Social Security under ‘Sustainable Solvency’: Debt & Deficit Revisited
The current Chief Actuary of Social Security is Stephen Goss and on the occasion of the publication of the 75th Anniversary issue of the Social Security Bulletin he contributed what may be the most valuable single piece you will ever read on Social Security financials. The article carried the title The Future Financial Status of the Social Security Program The abstract/teaser for the article starts out with this:
The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security, but are not well understood.
To which I can only add “Boy Howdy!”
Steve is perhaps best associated with the concept of ‘Sustainable Solvency’ which he describes as follows:
Sustainable solvency requires both that the trust fund be positive throughout the 75-year projection period and that the level of trust fund reserves at the end of the period be stable or rising as a percentage of the annual cost of the program.
Well this requires some unpacking. Under current law the Social Security Trust Funds are considered ‘solvent’ if they have a Trust Fund balance equalling 100% of the next years cost at the end of a given actuarial period. Stronger versions of this would require that the Trust Fund meet this standard in every year of the period and/or that it be trending upwards at the end. That is Steve’s “stable or rising”. Well all that is reasonable enough, but what would it look like under standard budget scoring? Well the answer is either “kind of odd” or “mind-bending”. Which will be explored under the fold.
You don’t even have to look at the Tables of the Social Security Report to understand that the nominal amount of benefits payable rises each and every year simply due to population growth combined with any amount of price inflation. And this fact is basically independent of whether that cost is rising or falling as a percentage of GDP. It is even independent of the fact that there are differentials between the demographic cohorts. Those factors can influence the amount of the increase but not under any reasonable projection make nominal cost growth of Social Security negative.
That being true it follows that the requirement to keep a reserve at 100% of next year’s cost means that Trust Fund balances have to increase by at least that same nominal amount to meet the “stable or rising” requirement. Which gets us to our first point. Since under current law Trust Fund reserves are required to be held in financial instruments full guaranteed as to principal and interest by the Federal government this means that such holdings have to increase year over year forever. And since the only instruments that currently fully meet that requirement are Treasury Bills, Notes and Bonds and since all of those are included in both ‘Total Public Debt’ and ‘Debt Subject to the Limit’ this means that Social Security will increase Total Public Debt year over year for every year that it maintains a state of sustainable solvency. That is Social Security Solvency equates to Perma-increases in Debt.
But how does this translate to ‘deficit’? Well under current scoring rules any year that Social Security increases its year end balance is a year that Social Security is running a ‘surplus’ as defined by CBO. So Social Security Solvency equals Perma-Surpluses. Which among other things shows us that the common sense relation of ‘debt’ to ‘deficit’ can use some revisiting, at least as it comes to Social Security.
Still the curve balls keep coming. Social Security’s Trust Funds are held almost entirely in Special Issue Treasuries that are set by a formula at the average rate of maturing 10 year Notes. And since over the long run it is somewhere between unlikely and impossible that Coupon Rates on the 10 year will be negative in real terms this means that interest on a fully solvent Trust Fund will be in excess of the need to build those Reserves. Meaning that once we achieve Sustainable Solvency it will be Self-Sustaining Solvency. In fact so much so that in order to prevent Trust Fund balances from balooning out of control it would require any interest accrued that was in excess of the amount needed to maintain solvency to be expended as partial payment of benefits. Which in turn would mean that Social Security ‘Revenue excluding Interest’ would have to be kept under ‘Cost’ by the same amount as that excess interest. Which in turns means that some part of the Debt Service on the interest earning Trust Funds would have to come in the form of General Fund transfers. Which would make the system as a whole slightly cash flow negative. This conclusion is not simply due to me running through the numbers, Chief Actuary Goss says as much in the following (bolding mine):
However, the occurrence of a negative cash flow, when tax revenue alone is insufficient to pay full scheduled benefits, does not necessarily mean that the trust funds are moving toward exhaustion. In fact, in a perfectly pay-as-you-go (PAYGO) financing approach, with the assets in the trust fund maintained consistently at the level of a “contingency reserve” targeted at one year’s cost for the program, the program might well be in a position of having negative cash flow on a permanent basis. This would occur when the interest rate on the trust fund assets is greater than the rate of growth in program cost. In this case, interest on the trust fund assets would be more than enough to grow the assets as fast as program cost, leaving some of the interest available to augment current tax revenue to meet current cost. Under the trustees’ current intermediate assumptions, the long-term average real interest rate is assumed at 2.9 percent, and real growth of OASDI program cost (growth in excess of price inflation) is projected to average about 1.6 percent from 2030 to 2080. Thus, if program modifications are made to maintain a consistent level of trust fund assets in the future, interest on those assets would generally augment current tax income in the payment of scheduled benefits.
So to sum up. Under conditions of Sustainable Solvency Social Security would at one and the same time be 1) adding to Public Debt year over year, 2) be in permanent surplus for Budget Deficit calculations, and 3) be permanently cash flow negative.
More Debt, Less Deficits, Cash Flow Negative. It only sounds paradoxical.
It seems paradoxical because the measures of debt and deficit you are using are inconsistent. The CBO definition of deficit you are using assumes that Social Security is an ordinary part of the federal government. But calculating Public Debt treats Social Security as a separate entity, so amounts in the trust funds are amounts owed by the USG to Social Security, so they are debt. So when Social Security is in surplus, it lends the money the the rest of the USG, so that amount is debt to the latter. I don’t think these surpluses actually increase the debt, since presumably the USG will sell fewer regular Treasuries when Social Security is in surplus.
