SETTING THE RECORD STRAIGHT ON SOCIAL SECURITY
by Dale Coberly
SETTING THE RECORD STRAIGHT ON SOCIAL SECURITY
HOW THE “COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET”
LIES TO YOU
A group that calls itself “Committee For A Responsible Federal Budget” wrote what it claims to be “Setting the Record Straight on Social Security.” The article needs to be responded to at some length, both to correct its errors and to show how it goes about its business of lying to people.
A lie is a statement or statements intended to deceive another person. Professional liars can usually manage to lie to their victims and lead them to harm by carefully selecting “facts” so as to lead to a false conclusion without ever actually saying anything that is “technically not true.”
CRFB statements follow in italics. My replies in plain text.
This post recently appeared in CRFB’s Bottom Line Blog.
Recently, many policymakers and commentators have called for expanding Social Security benefits rather than slowing the program’s costs, suggesting that the program’s current shortfalls are modest and easily addressed. Below, we answer some questions about Social Security to help explain why many of these calls are misguided.
Is Social Security’s Financing Problem Real?
Unfortunately, suggestions that Social Security does not face a financing problem are not based in fact. Already, the costs of benefits are well in excess of revenue from payroll taxes. Social Security’s cash-flow deficit will add $75 billion to the deficit in 2014, $1.0 trillion over the next decade, and $3.8 trillion in the decade following. As we’ve explained, the program’s past surpluses do nothing to change its very real current cash deficits. Regardless of whether past surpluses were saved in an economic sense or not, the federal government will have to borrow more to make up for the Social Security system’s cash flow deficit.
I am not sure that anyone has suggested Social Security does not face a financing problem. The question is, or should be, what is the best way to address this problem… and how big is it anyway?
CRFB would like you to believe the only solution is to cut benefits and turn Social Security into a welfare program by means testing. Social Security works because it is NOT a welfare program. Instead it is a way for workers to save their own money, protected from inflation and market losses, and insured against personal misfortune. That is, it is protected by the government, but not paid for by the government. CRFB would tax you to pay for benefits that only “the deserving poor” would receive after careful examination to be sure they were poor enough to “deserve” welfare. Then the politicians could squeeze benefits to the level of real misery, preserving only the name “Social Security” but turning it into something ugly that they control themselves, and can always cut by using the politics of “welfare” which they know how to manipulate very well.
“The costs of benefits are well in excess of revenue from payroll taxes…” This is a lie. But it is a clever lie because it turns on “revenue from payroll taxes,” completely ignoring the revenue from previous payroll taxes that were saved exactly in anticipation of the higher costs that Social Security is facing today. It’s as if you saved up money in advance to pay for your Christmas shopping, and then, when December comes, the CRFB runs around telling your neighbors you are bankrupt because you are “spending more than you are taking in.” Social Security saved up the money in order to meet the costs of recessions and the extra costs of the Baby Boomer retirement.
The CRFB would have you believe the United States of America cannot pay back the money it borrowed because it “did not save” that money “in an economic sense.” Well, the borrower generally does not “save” the money he borrows. He spends it. That’s why he borrowed it. To pay it back he has to get other money, from work or from other borrowing. That’s what even the United States of America has to do to pay back money it borrowed… get other money. CRFB wants you to believe there is something unnatural or wrong about this.
Another reason CRFB can say the cost of benefits are “well in excess of revenue from payroll taxes” is that recently the friends of CRFB persuaded the politicians to “cut payroll taxes” to provide a stimulus to the economy. They could have provided the stimulus without cutting the payroll tax, but by cutting the payroll tax they can now say with a straight face that Social Security benefits are “well in excess of revenue from payroll taxes. They knew what they were doing… and yes they are politically powerful enough to do that… because their ultimate goal is to destroy Social Security.
Social Security’s “cash flow deficit” is not a deficit at all. SS is spending down the savings it created for exactly the purpose it did the saving in the first place. Nor does Social Security add to “the deficit” — here they mean the Federal Budget Deficit, though they don’t mind confusing you by using the word “deficit” to mean different things from one line to the next. The Federal Budget has been borrowing money FROM Social Security for years…. DECREASING what they call “the deficit.” Now that they are beginning to REPAY THE MONEY THEY BORROWED they call that “increasing the deficit.” They can get away with saying this because they never mention that they are repaying money they borrowed..DECREASING the debt. This is a backward and deliberately misleading use of language. Anyone can write up a “budget” and if they do not bother to note the difference between “revenue” and “money borrowed”, they can call their “deficit” the difference between “money in” and “money out”… without noting that some of the money in is “debt”… then they can go on to the time when they have to repay some of that debt, and they can say the “money out” to repay their debt is “increasing the deficit.” It’s a lie, but they can claim, if anyone thinks to ask, that it is “technically true” because in their secret language “deficit” just means “money out” without distinguishing between “spending” and “repaying money we owe.”
Saving “in an economic sense” is another clever lie. Social Security saved the money. The government borrowed it. Of course the money Social Security saved is not money “the government saved in an economic sense.” It’s money the government BORROWED in an economic sense and now has to repay…. unless the CRFB can fool you into cutting SS benefits instead, so the Congress will not have to repay the money it borrowed.
As a matter of fact, if Congress simply raised the payroll tax one tenth of one percent per year… about eighty cents per week per year…. the debt that “the government” owes TO Social Security would never have to be repaid… it would just lie there on paper as a “reserve” never requiring actual cash to change hands. But CRFB doesn’t want you to know this because their real purpose is to destroy Social Security. They don’t really give a damn about “the deficit.” They understand perfectly well that the deficit is not a serious problem, but they have ginned it up as a way of stampeding an ignorant public into destroying Social Security.
