lunch.
Dale you have admitted that Social Security can ‘add’ to debt but still insist it can’t ‘contribute’ to it.
This seems to be an unnecessary limitation of the meaning of the word via an insertion of some moral meta-linguistic element. But I don’t control your ideolect.
But to me your “we are falling in with the bad guys” is a purely moral and not definitional claim about the meaning of the word. That the bad guys use precise terminology in subversive ways is not a condemnation of the precise terminology. It is instead a call to explain why that precision doesn’t have the subversive implications the bad guys want to have it bear.
For example if you always looked up to your older brother and your cousin is active in community theater it would be precise to say that you ’emulated’ your brother and that your sister was a ‘thesbian’. Maybe this usage would not be useful and in fact actually detracting from your intention. But that does not in itself change the literal meaning of either ’emulate’ or ‘thesbian’. Though it might argue against their USAGE.
My point is that the Bad Guys, when careful enough, can advance misleading claims in techically true language and if challenged can point to specific and official data tables and definitions that support there claim. And that therefore we need to be prepared for that. Whereas your position seems to boil down to “Well to hell with what SSA and the CBO says, I
Spending is determined by what congress authorized. I don’t think they really care where the money comes from. And I simply don’t understand how you think my use of the word “need” fixes anything in time.
Are you being obtuse? I think you are being misunderstandable.
Yes Jerry and what Congress authorizes is determined in part by what they think the market can bear. That is the system is set up so that ideally Congress sets a budget whose limits are constrained by anticipated resources and then sets spending within those limits.
Which is to say that budgeting is forward looking and requires that authorizers strike the AFFORDABLE balance between wants and needs within ACCEPTABLE rates of taxation and debt service.
For example during the Bush I Administration the consensus was “Deficits as far as the eye can see”. On the flip side by 2000 the “Washington consensus” was that we had broken the business cycle forever, that current trends towards surplus were irreversible and that 3% GDP growth was here to stay. In fact this confidence was so pervasive that Chairman Greenspan went to Congress and solemnly testified about the danger of the long bond vanishing too quickly as debt was paid down.
The consensus during Bush I was such that the then President Bush felt impelled to break his “Read my lips, No new taxes” pledge. The consensus during Bush II’s initial days was that there were so few constraints that it was possible to grant large cuts in top rates, expand military spending and still pay down the deficit all within a decade.
This consensus clearly had its effect on budgeteers and appropriators and helped set the level of ‘need’ as a higher proportion of wants during Bush II than Bush I. That is in my formulation Congress simply reacted to a higher anticiipated level of resources when they appropriated and so was able to redefine ‘need’.
Whereas you seem to be arguing that somehow the ‘need’ is the cause rather than the effect.. As if rich countries and rich people don’t decide what they ‘need’ by what they can afford, or think they can afford, or believe they can finance at an acceptable level of future debt service.
Congress may not “really care where the money comes from” but they care a lot about HOW MUCH MONEY is coming from wherever it is coming from.
More money = less constraints on wants = more likelihood that ‘need’ gets redefined to be closer to wants.
You don’t have to agree that that is what is going on, but to say that it is ‘misunderstanable’ leaves me nowhere to go except to head for the exits. See you guys the next time around.
I noticed that you did not mention Social Security or the SS trust fund even once.
Yes but didn’t notice I said “see you”.
And the “next time” is probably later tonight or tomorrow and it tentatively titled ‘The Shape of Solvency’
I noticed but I didn’t (correctly) believe you.
Social Security is starting to really get messed up, but you have great advice on how to manage it, I read an article at http://blog.mutualfundstore.com/retirement/experts-take-on-social-security-questions/ and it sounds really good. I’d suggest looking there for some more info as well. Good job on your post!!