(I think the interest rate on Special Treasuries is the average of all Treasuries with more than 4 years before maturity, not just the 10 year rate.
http://www.socialsecurity.gov/OACT/ProgData/intrateformula.html)
This discussion looks at SS under the lens of a 75 year time horizon. That’s the wrong thing to look at. We have a much bigger problem with SS. That problem will be with us in 16 years (or earlier). Current law has the SSTF running dry in the early 2030s. That is the time frame to evaluate SS.
The proposal by Goss is that the TF never falls below 100% of the next year’s scheduled benefits. The TF will be at the 100% level in 2028 (or earlier). In SS ‘speak’, this is right around the corner. To put the ‘Goss’ plan into effect it would have to be implemented immediately to allow a minimum amount of time for people to adjust to what is coming. (The linked report is from 2010 – it’s already stale) .
There are only two ways of achieving the desired long-term actuarial balance – RAISE TAXES or CUT BENEFITS.
Now let’s get real. There will be no ‘fixing’ SS in 2014 (time has already run out for this year). There will be no fixing SS in 2015 either (this is too big a task for a divided government). And there will be no fix for SS in 2016 (no way this could happen in a presidential election year).
So the ‘fix’ must come after 2017. The new President will have this problem fall hard on his/her lap. In all likelihood, Hillary Clinton will come into office, and the first thing on her agenda will be to raise payroll taxes, means test benefits, lift the cap, increase the age of availability, change the COLA and the Benefit formulas. Hillary will be the one who guts Roosevelt’s dream.
This is a scenario that’s hard to fathom (and more than a little bit comical). But that’s the glide-path this story is on.
Krasting the Northwest Plan if implemented immediately would put Social Security into Sustainable Solvency through and beyond the 75 year horizon.
There are a couple of reasons why no one has seriously considered plans like NW, although others have advanced such plans (e.g. Virginia Reno of NASI). This even as they have been poll tested and come out with strong majorities even before the actual dollar and cents cost have been attached. Which as Dale has shown time and again are tiny.
And one of those reasons is that ‘sensible’ people like yourself have convinced themselves that Social Security is in such existential crisis that it HAS to be impossible to fix it through revenues because if the solution was that easy we would have done it long ago. Which reasoning is circular: we can’t consider it because it must have been considered and rejected. Without in turn considering whether those previous ‘considerers’ had no interest in fixing Social Security in ways the preserved its current structure.
The promoters of Northwest are under few illusions that the plan will be enacted in 2014. As one of those promoters my main goal is to point out that all other ‘reform’ plans out there cost workers way more in the form of additional contributions and or benefit cuts than the cost of Northwest and so that if we have to do anything it should be the latter. With the second best choice the time tested plan of Nothing.
The reason Nothing is the second best plan even now is that you can show that the Cost of Nothing is actually negative. While ‘Reformers’ (which include the whole Third Way Sensible Centrist Dems) insist that the longer we wait the greater the subsequent cost an analysis of the numbers show that that isn’t true at all, not when compared to an immediate frontloaded fix equal to the current actuarial deficit. I did a long series of posts on this back before my first days at Angry Bear and may revisit them, but the upshot is that doing Nothing since 1997 has been the equivalent of a 2% of wages savings in each of every year since and a ‘crisis’ of the same size. Those interested can visit my now on hiatus blog and read the set of posts on The Cost of Inactivity from back in 2006. http://bruceweb.blogspot.com/2006/05/cost-of-inactivity-2-lets-get.html
The numbers are likely to hold up until 2017 where the cost of the necessary immediate fix will maybe be 0.5% of payroll with the bulk of that devoted to the by then ‘bankrupt’ DI program with maybe 0.1% as the first installment of Northwest for OAS. Subsequent increases of around 0.1% of payroll devoted to OAS will in turn keep it on a long term path to solvency and achieving that amount of near term savings is not going to require anything like a combination requiring ALL of “raise payroll taxes, means test benefits, lift the cap, increase the age of availability, change the COLA and the Benefit formulas.” and still less anything that would “gut Roosevelt’s dream”.
The numbers just don’t support Krasting’s hysterical take, which to be intelligible assumes that we have to impose a first year solution to immediately fund a 75 year gap rather than do something similar to 1983 and institute a 10 year plan (or as with NW a permanent plan) that will progressively restore the system to solvency and then if we wish sustainable solvency.
In short we are not on that “glide-path” outside the fever dreams of the crisis-mongers. When you hear this drivel make them put it all in dollars and cents the way Coberly has or in extra years of work required to avoid that 80 cents a week. And then let the people decide. My belief, given the fact that revenue based solutions with no cuts poll so well even without numbers attached that support for a plan like Northwest would be overwhelming. If the powers that be let one be advanced. But am not holding my breath. Because it would reveal that folks like Peterson and Cato on the one side and Third Way in the middle have been lying outright or deluding themselves for 20+ years.
The slogan and movement that beat back the 2005 Bush Social Security Tour was “There is No Crisis”. And came backed by actual numbers. Well in large part “There STILL is No Crisis”. Because numbers. You just have to look at them for yourselves and not take either my word for it or (God forbid) Krastings.