The federal government will NOT “have to borrow more” to make up for the SS cash flow deficit.” The government might have to borrow more, or tax more, or spend less, to PAY BACK THE MONEY IT HAS BORROWED FROM SS. There is NOTHING wrong with SS finances… SS has money in the bank to pay for their “excess costs” for another twenty years. After that a very modest raise in the “tax” will enable workers to continue to pay for their own retirements. That is, SS can continue forever, raising the tax a tiny amount from time to time when the costs of retirement go up, if CRFB doesn’t fool you into cutting your own savings for your own retirement. They don’t want you to retire, because they know how to make money out of your working for them until you drop. Even if they won’t give you a job, your very poverty will, they think, inspire other workers to work for less money.
Social Security is also in trouble in its own right. The program faces a 75-year shortfall of 2.7 percent of payroll, with annual shortfalls reaching 3.9 percent in 25 years and 4.8 percent in 75 years. According to official estimates, the program’s trust fund will run out of money either in 2031 or 2033. Although these estimates are subject to some uncertainty, the CBO is 95 percent certain the trust fund will run out within a quarter century. At that point, all beneficiaries will face an immediate 23 percent across-the-board benefit cut regardless of age, income or status.
A 2.7% of payroll increase in costs over 75 years is NOT “in trouble.” It is an increase in the amount of money you will need to save to pay for your own longer retirement. You are going to need the money to be able to retire. Only a fool… or someone who has been fooled… would refuse to save an extra 2.7% of their wages at the risk of never being able to retire. And you don’t have to come up with that extra 2.7% at once. You can raise the tax gradually, one tenth of a percent at a time…. something you would never feel.
The day the Trust Fund “runs out of money” DOES NOT MATTER. The Trust Fund is only a bridge… to bridge over times when payroll taxes fall short of expenses. This allows the program to run smoothly during the normal ups and downs of the economy… or give us time to phase in what looks like a needed tax raise to pay for a changing demographic situation or permanent downturn in wage growth. The expected increased tax is not high, and can be phased in at a rate no one would feel or notice.
There is no question that this abrupt benefit reduction needs to be avoided, but doing so will require tough choices. As we’ve explained before, the longer we wait to act, the tougher those choices will be. The actions of those who are downplaying the magnitude of the problem and the need for action to address the shortfalls now will actually lead to deeper cuts in benefits for all beneficiaries or greater increases in payroll taxes for all workers than would otherwise be the case.
This is a lie. waiting will not lead to increased costs or deeper cuts. It would lead to a steeper rate of increase. But even a sudden 2% increase in the tax in 2030 or so would hardly be felt… beyond the screaming for a few week while people got used to the idea. But they would NOT notice it in their lifestyles. What they WOULD notice is that if they did NOT increase the tax, when they came to retire, their benefits would not be sufficient to buy their groceries or pay their rent. Losing 2% of your income while working is something you would not notice. Losing 25% of your income if you are living on Social Security would be the difference between “enough” and “not enough.” The difference between living indoors buying your groceries at the store, and living in a doorway getting your groceries out of a dumpster.
Should We Expand Social Security Benefits?
In recent weeks, some have called for expanding Social Security benefits. Although there is a strong case for targeted benefit enhancements, it would be imprudent and irresponsible to enact broad-based benefit enhancements before the program’s finances are under control.
The programs finances ARE under control. Increasing benefits at this time may not be politically expedient, and would not be wise if it meant “taxing the rich.” But if the workers are willing to pay for increased benefits… another dollar a week (over the eighty cents required to maintain benefits) would increase benefits about 25%, and that would make a difference in the comfort level of most retirees.
Raising that much revenue to fund Social Security (including higher benefits for wealthy seniors) would suggest that spending more money on retirement benefits for seniors is a higher priority than other options including new investments or spending on children.
They couldn’t leave out the teary eyed “think of the children” ruse. They are claiming that we can’t pay for our own retirement and still “include new investments or spending on children” Yes, grandparents, it’s time to quietly leave the igloo and go out into the blizzard “for the children.” Look around… these are the people cutting food stamps (for children) in order to fund investments… in the next dot.com bubble or housing finance fraud?
*****
There is no question that the United States could benefit from improvements to its retirement system, including regulatory, tax, and spending changes across multiple programs.
But one of the major threats to retirement security is the looming insolvency of the Social Security program. The program’s finances must be fixed in order to fully fund benefits and give workers the ability to plan and prepare. Such a fix could increase revenue coming into the system, slow the growth of benefits being paid out, and even offer some targeted benefit enhancements to those who truly need them. (Try to improve the program by using our Social Security Reformer).
The “Social Security Reformer” is rigged so you can’t give the correct answer: raise the payroll tax by about 1% on each the worker and the employer, phased in at the rate of one tenth of one percent per year. But note that here they are being oh so reasonable: “of course we need to improve the retirement system”, but then watch the axe fall: by “spending changes”.. that is cutting benefits below survival levels. Again, there is NO “looming insolvency.” SS does not borrow, does not contribute to the deficit, does not owe any money, and can’t go broke. That is all the Big Lie that they are propagating to stampede you into accepting “spending changes”….”slow the growth of benefits”…as if benefits were growing… cuts that will make it impossible for you to retire when you need to.
But “retirement security” cannot be used to offer everything to everyone at little to no cost. That type of thinking will lead to stalemate; and as we’ve explained before, the longer we wait to reform Social Security the bigger the problem becomes and the harder it is to fix it. Eventually, the “do nothing plan” would result in a 23 percent across-the-board benefit cut. That’s a threat to retirement security that we ought to avoid.
Here we have the classical straw man. “we have explained…” They haven’t explained a thing. They have cleverly sown misleading phrases so that you will think SS is in trouble, and cutting benefits is the only solution… even as they pretend to be open to “revenue enhancements.”
The only revenue enhancement needed is an eighty cents per week per year increase in the payroll tax until life expectancies and wage growth have again stabilized. It looks from here as if that eighty cents per week per year increase will be limited to about 20 of the next seventy five years while wages will go up about eight dollars per week per year in ALL of those seventy five years. At the end of the day you will have twice as much money as you do today AFTER paying for your longer and better retirement. But CRFB doesn’t want you to know that. If they can cut Social Security they can keep you working… or part of the reserve army of the unemployed… until you are ready to die. That’s their idea of maintaining your “incentive to work.”
And that’s what this is all about. Without Social Security you will have to work longer. And they make money out of every hour you work.
Coberly has said all that need be said about the dishonest claims of the “Fix the Debt” propagandists. Keep in mind that this is yet another Peter Peterson financed organization. The so called scholars and the CEO of the organization are very well paid hacks of Peter Peterson. When anyone claims that the use of Trust Fund assets amounts to an increase to the general budget deficit remember that any redemption of Treasury notes requires an expenditures of general budget funds and, therefore, a possible increase in the general budget deficit. That is no different than you or I cashing in our E bonds, or China redeeming the Treasury notes it holds, or any individual redeeming his or her Treasury note holdings.
Note that there need note be an increase to the general budget deficit when such redemptions occur. A 50% marginal tax rate might cover the expense of paying Treasury debt. Categorizing hedge fund profits as income rather than “carried interest” would raise lots more revenue. Such increases in the taxes levied on the highest income categories never comes up as a possible solution to the deficit issue, if it is even an issue to begin with.
jack
it would only take an increase of about 2% in the marginal tax rate over 100k to pay back the Trust Fund, or a 1% increase in income taxes at all levels. That is IF the Trust Fund needs to be paid back at all… which would not be the case if the payroll tax were raised gradually to the level it will eventually have to reach anyway if workers are to pay for their own longer expected retirements. That increase, as I keep trying to explain would not even be noticed, much less felt, and the workers would get their money back with interest.
the reason the Trust Fund would not have to be paid back in that case is, as Bruce Webb pointed out, that the required one year’s reserve for Social Security grows with the economy, and grows to the level of the existing Trust Fund before any actual cash redemption of the bonds in the Fund would be needed.
Again, it is likely the Petersons understand this. But they do not really care about the debt or the deficit or the tax rate. Their real purpose is simply to destroy Social Security… because Social Security allows workers to reach a point in their lives where they can say “I have enough: I don’t need to work for the boss any more.” The Petersons make plenty of money even when you can retire, but they know they would make more if you couldn’t, and because they are insane they can’t stand the idea of your being able to quit working for them.
jack
just to be clear, i agree with you that there is nothing wrong with raising taxes on the rich to pay down the debt or control the deficit. That is, to pay back the money we (they) have borrowed, or to borrow less in the future.
i just want to avoid confusing that with the idea that we need to raise taxes on the rich to pay for Social Security. We don’t. The workers pay for their own Social Security… and they get their money back with “interest” that comes not from borrowing, but from the growth in the economy from one generation to the next.
Coberly,
I agree with most of what you say, especially this: “Social Security works because it is NOT a welfare program. Instead it is a way for workers to save their own money, protected from inflation and market losses, and insured against personal misfortune. That is, it is protected by the government, but not paid for by the government.”
The trick of course will be in keeping it that way. I’ll leave our disagreement on that point to the earlier thread.
Great post!
Coberly says:
“Another reason CRFB can say the cost of benefits are “well in excess of revenue from payroll taxes” is that recently the friends of CRFB persuaded the politicians to “cut payroll taxes” to provide a stimulus to the economy. ”
Just false. There is no PR tax holiday in 2013, and SS will run a deficit of $75B. SS never felt the consequence of the PR holiday in prior years. The treasury repaid SS every penny of the Holiday cost. The deficits at SS are net of those payments by Treasury.
He says:
The day the Trust Fund “runs out of money” DOES NOT MATTER.
Coberly, it is current law that benefits get cut by about 25%, across the board, when the TF is depleted. That’s the law – It matters a great deal when depletion occurs.
Then he says:
“The federal government will NOT “have to borrow more” to make up for the SS cash flow deficit.”
This is bunk. The Federal Government must borrow from the public 100% of the SS annual shortfall. Period full stop.
And then there is this:
“Social Security saved up the money in order to meet the costs of recessions and the extra costs of the Baby Boomer retirement.”
Yes, SS saved up some money – but those savings have fallen well short of expectation of 4/5 years ago. There is not sufficient assets to cover the Boomers retirement. That’s why all the fuss.
I’m not going to accuse Coberly of lying, just spinning the facts….