The latest CBO report forecasts available revenue at 4.6 percent of GDP and scheduled benefits rising from 4.8 to 6.3 percent in 2037 to 6.7 percent over 75 years. Politicians make deals. They will get to about 5.3 percent in 2037 and 5.7 percent in 75 years. As long as they make the deal by (about) 2022, they can still change the benefit schedule to use the TF to provide a smooth glide path. After that it would be bumpy. Republicans would hate Hilary as much as they hate Obama. If she is elected it will delay the fix.
The fact is that 4.6 percent is enough to provide a rising standard of living to beneficiaries. It would be much less than a reasonable share of the rise that working age households would receive, but it would keep lots of people out of poverty. A fix based on simply raising does make sense. We need to convince lots of people of that fact so that we can get the best deal, but we need rhetoric and that reaches people who usually stop listening as soon as tax increases are mentioned and that reaches people like BK who think SS will be “gutted”.
MIke B says: “It seems paradoxical because the measures of debt and deficit you are using are inconsistent”
To which I say “Bingo!! and give that man a Cigar!”
Most people assume that there must be a simple relation between ‘debt’ and ‘deficit’ generally along the lines that the former is the simple sum of the latter. But that is not true at all. Now obviously the two metrics are related and relateable because they are based on the same data sets but they are the work product of different agencies with different tasks.
Debt numbers are largely under the purview of the Treasury’s Burea of Public Debt and have as a prime focus interest rates and debt service. On the other hand deficits have more to do with current year and ten year cash flow. Now both of these ultimately rely on the carrying capacity of the economy to sustain oveall government spending on the one hand and that component of that spending which constitues debt service but there is no reason a priori for the second order metrics of ‘debt’ and ‘deficit’ to bear a simple relation between them. And as Mike points out they don’t. The issue is whether one sees that as a problem or not. For my part I think not, unless you have locked yourself into a mental framework that insists that they should be so related or worse have to be.
Now on the question whether Social Security surpluses lent to the USG are simply offset dollar for dollar by reduced borrowing needs and so leave Total Public Debt “presumedly” unchanged on net. Well I think there are some hidden assumptions there that are not borne out by history. It seems to me that it puts the cart before the horse and assumes that Congress wants to fund programs at a certain level and so sets the borrowing needs and then divides that among Social Security surpluses and public borrowing. Where an observation of Congress during the last time that Social Security and the General Fund were in surplus the Right saw the former surplus as just opening that much more room for borrowing from the Public. That is Congress first looked to see how much they could borrow from the Public without unduly causing interest rates to spike out of control and pushed to borrow right up to that limit and then just accepted Social Security surpluses as a bonus that among other things they could use to cut tax rates. Which was Gingrich’s public plan before Clinton shot it down with “Save Social Security First” but which was implemented with a vengeance once Bush took over.
That is I have a strong objection to that “presumedly”. Though that particular assumption is the working one among economists left and right. Who IMHO have confused a supposed accounting identity as operating in some reality where Congress is composed of perfectly rational actors. Which put that way is an obvious absurdity.
Krasting
“lets get real”
the cost of keeping SS “solvent” is about 80 cents per week per year. it is only those religiously commited to “no taxes, however small, however needed to pay for what we need” who see this as an impossible “fix.”
i can’t argue how stupid the “deciders”, including hilary, will be, but i can point out how stupid it is to say we need to cut benefits by 25% in order to avoid an eighty cents per week (per year) increase in the tax.
and if we are stupid enough to wait until the last possible moment, even a 2% all at once increase in the tax is a lot smarter than a 25% cut in benefits.
as for raising the cap…. the lefts pipe dream… “make the rich pay,” never mind that Roosevelt insisted that SS be “worker paid” “so no damn politician can take it away from them.
most worker like to be able to say “I paid for it myself.” it’s too bad the “progressive left” can’t understand this.
and it is too bad the insane right can’t understand that it is not “the government” that has to come up with “more taxes,” it is the people who pay for their own social security and need the benefits, who will need to come up with EIGHTY GODDAM CENTS to pay for their own expected increased costs in retirement.
Webb says:
“The numbers just don’t support Krasting’s hysterical take, which to be intelligible assumes that we have to impose a first year solution to immediately fund a 75 year gap.”
Actually Webb, that’s not my ‘take’, that’s the words that SSA uses, From the 2013 Annual Report:
“For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.66 percentage points.”
SSA uses the Immediate and Permanent yard stick, are they hysterical too?
The 2014 SS annual report will come out in days. Two things to look for:
-The new estimate for the 75 year NPV of the unfunded portion. I expect that this will increase by at least $2T. That’s Trillion with a T and this is in just one year. The NPV of the unfunded portion grew by 3Xs the rate of benefit payments. You don’t see that as a problem?
– The new estimate on the Immediate and Permanent payroll tax will be 3.4% (up from last year’s 2.66%). Put that in real dollars. It means a regressive tax increase of $200 Billion in year 1 and rising every year thereafter – forever! An Immediate and Permanent tax increase of that magnitude would sink the economy back into recession.
The idea you have, (the NW Plan), of pushing this off to my grandchildren to pay is dead-on-arrival. This is a Boomer problem, no more passing trash to the next generation.
Bruce – You’ll get no argument from me. I was writing about the direct effect and what the Treasury would presumably do. The politicians, of course, can increase the debt at any time and for any reason. I don’t think of them as perfectly rational, although cutting taxes, I think, was more out of serving the interests of their backers than irrationality.
Krasting one, the Trustees don’t ONLY use the “Immediate and Permanent yard stick”, they also use a “delayed until Trust Fund depletion yard stick” and in context are using both of those measures as bounds and not necessarily suggesting that “Immediate an Permanent” is the way to go.