At some level, for the last ~30 years the middling classes have lent huge sums to the well off through the process of paying more payroll taxes than were necessary to make contemporary payments. Putting that money into the trust fund, which arguably enabled the wealthy to get income tax breaks because the “debt held by the public,” was lower than it otherwise would be. As usually happens when you lend to the feckless whether they’re coal miners borrowing from the company store, serial HELOC’ers, or people who earn more in capital gains than income subject to payroll taxes, they’re happy to borrow but really whiney about repaying it.
krasting cont’d.
the SS “deficit” in 2013 is not a “deficit”… it is SS using part of its savings for the purpose it saved them for.
the treasury repaid the money for the “tax holiday”… and this is what CRFB calls “adding to the deficit.”
the DAY the Trust Fund runs out of money does not matter… because it was always designed to “run out of money”… that is pay back the boomers the money it borrowed. whether that day occurs in 2029 or 2049 does not matter.
When “The Trust Fund is depleted” is when the people will have to face a benefit cut OR an increase in taxes. the increase in taxes is tiny. the benefit cut would be harsh. but the DAY that it occurs does not matter. in spite of one BKrasting coming out every year and saying “it’s going to run out sooner than we said last year!”
The government will nothave to borrow more TO MAKEUP FOR THE SS CASH FLOW DEFICIT”
it MAY HAVE TO BORROW MORE TO PAY BACK THE MONEY IT BORROWED FROM SS”
see the difference?
in fact the government doesn’t need to borrow the money… it could raise the income tax about 1%, or 2% on income over 100k. but if we raise the payroll tax eighty cents per week, it won’t even have to pay back the money it borrowed. get the point?
The money SS saved up has not “fallen well short of expectations.” what has happened is that the Trustees and the CBO have found ways to change the expectations: from “longer life expectancy” to “fewer babies” to, now, “lower interest rates” and “lower wage growth” and even “higher unemployment.” The Trust Fund was never expected to pay ALL the costs of the Boomer Retirement, only the difference between those costs and the normal pay as you go costs.
Again, for the rest of the readers, BKrasting has made a kind of career out of completely failing to understand Social Security but shouting “we’re all going to die” at regular intervals.
btw
krasting was one of those who was pointing at the money the Treasury repaid to the Trust Fund as evidence of “huge” “cash flow deficits” by Social Security.
so now he is here claiming oh, that was last year, why do you keep bringing up old stuff?
because the lies linger, Krasting, that’s why, as you well know.
As far as I know Krasting is not one of the paid liars. But he has shown that he is incapable of reading and understanding a whole sentence at a time, let alone understanding a whole graph.
He claims that SS’s savings, the Trust Fund, has fallen short of expectations and cannot pay for the Boomer retirement. It was never intended to pay for the whole Boomer retirement, but only that part of the costs in exess of normal pay as you go.
Look at Figure II.D2 from the Trustees Report. You will see costs rising with the boomer retirement, and then leveling off for the rest of the century. Note first, that they do not keep rising, in spite of the hysteria you keep hearing from the paid liars and Krasting. And second, they do not fall as you might expect as the the Boomers die off. That is because while the Boomers will not live forever, YOU are going to live longer than your grandparents, and the extra cost is the extra cost of your longer retirement. Living longer does not mean you will be able to work longer.
The extra cost is about 4% of payroll, and can be reached gradually by a one tenth of one percent increase in the tax each year for each the worker and the employer… about eighty cents per week. You won’t notice it let alone feel it.
And that is the point of this whole essay: In spite of the hysteria and lies, Social Security is not a “looming crisis,” it is the normal cost of paying for… saving for…. your retirement. At least the cost of saving enough to guarantee you CAN retire. You are free, of course, to try to save more, or “invest” for more. But your own personal prudence, and the facts of what happens to most people and what that means for the economy and the country, should suggest you keep that old Social Security “just in case.”
And learn to tell when the people who are trying to take it away from you are lying or just talking hysterical nonsense.
that 4% of your wages goes to pay for an extra two to four years in retirement. That’s your money.
But the liars like to point to the 5 to 6% of GDP that will eventually go to paying for SS retirement benefits… that’s the whole ticket, not just the extra that will be needed 20 or fifty years from now.
They act like this a huge amount of money, a terrific drain on the economy. 6% of what we produce in this country going….to…feed…the … elderly. Think of the waste!
What then? If we cut Social Security, are the elderly going to stop eating? Well, wait for their next plan. But in the meanwhile it is fair to assume that the elderly will keep eating… and they will continue to consume 5 to 6% of GDP.
But the liars want you to think of this as a huge amount of money going into some government black hole… perhaps to pay the gambling debts of the greedy older generation:: you know, the people who changed your diapers and paid for your education, and built the roads and factories, and paid for your defense and the internet and everything that makes it easier for you to make twice as much money as they did… those people.
And of course, “those people” paid for it themselves. That was THEIR payroll tax. Your payroll tax will go to pay for your groceries when you become one of those greedy geezers.
And please don’t tell me “no, my money will go to pay for them” because, proudly “I don’t understand how money works. I don’t understand that when I buy a stock, the company uses my money to buy things today, and I get my money back when some other person (younger?) buys my stock or at least buys what the company i “own” is selling… because it used my money to build it’s business.” Of course then you can say, “but the United States isn’t a business… it has no assets…” Think of it. The most powerful country in the world has no assets. Shhh. Don’t tell the Russians.
I said that expectations for the size of ‘savings’ that Boomers were going to salt away in SS is less than expected. Some data:
In 2008 the SSTF projected that the TF would be $3.584 T at year end 2013. The TF will be $800B shy of that.
In 2008 the SSTF projected that the TF would grow to $4.486T in 2017 and continue to grow from then on.
The reality is that the TF will top out in 2017 at maximum value of $2.9T. So about $1.6T shy.
I think I was correct in saying that expectations have not been realized. And I’m saying that the TF is not of a sufficient size today (nor will it be in the future) to meet the Boomer needs as SS is currently configured.
Something has to give.
Coberly – you have called me a liar for years – but the truth is I’ve never lied once. I told you that things were changing, and you ignored that. If you think you score points with trash talk, think again. It’s just low-rent stuff that makes you look silly.
Anyway, have a Merry Christmas.
bk
Krasting
i never called you a liar until you lied about “your” calculating the numbers i showed you how to calculate to refute your claim that the CBO’s “immediate and permanent” tax increase couldn’t be matched by the “one tenth of one percent” gradual increase.
i think i have been careful to avoid calling you a liar here today. frankly, i don’t think you are smart enough to be one of the paid liars. hysterical, unable to read, yes, liar… only because you repeat the lies you believe.
I am aware the projection of the “Death of the Trust Fund” date has been changed over the years. That is not the same as saying that the Social Security savings for the Boomer Retirement have been less than expected. I don’t expect you to understand the difference, but I have tried to explain it. Unfortunately I can’t do it in a sound bite for you.
“Something has to give”
I have showed you and showed you what has to give… a one tenth of one percent increase in the payroll tax pays for everything.
You can’t see that. Just “omigod 200 billion dollars we’re allgoing to die!”
trash talk.
bk,
Your last comment may not be a lie, but it is presented in a way that is intended to give it greater emphasis relative to the financial strength of the Social Security program than is justified. The Trust Fund asset totals are not what had been projected at the height of the last stock market expansion and subsequent blow out. Just goes to show you that economic projections are worth little and the further out such projections go the less is their value. What is important is that the Trust Fund is healthy and contributing well to the benefits program. That’s what the Fund is supposed to do. It’s not an investment scheme intended to make the Social Security program self supporting, meaning robust enough to cover all benefit needs without additional revenue. FICA is the basic source of benefits revenue. The Trust Fund is the savings supplement to be utilized as needed.
Also, why has the Trust Fund not grown to such outsized projections? Had you not noticed that working class income has been stagnating? When worker income remains flat FICA revenue falters. When unemployment remains significant FICA revenue falters. The best way to assure Trust Fund asset growth, if that is your concern, is to assure workers of better paying jobs and plenty of them. When income is lop-sided, as it has been for several decades, retirement plans of all sorts become difficult to fund. Do you have a better plan? Or do you only have the ability to regurgitate the misleading data presentations of the naysayers regarding the workers’ retirement program, Social Security?
And one additional point. If you, bk, are concerned about the general budget deficit why not get behind efforts to raise the marginal income tax rates to Clinton era levels? Or better yet, why not levels which were in effect through the ’60s, ’70s and ’80s? I recall that the US economy was quite robust at that time. Maybe its time to disincentivize those $10, $20, and $30 million dollar pay packages.
The SS Trust fund rose about 70B from 2012 to 2013 end of year.
However, the Civil Service Retirement funs declined by nearly $100B because congress withheld the annual obligation to “buy” t bils for the fund, it is now down to $700B and its obligations are several times that.
Then CBO says the pentagon could go throgu at least $355B in 2014 dollars to keep and upgrade the nuclear war plans going. CBO is low balling by a factor of 3!!
Gotta starve SS because the pentagon needs to keep filling its trough.
Here is the 12 Dec 2013 audit of the federal debt.
http://www.gao.gov/products/GAO-14-173
The problem with SS reitrement is that payroll taxes are not funding discretionary budget’s deficits. Any redemption of SSTF t bills or paying cash interest is going to raise the ‘defcit’ while it decreases the debt.
Deficits do not need to be covered by payroll taxes, it needs to be covered by income tax receipts, cuts to the 5% of GDP blown at the pentagon or cuts to the other 5% called discretionary spending..
Heritage Foundation already has a site filled with charts to show SS and other entitlements are starving the pentagon’s sacred right to 5% of GDP whether there are enemies or not the crony capitalist must be kept rich.
SS has paid for a lot of war profits, so there is no productivity to pay SS back.
Is Krasting a liar? Or just using a non-standard definition of ‘deficit’ here?
“Just false. There is no PR tax holiday in 2013, and SS will run a deficit of $75B. SS never felt the consequence of the PR holiday in prior years. The treasury repaid SS every penny of the Holiday cost. The deficits at SS are net of those payments by Treasury”
I refer you to CBO: Updated Budget Projections 2013-2013
http://www.cbo.gov/sites/default/files/cbofiles/attachments/44172-Baseline2.pdf
Table 1 Page 8 in the section bolded ‘Deficit (-) or Surplus’
If so you will see that the ‘Off Budget’ figure is a $30 bn surplus while BK insists SS ran a $75 billion deficit.
Now footnote ‘a’ explains that ‘Off Budget’ also includes ‘net cash flow of the Post Office’ but as anyone who reads the papers knows that is a negative number.
So we have CBO in their top line use of the terms ‘deficit’ and ‘surplus’ insisting that SS is running a surplus. Yet both Krasting and CRFB are telling us it is running a ‘deficit’. But is that a ‘lie’?
Well no, just one of those meant to disceive truths Coberly was talking about. Because it turns out that CBO has a second use of the word ‘deficit’ which however DOES NOT GO INTO THEIR TOPLINE NUMBER.
Sorry for shouting but the ONLY combined number for ‘deficit’ you ever see reported in the MSM is the one from Table 1, the one that shows SS in surplus. When reporters use the words ‘Federal budget deficit’ and supply a number it is always the one from this Table and it’s equivalents in other CBO Reports. So in the everyday sense of common language BK and CRFB are lying.