And two, I do think that the Trustees language that comes at the end of each Summary section is a mixture of boilerplate and hysteria. Particularly since it didn’t vary much even in the years when the amount of the 75 year actuarial gap was shrinking and the date of Trust Fund Depletion was pushing back at a rate of almost two years per year. And in point of fact has not yet returned to the date projected in the late 90s where it was set in the late 2020s rather than as now in the early 2030s (and in 2004 in 2042). The very fact that the language didn’t adjust a bit to the actual reported numbers shows that you shouldn’t put any reliance on it.
Which gives us point three. One of the laziest arguments advanced by “Reformers” over the now 17 years I have been following this topic is the “Even the Trustees say”. Generally wthout any kind of acknowledgement that all of the Trustees are political appointees and that even the designated Public Trustees have historically come with their own budget hawk agenda whether they were Dems or Repubs (the law requires that the Public Trustees come from different parties). Of the six Trustees the most neutral is actually the Commissioner of Social Security and even he or she is not immune from politics. For example recently departed Commissioner Astrue seemed committed to retirement security generally but after all was a Conservative Republican by inclination and registration. The Public may have the vague impression that the Trustees of Social Security and their technical advisors the Social Security Advisory Board are by an large some detached group of policy analysts and technocrats when the reality is that both are dominated by partisans. Something that “Reformers” from the Right either know full well or should.
So my advice to you on this is: “Pull the other finger”.
I think people might be confused by saying that “SS will increase the debt.”
This is not true. Congress will increase the debt by borrowing money. It will borrow SOME of that money FROM Social Security. That is NOT Social Security increasing the debt.
Moreover, as Bruce (Webb) points out, if the payroll tax is increased a tiny amount… as it should be… that debt owed TO Social Security never has to be paid… except a small amount of interest, which is (part of) the cost of borrowing money, wherever you borrow it from.
I think Bruce errs in suggesting that there is some cart before the horse relationship in not recognizing that “because it’s there, they will come.”
Probably they will, but that is CONGRESS’s problem, NOT Social Security’s. It amounts to saying “I wouldn’t have stolen that money if you had kept your door locked, so it’s really your fault.
You can look at the interest payments.. and remember it is only part of the nominal interest that has to be actually paid… as something Congress could avoid entirely if it just pays back ALL of the money it has borrowed from Social Security. And then Social Security would have to keep it’s reserve in some other assets. Or do without a reserve at all… that would be clumsy, but doable. Frankly it’s smarter for SS to keep it’s reserve in Treasuries just like everyone else who needs a “safe” place to store money.
I am trying to avoid getting into another fight with Bruce (Webb) about contributing to the confusion caused by the contradictory and counter-intuitive play of “debt” and “deficit” in these discussions, but I did check with “most people” overnight:
I asked them what does “SS contributes to the deficit (debt)” mean to you? They said, “it sounds like SS is spending money it doesn’t have that “the young” will have to pay for without getting anything for it.”
This is not true. It is in fact the LIE that the Petersons have been promulgating for thirty years that I am aware of. I think it is important to avoid “confirming” the LIE that Peterson is telling.
SS does NOT contribute to “the deficit” or “the debt.” SS pays for itself. That is, the workers who will get the benefits pay for them, themselves. And the fact that ultimately they will all “collect more than they paid in” is no different from what happens with a bank account or an insurance policy… and no one would think to say that people do not pay for their own bank interest, or their own insurance.
there is a slight difference between SS and what people normally think of as “insurance,” which confuses those who want to be confused.
With auto insurance or health insurance you can indeed get back “less than you paid in” unless you have the accident or the illness. But you DID “pay for” the insurance.
With SS everyone gets back more than they paid in. The “insurance” factor shows up in that those who end up poorer than average after a lifetime of work get back a higher percent “return on their investment” than those who end up richer than average after a lifetime of work.
The difference in “rate of return” amounts to the “insurance premium” that you pay “just in case” you ended up among the poorer than average… and that can happen to even the smartest and hardest working of you.
The nice thing about SS is that you ALWAYS get back at least what you paid in, adjusted for inflation. And if you need it, you get back a lot more than you paid in.
And it doesn’t cost “the government” a dime.
And “the young” are paying for their own future benefits, even if they are too stupid to understand pay as you go financing.
oh hell, i can’t help it.
Bruce says “SS adds to the debt.”
This is not correct, and shows a profound misunderstanding of SS or of language.
Bruce knows perfectly well that SS does not add to the debt. But he can’t seem to say “Congress borrowing from SS adds to the debt, just like Congress borrowing from any source whatsoever.” But it is Congress adding to the debt. Social Security pays for itself. And that includes the interest earned on the money it lends to Congress.
Krasting
pardon the “ad hominem” i can’t restrain myself:
the Trustees say… ““For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.66 percentage points.”
actually, they say “or an equivalent.” the equivalent is either the benefit cut or, say “raise the tax one tenth of one percent per year for approximately 20 of the 75 years…
i am very sure THEY know this. but in your primitive brain something they say becomes rock solid “there is no other way to do this.”
it is a cause of much frustration dealing with you. you see something, don’t see it all, don’t understand it at all, but it becomes the “LAST WORD” in your mind… which makes the liars happy.
because the Trustees… unlike the actuaries… ARE liars. They say “at the end of the 75 years a “significant increase in taxes, or cut in benefits would be required to fund Social Security into the infinite horizon.” The “infinite horizon” is a lie unto itself. but “significant increase” would be approximately another 2% increase., after a hundred years., I don’t call that significant. But I do call it “scare words.”