Now if you dig into the reports a little deeper you will see a SUBSIDIARY use of the word ‘deficit’ in the very confusingly named ‘primary deficit’. This number reports Social Security’s cash flow which is in fact negative.
But to shout again PRIMARY DEFICIT IS A TECHNICAL TERM NOT USED IN TOPLINE BUDGET REPORTING.
Now Andrew Biggs and Hassett at AEI have argued that we SHOULD be using this number and sometimes like to claim that everyone is, but the fact is that no one uses it except the whole AEI/Peterson complex and of course their parrots like BK.
But we don’t blame the Parrot for squawking whatever phrase he has memorized: “Polly Want a Cracker” “Social Security Running a Deficit”
Supporters of Social Security like to claim that it has no effect on the ‘deficit’. But this is just to make the same mistake the Parrot BK is just in the opposite direction.
Social Security runs a ‘surplus’ for the topline number always reported in the MSM for ‘federal budget surplus/deficit’ in any year that Trust Fund principal balances increase. That increase is combined with Post Office net cash flow to give a figure for ‘off budget’ surplus or deficit. And in turn that number is added or subtracted from ‘on budget’ surplus or deficit to give what I will call THE deficit or surplus, meaning the one you will see in the New York Times and the Wall Street Journal.
Now people will hasten to point out that what I am calling ‘THE’ budget deficit or surplus is operationally the same as the old ‘unified budget’ deficit or surplus which they will explain is no longer valid. Well that may be true for certain matters internal to the Congressional Budgeting process and does indeed have real import within that limited sphere, the pure fact is that CBO and OMB continue to use a topline number for deficit or surplus for almost all purposes and certainly in the summaries relied on by the MSM which uses the sum of ‘off budget’ and ‘on budget’ surplus as seen in Table 1 of the linked Report. And BTW in the number used by CBO to score bills.
Returning to the point: Social Security is in surplus. Social Security is therefore not in deficit. Not as defined.
Now Social Security is also from certain external perspectives cash flow negative. And so from a macro perspective having to in the final analysis HAVE to be being supported by borrowing from the Public and so HAS to be contributing to the deficit. Well its just common sense! Well that maybe but it is not how current law and Treasury practice treat this. And understanding why that is so is frankly fairly mind-boggling. For example interest paid on Regular Treasuries is scored as an ‘outlay’ while interest paid on Special Issue Treasuries is not. And that irrespective of whether that interest results in a net cash flow or not. This may well seem strange to you but it is the logical result of the Treasury for its own internal calculations taking Full Faith and Credit seriously. As you would hope they would. But it has odd results whe it comes to the intersection of Social Security finance and budget reporting. It just does.
No one focus’s on cash flow? Are you kidding?
I understand that you don’t, but you should. It is and will continue to be a factor in this discussion.
Webb says that no one looks at cash flow. Well, SS does. It reports on it on a monthly basis. This is the link to cash flow in 2012 – Negative $54b. (I’ll send you a copy so you know I’m not lying)
http://www.ssa.gov/oact/progdata/allOps.html
Ignore this and you ignore a critical variable. As a person who has substantial knowledge and understanding of SS, I’m surprised that you choose to ignore this reality. If you want to be informed, then you have to accept this.
Bruce Webb
is trying to explain something that i find hard to explain, and hard to follow. i suggest you don’t get lost in in the “technical language” of the budgeteers or even the Treasury. It’s their accounting system and they can all their income and outlays whatever they want.
But keep your head about you and look at the “real” flow of money.
What they are calling the SS “cash flow deficit” is just SS using its savings for what it saved for. Just like you using your savings for Christmas shopping, or going back to school, or even retirement. It’s your money, you saved it. And now you are spending it for what you saved it for. That is not a “deficit” in any normal understanding of the word.
But, but, but… the Liars say… when the Congress has to spend money to “pay for the Social Security cash flow deficit [see above].. that increases the budget deficit.” That’s only because “the budget deficit” is the difference between what congress takes in in taxes (and borrowing from Social Security…but not borrowing from the public) and what it pays out for programs and paying back what it borrowed from Social Security. So if it has to stop borrowing FROM Social Security and start PAYING BACK what it borrowed from Social Security, that will increase “the budget deficit” the way they use the words. Still, paying back the money you borrowed, and thereby reducing your DEBT, is not a normal use of the words “increasing your deficit.” It is simply a lie to pretend that paying back the money Congress borrowed FROM Social Security is somehow caused by “out of control” Social Security finances.
And the third use of “deficit” is in the “actuarial deficit” of Social Security itself. Social Security cannot borrow, cannot spend more than it takes in, does not owe any money to anyone and cannot ever owe any money to anyone. So what is an “actuarial deficit”? It is simply a prediction that unless taxes are raised or benefits are cut Social Security will not be able to pay presently scheduled benefits with presently scheduled taxes some time in the future. That again is not a normal use of the word “deficit.” It IS a warning that “something may need to be done.”
I hope I have shown that “something” is a tiny increase in the payroll tax to avoid a benefit cut that would hurt real people. The trade off is ultimately about 2% of wages… or 4% if you count the bosses share, versus about a 25% cut in benefits. And that works because that 4% is paid by you and the other worker who make up the “two workers for each beneficiary” or, which is the same thing, is paid by you for two working months for every month you will be retired. So call that about 8% of a “payroll” of about 3 thousand dollars a month, which turns out to be about 25% of a Social Security benefit of about 1 thousand dollars a month. And all of this is adjusted to take care of inflation as well as to provide a small real interest according to the growth in the economy.