The fact is that a 2% increase… for each the employer and the worker… phased in over approximately 20 years will pay for SS out into that “infinite horizon” as far as the eye can see.
and, do note the difference between their 2% now and my 2% gradually. their 2% is “combined” and mine is “each.”
so why the ad hominem?
Krasting has been told this dozens of times. He keeps coming back and saying the same dumb thing.
It’s not that he disagrees with it. It’s that he can’t understand it or remember it.
Here is a picture that may help. The numbers are “made up” to make it easier to follow the argument without getting lost in the math.
The Social Security “tax” was raised in 1983 to a level higher than needed to “pay as we go” for SS benefits.
The extra money was borrowed by Congress, which used it to pay for airplanes and such.
This was BORROWING BY CONGRESS. Note that Social Security did NOT increase the DEBT or the BURDEN ON THE YOUNG. The money (debt) was not spent ON Social Security. It was spent on airplanes and such.
Congress “pays interest” on the money it borrows from SS, just the same as it pays interest on other money it borrows from other people.
But with SS there has been no need to find the cash to pay this interest, much less the principle: The money just sits there in the form of IOU’s. That is Congress has had the use of free money so far.
Now the time is coming that the payroll tax will no longer be “more than we need to pay as we go,” In fact it will be a little bit less. This means that SS needs Congress to start paying back… in real money… the money it has borrowed plus interest. Perfectly normal business.
Okay, let’s say that Congress has borrowed … including “reborrowing” the interest it has “paid” … one trillion dollars. The interest on this is about fifty billion dollars a year. And lets say the payroll tax has been increased enough to “pay as we go” all but about 25 billion dollars a year. Now Congress pays the 50 billion in interest it owes. 25 billion of that goes to help pay benefits… balancing the SS budget… and 25 billion goes back into the trust fund (no cash changes hands) to increase the amount in the Trust Fund to keep the required reserve growing with the increases in inflation and population size that increases the “one year’s benefits” that the Trust Fund is maintained to equal.
The actual increase in benefits paid out (as opposed to kept in reserve) comes from the increase in payroll tax collected, and the interest actually collected in cash on the money borrowed by congress (to buy airplanes with, NOT to pay for SS). Note that is NOT an increase in the TAX RATE, but an increase in the amount collected, at the same tax rate, from an increase in the size of the total payroll… due to inflation, population growth, and real growth in wages.
Please note none of this has increased the burden on Congress (or “the young”). They are still getting an almost free Trillion Dollar loan…paying in actual cash only about half of the interest due.
Social Security is still paying for itself. If Congress doesn’t like paying the interest on its debt… something it calls “increasing the deficit” it can simply pay back the Trillion Dollars, and let SS find another way to manage it’s surplus reserve.
However, money being what it is, Congress will not pay back the Trillion, preferring to pay the 25 billion in cash interest… which is a nominal interest of about 2.5%, approximately the rate of inflation… in other words, essentially no cost at all.
But the details, and particular dollars and cents are not very important… they might become so in some future scenario I can’t imagine and even the Trustees do not imagine, though I can’t speak for Elmendorff’s CBO.
What is important is that you understand the principle: Social Security does not add to the debt or deficit. Congress borrowing money from Social Security adds to the debt or deficit. Something very different… in fact, exactly backward from the claim that SS adds to the debt.
NONE of the debt was used to pay FOR Social Security. It was used to pay for airplanes and such. And only PART of the interest on this debt will be paid to SS.
This is not SS “increasing the debt.” This is SS giving Congress an almost interest free loan.
please note
the part of the interest that goes into the Trust Fund… and is not paid by Congress in actual cash… amounts to Congress re-borrowing that money.
If you owe interest, and you don’t pay it, and the lender just adds it to what you owe, that is exactly the same as you borrowing the money to pay the interest. you can either borrow it from the original lender, or you could borrow it from someone else.
some people get confused about this.
Coberly – How many years has been that you’ve been pushing the NW plan? At least 5. And every time you have pounded the table about 80 cents a week. Your numbers need an update. In case you have not noticed, things have gone south for SS in those years.
The NPV of the unfunded portion was $4.3T in 2008. In 2014 it will be pushing $12T. So the bucket you thought you had filled five years ago got 3Xs larger. The ‘fix’ you love, no longer works.
And anyway, say that the .2% increase every year for the next 20 would actually work. It’s still ludicrous. There is not a Senator or Congressman who would vote for such a plan. A 20 year increase in regressive taxes so boomers can get a free ride? Like I said, that plan is D.O.A.
Krasting that change in NPV doesn’t in fact materially change the first year increase needed under Northwest.
This is because your understanding of the financials is actually negative. You often parrot numbers and changes in those numbers that are perfectly correct but then draw absurd conclusions based on truly abysmal back of envelope calculations.
Northwest Is designed to be adaptable to any and all probable changes to the projections and mostly does this by adjusting the timing of changes in years 20-40. There is no need to further front load those changes and in fact solid reasons not to given the timing incidence of the changes which change those NPV. Methinks you are overthinking the meaning of the ‘P’ in NPV. Because changes in PV don’t necessarily equate to proportionate changes in Present Action.
You remind me of the Monty Python sketch with the two old ladies and the penguin on the TV which ends with one triumphantly proclaiming “I’ve run rings around you logically!” With the difference that the pythons were engaged in self-mockery. While in your case that mocking job is left to us.