One reason the tax will have to go up, besides the increasing life expectancy of YOU, is that workers in the future are not expected to get the same increases in wages over their lifetime as workers in the past. This is not the fault of Social Security. It might be the fault of the workers for not being able to figure out how to get raises… basically because they vote for the crooks who are stealing their wages… but in any case, even if your wages do not grow… you are STILL GOING TO NEED YOUR SOCIAL SECURITY. In fact you are going to need it even more. And in fact Social Security was invented to help us get through the hard times. It seems pretty bizarre… a lie?…. that they are telling us “times are going to be hard so we need to cut our social security.”
to believe this you’d have to believe that your Social Security is just going into a government black hole… to pay the gambling debts of the elderly perhaps… but it’s not. It’s going to be what you need to live on when you are old. You’ll get back what you pay in plus interest.
Though while you need to raise your tax a little to make sure there will be “enough,” you ought to be giving some thought to getting better raises for workers… just don’t wait until you solve that problem, which is hard, before you solve the Social Security “problem” which is easy… except for the Liars.
One definition of a perfectly healthy Social Security system carries the label of ‘sustainable solvency’ and is preferred by current Social Security Chief Actuary Steve Goss.
Under ‘sustainable solvency’ Social Security revenues from all sources exceed costs in every year of the given projection period by at least the amount need to keep the balance in the Social Security Trust Funds at a Trust Fund Ratio of 100, or one year of the NEXT year’s cost. Goss also adds the condition that the TF ratio has to be trending up at the end of that projection period.
Okay that seems reasonable enough: projected revenues meeting projected costs with allowance for a prudent reserve throughout the projection period and (with trend up) for sometime beyond. But as Goss points out in a very, very helpful article in the 75th Anniversary edition of the Social Security Bulletin this has some odd results.
Under law the Social Security Trust Funds which under ‘sustainable solvency’ is simply and ONLY a reserve fund have to be held in interest earning securities which moreover MUST be guaranteed as to principal and interest by the Federal Government. This has been the law since 1939 and codified a practice put in place with the 1935 Social Security Act. Which in practice means Treasury Bonds and Notes. Now it turns out that under the economic conditions and FICA rates which actually allow for ‘sustainable solvency’ that the interest earnings on a Trust Fund with a minimum ratio of 100 will exceed the amount needed to maintain that ratio at it then current level. Meaning that once you have achieved sustainable solvency the Trust Fund takes care of itself even as the current revenues excluding interest handle almost all current expenses. In fact right about 97% of those expenses. Leaving the other 3% or so to be picked up by the interst earnings NOT needed to maintain the 100+ TF Ratio.
Since total Social Security cost increases in nominal terms every year just based on trend population growth (that is cohort independent) and Real Wage/price inflation it follows that maintaining a steady TF ratio means increasing Trust Fund Balances each and every year. Which increase is in fact scored as a ‘surplus’. On the other hand the funding of this increase comes in a portion of interest payments from Treasury which are not only scored as outlays actually come directly in the form of newly issued Special Treasuries. Adding a new twist these newly issued Trasuries though neither scored as an outlay nor having to be financed in any way are considered Public Debt and BTW Debt Subject to the Limit.
But what about the interest NOT retained and so available to subsidize about 3% of current year Cost? Well that goes out the door along side the revenue exceeding interest, itself immediately being recycled into the economy. Since that interest money injected into the economy has to come from SOMEWHERE it is fair to say the system is to that degree cash flow negative.
Okay where does this leaves us. One with a Trust Fund growing in nominal terms every year. Which increase scores as ‘surplus’. Two with a Trust Fund increasing its holdings of Treasuries by exactly the same amount as that surplus. Which increase scores as ‘public debt’. On the other hand under conditions of ‘sustainable solvency’ that increase will remain in the Trust Fund and never get redeemed on net. Which doesn’t make it unreal in any sense, the interest earnings on it continue to fill a vital role in maintaining ‘solvency’. And a smaller role in paying current year benefits. But still an odd sort of ‘debt’.
So ‘sustainable solvency’ means a Social Security system in perpetual solvency that is perpetually adding to Public Debt and is perpetually (in a very small way) cash flow negative.
Solvent. In surplus. Adding to debt. Cash flow negative. Over if you will the Infinite Future Horizon. And none of that contradictory within the rules of the game. Rules which Dread Parrott BK refuses to try to comprehend by insisting that cash flow negative HAS to equate to deficit. Well it doesn’t. Not always and not under conditions of ‘sustainable solvency’
Of course we are not in ‘sustainable solvency’. Still Social Security is in surplus. Today. And cash flow negative. Today. As defined by CBO. Today.
Krasting
you are not lying, but you don’t know what you are talking about. So what’s the difference?
we have tried and tried to explain to you that your “cash flow” is just the long expected drawdown of SS savings to pay for the long expected Baby Boom retirement (in part) and the long expected recessions that come and go.
you can’t understand this, you have shown no ability to understand anything else we are saying here. but you expect to come in and squawk “cash flow deficit, cash flow deficit” and scare readers into thinking, “we have to cut benefits to avoid a cash flow deficit at all costs.”
if they are smarter than you, and can convince their congress, the solution is very easy: increase the payroll tax one tenth of one percent per year. the “cash flow deficit” stops instantly… unless you insist that drawing SOME interest from the Trust Fund every year… is a cash flow deficit to be avoided at all costs… you know, the way you avoid drawing on any of the interest on your savings.
Krasting I am not ignoring cash flow and as you know are fully cognizant of those Monthly Reports, not least because I had to patiently explain to you why they fluctuate on a monthly basis.