Coberly let me riddle you this:
Assume that all on-budget spending and revenue magically became balanced (including debt service) and so froze Debt Held by the Public in nominal terms.
Assume further that Northwest was adopted in full in a way that delivered Sustainable Solvency.
Over time what would be the result on Total Public Debt?
Well it would go up dollar for dollar with the increase in Trust Fund Balances needed to maintain Sustainable Solvency. Because Trust Fund Balances are the biggest component of Intragovernmental Holdings and Intragovernmental Holdings are a component of Public Debt. Taken to extremes this would mean that the Debt Limit would have to be periodically raised to accommodate this growth in Trust Fund Balances.
Given all that how can you maintain that it is not true that this is “Social Security increasing the debt” How else would you characterize this admittedly theoretical scenario?
And I would ask that same riddle to those others that say increases in Trust Fund assets via ‘Purchase’ of Special Issues are always offset by reductions in Borrowing from the Public and so result in no Net Change in Public Debt.
How does that work at the lower bound where there is no net new Borrowing from the Public?
I’m not sure I understand the question. There doesn’t have to be net new borrowing for increases in the Trust Fund to be offset. As long as there is debt, it’ll have to be rolled over, so new Treasuries will be issued, which can be offset by Special Treasuries, leaving the Total Public Debt unchanged (decreasing the Debt Held by the Public). (I don’t think that Debt Held by the Public is frozen if “on-budget spending and revenue magically became balanced” and Social Security runs a surplus.) But maybe I’m missing something.
Webb – Earlier you echoed Coberly with the 80 cents per week stuff. More precisely you and Coberly have advocated the “0.1% NW Plan” be implemented immediately. Coberly has said that the increases must go on for 20 years for a cumulative increase of 4%.
In your latest comment you say that more increases are required in years 20-40?? I tell you again, there is no support for something like that. America has lots of priorities, SS is one, but SS is not going to get all of the new tax dollars that will be required under your plan. And again, the idea of back-ending this to a future generation is a no sale.
And also, You ask:
“How does that work at the lower bound where there is no net new Borrowing from the Public?”
Huh? No new borrowing? Since when? The Debt to Public has risen from $5T in 2008 to $12.5T in 2014. The number goes up every week.
Krasting 20 x .01 does not equal 4.0. It happens that I am looking at the 2012 NW Plan Spreadsheet right now and it shows a 0.01% each increase for employer and employee through 2033 then a freeze until 2039 and then again to 2044 with a 0.02% combined increase each time then again in 2071.
Dale May not spell every bit out every time but mostly you are just not paying attention to the qualifications for his statements.
Plus you have simply not done the math comparing those 0.02 increases to the increases in Real Wage. If you did you could see that it doesn’t remotely have the crowding out effects you claim.
And you moron the whole “no net new borrowing” was explicitly in the context of what I called a “magical(ly)” and “admittedly theoretical scenario”. Try reading for comprehension for once.
Mike B under the “magical” scenario that has outlays including debt service equal to current revenues then Debt Held by the Public becomes frozen ON NET. There still would be rollover but retiring debt and issuing new requires no new outlays, not of debt service is absorbed in the existing balanced budget.
In this theoretical scenario any offset to new Special Issues would have to come in the form of NET redemptions of existing Debt Held by the Public. And since these new issues would not be the result of new tax revenues but instead by simply issuing Treasuries in place of accrued interest there wouldn’t be any cash revenue to effectuate that net redemption.
Instead Treasury would be meeting its Debt Service obligations on the Trust Fund partially from On Budget Revenues and partially by issuing Special Treasuries ab nihilo with the understanding that they might well never need to be redeemed. But scoring as new Public Debt all the same.
Yeah it is hard to wrap your mind around, it took me years to get this far and I am still not sure I have every tiny bit straight. But am pretty confident about the major bits having run them by smarter people than me.
The problem with THIS problem is there is no problem. Don’t want a benefits cut? FORCE CONGRESS to pay out the same or more. Historically speaking, whenever Congress wants MORE MONEY, and it has NEVER been a matter of need since 1913, Congress raises the debt limit and The Fed never has and never will refuse airy a dime.
Its a “PRINT ALL YA WANT” monetary system, Folks.
OK, Bruce – I forgot about the assumption the Social Security was cash flow negative.
Bruce
i am in a terrible rush at the moment so watch out for typos’s and braino’s.
a contrafactual conditional is somewhat problematic. i don’t know what the case would be “if the budget were balanced.” but in the real world the budget is never balanced. it’s actually a bad thing to balance the budget. but if it ever happened that congress did not need to borrow money from SS, then SS would have to find someplace else to stash it’s reserve. i don’t think it would be an insurmountable problem. but in ANY CASE, Social Security does not BORROW money. Therefore it cannot increase “the debt,” nor can it increase the deficit. Congress can increase the debt by borrowing money FROM Social Security, AND it can increase “the deficit on it’s books the way it does its accounting… by PAYING BACK the money it borrowed from SS without otherwise raising taxes or reducing spending to “lower the deficit.” IN any case it is NOT Social Security that raises the debt or deficit, it is Congress that raises the debt or deficit. And I am not being cute here. I am trying to get you to comprehend the reality and not let the bad guys confuse you with words.
Yes “paying back SS” will (ceteris paribus) “increase the deficit”, but note it is PAYING BACK that increases the deficit, NOT Social Security that increases the deficit. And, of course, paying back SS while increasing the deficit, REDUCES the debt… as you have noted. alas without enllightening Krasting.
btw thanks for trying to help Krasting out in my absense. I think you meant 0.! percent and 0.2 percent respectively… not .01 percent as i think you wrote… i can’t see what you wrote from here.
hang in there. i am still on your side.
Dale, one there was a brief shining moment when the budget was balanced: FY 1998. And if we liked we could examine what happened to Total Public Debt and Debt Held by the Public on Sept 30th of 1997 and Sept 30th of 1998.
http://www.treasurydirect.gov/NP/debt/current
And it wasn’t a bad thing, not in the economy as it existed in the late 1990s.
Also in the circumstance of Sustainable Solvency there is exactly nothing that would prevent Treasury from crediting the Trust Funds with Special Issues, especially when all of that was in ‘payment’ of interest. Which I would point out is not ‘borrowed’ by Congress to start with, there being no cash influx from the outside economy.
And you can twist and turn and insist that where there is no borrowing there can be no debt, but this is to make the same category mistake Krasting did when he insisted that ‘loan’ and ‘liability’ were full equivalents in accounting terms. Well they aren’t. ‘Loans’ do result in ‘liability’ but not all liabilities are the results of loans with an obvious example being ‘Income Tax Payable’.
Special Issue Treasuries are carried on the books as the largest share of Intragovernmental Holdings. And all $4.9 trillion of those Holdings are liabilities of the Federal Government. Now most of the largest funds in that category are ultimately funded by the in turn ultimate beneficiaries but for others the relation is more indirect and the source of funds are taxes on consumption or fees. Yet wherever the source of the funds they all represent obligations and liabilities to the Federal government. And all are included in Total Public Debt. And the fact that some of those funds were never ‘borrowed’ (because the result of interest on reserves) doesn’t change their status as liabilities.
As noted in the last sentence of the post under conditions of Sustainable Solvency Trust Fund Balances, which are comprised of Special Issue Treasuries that are legal obligations of the U.S., will grow year over year. Even though Social Security as a whole will be Cash Flow Negative, that is having funds flow from the General Fund to benefit payments. In that scenario it is faintly absurd to be talking about ‘borrowing’ anything. Yet Public Debt as defined would be going up year over year.
At this point it seems you are reduced to claiming that not all ‘Public Debt’ is REALLY ‘debt’ just as not all ‘deficits’ are REALLY deficits. Well okay, but there is no reason I have to join your particular Language Game (a reference to Wittgenstein BTW).
Oh and now that folk had time to check out FY1998.
Date Debt Held by the Public Intragovernmental Holdings Total Public Debt Outstanding
09/30/1997 3,789,667,546,849.60 1,623,478,464,547.74 5,413,146,011,397.34
09/30/1998 3,733,864,472,163.53 1,792,328,536,734.09 5,526,193,008,897.62
Debt Held by the Public went down
Intragovernmental Holdings went up (Trust Fund Surplus mostly)
Public Debt went up.
Dear Bruce
I am afraid that it is still you who are confused.
“They” can “add” whatever they want to their accounts of “debt” and “deficit”, but it is STILL NOT Social Security that is “contributing to the debt/deficit,” any more than your grandmother contributes to your debt when she lends you money or contributes to your deficit when she asks you to pay her back.
What still counts here is who did the borrowing, and who spent the money. Social Security does not borrow any money. The money that shows up on “the debt” was all spent by Congress on things like airplanes. The money was borrowed FROM Social Security and spent BU congress.
When Congress pays BACK the money it borrowed FROM Social Security, it is paying BACK a debt, even if this PAYING BACK is accounted as part of “the deficit” in its budget between money coming in and money going out. Congress is NOT paying FOR Social Security, it is paying for the airplanes and such it got by using the money it borrowed FROM Social Security.
You seem to think the issue is about the words Deficit (as a “term of art”) and Debt. No. it’s about the words “to” and “for.”
You know this. You have just been caught in a language trap of your own making, caused, I think, by your noble efforts to untangle the “paradox” of the “expert” use of “deficit”…. but you are looking at the wrong word, and not looking at the reality at all.
try to think hard about the difference between
“Social Security contributes to the deficti”… and
“Paying back Social Security contributes to the deficit.”
Even that, I fear, will confuse lesser minds. Don’t let it confuse you.
Not sure why I picked FY1998
Lets try 1999 and 2000
Date Debt Held by the Public Intragovernmental Holdings Total Public Debt Outstanding
09/30/1998 3,733,864,472,163.53 1,792,328,536,734.09 5,526,193,008,897.62
09/30/1999 3,636,104,594,501.81 2,020,166,307,131.62 5,656,270,901,633.43
09/29/2000 3,405,303,490,221.20 2,268,874,719,665.66 5,674,178,209,886.86
Now we can understand why Greenspan was worried about the disappearance of the Long Bond
Dale that Social Security is blameless in this matter doesn’t entirely erase the larger picture.
Will there be a flow of funds from the General Fund to Social Security?
Will this flow of funds have to be financed out of the current economy?
Could that flow of funds have crowding out effects?
Well the answer to all three of those questions is, as a first order response “Yes”.
But then we can start asking further questions.
Is that flow of funds equitable considering that the direction of flow was the other way from 1983 to 2012?
How does that future flow of funds to Social Security compare with the savings in public borrowing and the contribution of past public spending to future productivity?