The point is that cash flow negative does not equal deficit as defined. It just doesn’t. And anyone who claims that Social Security’s current negative cash flow increased the current deficit number ALWAYS used by the press is a liar or under informed or just parroting AEI.
AEI and CRFB deliberately use the words ‘debt’ and ‘deficit’ in deceptive ways in deceptive contexts. For example they love to try to make ‘unfunded liability’ equal ‘public debt’ and relate it to the current $17 trillion. Well it OS a different concept all together. Equally they and you assert OUTRIGHT that SS added $75 billion to this years deficit when e numbers show it will sutract from that number.
I am perfectly willing to have a discussion of the actual impact of SS negative cash flow on the overall economy. But not when you insist on deliberately muddying the waters and doing your own version of convenient code switching.
Both here and in you Zero Hedge piece you have insisted “CBO says–” when on examination CBO said no such thing, at least not in the sense you insist on having us read into it. It is just not cricket to cherry pick CBO and then just dismiss the numbers and definitions in the various Table 1’s of their reports.
I would love to have a serious policy discussion but you insist on approaching this like a High School debater reading clever points off your note cards because they score with the judges. Hey I was in debate for awhile back in the day. I gave it up because it was about winning no matter what the methods and not actually engaging the topic in an honest way. Indeed champion debates were required to argue both sides of the question alternately. Which I guess is good practice if your goal is to be a criminal defense attorney paid to make a case. But as a path to truth?
Not so much.
“Another reason CRFB can say the cost of benefits are “well in excess of revenue from payroll taxes” is that recently the friends of CRFB persuaded the politicians to “cut payroll taxes” to provide a stimulus to the economy. ”
While “they” did try to use it during 2011 and 2012, this one is behind us now. SS finances are right where they would have been without the “holiday”.
Arne
you are slightly missing the point.
while SS finances are back where they would have been, the lie lingers. the liars tell lies in order to create an emotion linked impression in the minds of the people who are not paying close attention. those impressions stay in the mind long after they are “no longer true” or even after they have been debunked.
and because it’s christmas, “for the children,” let me go back to the lie that somehow social security is taking money away from the children.
the fact is, and the liars know it, that social security is paid for by the workers and takes not one dime away from the federal budget. but if they can get us poor old grannies and grandpops to think that “oh…. we need to let them cut social security “for the children”… they have created a link in our minds, and the minds of everyone else who is not paying close attention… that is everybody… that social security will hurt the children.
that is a lie. a damned lie. and they are damned liars.
Arne
if you know it, where EXACTLY did the money come from to repay the SS tax holiday?
how was it accounted for in the budget?
Dale,
I know where it is reported from the SS side:
Table II.B1.—Summary of 2012 Trust Fund Financial Operations
Reimbursement from General Fund of the Treasury
Thanks Arne
I think I knew that part. I was wondering if the money was just “printed”, or was it “borrowed from the public” and did it show up on “the budget”?
My understanding is that there is a process involving all of those.
Congress votes to authorize spending, which causes it to show up in the budget.
When the money actually needs to be spent the Treasury needs to balance the books. It “prints” Treasury notes and sells them at auction, which is how it borrrows from the public.
(The value of Treasuries needing to be printed depends on the amount of Special Treasuries credited to the SSTF, the sum being what is needed to balance the books.)
did treasury sell 200B worth of bonds (at 2%?) to the public, and write a check to social security so SS could write checks to beneficiaries?
or did it buy (redeem) 200B worth of special treasuries (at 5%) from SS (providing the cash to write benefit checks) and then “issue” 200B worth of new treasures (at 2%) to SS?
is this a “budget” item? or is it one of those things that shows up as “spending” long after the “budget process”?
is there an accessible accounting of “government spending” and income and borrowing “after the fact” that can be compared to the “budget” ?
the budgeteers and about 99.9% of “experts” have themselves convinced that since SS “taxes” are paid directly into Treasury they are “revenue” and the government is really borrowing from itself. they may have an honest reason for saying this, but in order to do it they have to pretend there is no such thing as the Social Security Trust Fund, or any obligation to repay (“itself”?) the money it borrowed (from itself.)
there is nothing new about experts talking nonsense, but we shouldn’t let them get away with it.
“the budgeteers and about 99.9% of “experts” have themselves convinced that since SS “taxes” are paid directly into Treasury they are “revenue” and the government is really borrowing from itself. they may have an honest reason for saying this, but in order to do it they have to pretend there is no such thing as the Social Security Trust Fund, or any obligation to repay (“itself”?) the money it borrowed (from itself.)”
I’d like to broaden Dale’s “but in order to do so” by pointing out that the to do so would have to include disregarding the legislation enacted by Congress that is the Social Security Act. It’s the law. The FICA revenue that flows into the Treasury is a dedicated stream for the purpose of paying Social Security benefits. In the event such funds, in any given budget year, are in excess of the benefit needs of the Social Security program that excess becomes part of the Trust Fund assets.
The fact that the Treasury borrows from the Trust Fund is also a matter of Congressional legislation. It is the law. Excess FICA revenue must be denominated within the Trust Fund as Special Treasury notes, and in that way there is a clear accounting mechanism to keep account of which revenue streams are available to pay for Social Security benefits and what revenue the Treasury has available to pay general budget expenses. As I’ve said before and often, the Trust Fund is one of many creditors to the US Treasury Dept. It’s only distinction as such is that it is a creditor by act of Congress and its Treasury note assets are guaranteed by the “full faith and credit of the US government.”