Given the actual amount of dollar flow would there actually be any significant crowding out?
Are there easy and equitable ways to put Social Security on a sound footing that would actually obviate the need for most of that flow of funds from the General Fund to Social Security?
And a hint for you, the answer to that last questions is “Yes, the Northwest Plan would fully fund Social Security while eliminating the need to redeem the Trust Fund principal and roughly half of the need to pay interest on that principal all while delivering 100% of the scheduled benefit”
Which question and answer I like a lot better than outright denial that Social Security REALLY has an externalities at all once you solve for the question of societal equity. That is all that “borrowing from” stuff.
So what if Social Security “contributes to the debt”? If there is a way to save Social Security in its current form that obviates the need to pay that debt back?
So what if Social Security “contributes to the deficit”? Well yeah it does, but only because we have taken steps to convert it to an interest only loan with a huge discount on that interest that would reduce real interest close to zero. You got the use of some $1.5 trillion and have to carry it at a net rate of 3% nominal and maybe 1% real? Where else you going to get a deal like that?
Dale you are the primary author of a plan that makes all these questions moot in real world terms. Why fight these useless linguistic battles?
This is a more detailed reply to your last comment on AB. Past experience tells me it will not help us. But I keep trying.
“one there was a brief shining moment when the budget was balanced: FY 1998. And if we liked we could examine what happened to Total Public Debt and Debt Held by the Public on Sept 30th of 1997 and Sept 30th of 1998.
http://www.treasurydirect.gov/NP/debt/current
And it wasn’t a bad thing, not in the economy as it existed in the late 1990s.”
i don’t really understand what this has to do with the issue. i said balancing the budget was generally a bad thing. i don’t know and don’t much care if the “balance” in 1998 was good or bad, and it really has nothing to do with “Social Security contributes to the deficit.”
“Also in the circumstance of Sustainable Solvency there is exactly nothing that would prevent Treasury from crediting the Trust Funds with Special Issues, especially when all of that was in ‘payment’ of interest. Which I would point out is not ‘borrowed’ by Congress to start with, there being no cash influx from the outside economy.”
No, you are off the rails here entirely. Borrowing or lending does not depend on “cash influx.” It is an agreement to repay “money” temporarily subtracted from your “books” and not available to you to spend and transferred to my “books” and available to me to spend. whatever actual cash flow, if any, is immaterial. And, as I keep trying to say, and not sure that you understand, “interest deferred (compounded)” is the same as “borrowing the amount of the interest.” I don’t know what would prevent Congress from issuing Special Treasuries, but it won’t do it. and if it did, that would not be Social Security contributing to the deficit/debt. You are seriously confusing yourself with your own imaginary transactions, and STILL.. even in the imaginary transaction… failing to keep track of “who is doing this”. IF congress credits the Trust Fund with special issues without receiving “cash,” then it would be “Paying for” Social Security in some bizarre way…. but that would not be Social Security as it exists today, or has existed since implemented as far as i know.
‘And you can twist and turn and insist that where there is no borrowing there can be no debt, but this is to make the same category mistake Krasting did when he insisted that ‘loan’ and ‘liability’ were full equivalents in accounting terms. Well they aren’t. ‘Loans’ do result in ‘liability’ but not all liabilities are the results of loans with an obvious example being ‘Income Tax Payable’.”
I am not sure I know exactly what a “category mistake” is. And the issue here, between you and me, is not between “loan and liability”, it is actually about “who spent the money.” I dont remember insisting that where there is no borrowing there can be no debt, twisting and turning or not. No doubt a court, or the IRS, could demand payment from me and thereby give me a debt without my having borrowed anything. That has nothing to do with what we are talking about. I think the twisting and turning here is yours.
“Special Issue Treasuries are carried on the books as the largest share of Intragovernmental Holdings. And all $4.9 trillion of those Holdings are liabilities of the Federal Government. Now most of the largest funds in that category are ultimately funded by the in turn ultimate beneficiaries but for others the relation is more indirect and the source of funds are taxes on consumption or fees. Yet wherever the source of the funds they all represent obligations and liabilities to the Federal government. And all are included in Total Public Debt. And the fact that some of those funds were never ‘borrowed’ (because the result of interest on reserves) doesn’t change their status as liabilities.”
As far as I am aware, all of the Debt owed TO Social Security is a result of “money” borrowed FROM Social Security. Social Security did not “contribute to” the DEBT, it lent money to the Congress. I don’t know about the other special treasuries and don’t care. The issue here is “does Social Security contribute to the deficit/debt?” The answer is NO. Social Security did not borrow any money. You seem to have a very hard time understanding the difference between “borrower” and “lender.”
“As noted in the last sentence of the post under conditions of Sustainable Solvency Trust Fund Balances, which are comprised of Special Issue Treasuries that are legal obligations of the U.S., will grow year over year. Even though Social Security as a whole will be Cash Flow Negative, that is having funds flow from the General Fund to benefit payments. In that scenario it is faintly absurd to be talking about ‘borrowing’ anything. Yet Public Debt as defined would be going up year over year.”
Not absurd, not even faintly. As long as Congress does not repay the money it borrowed, the interest on that money is owed TO Social Security, and interest which is not paid is the same as more money borrowed. Your sustainable solvency situation, is simply a situation where SS collects enough money to pay all its “expenses” with the help of some of the interest owed to it as a result of past borrowing by congress. The interest that is simply added to the Trust Fund is saving congress the trouble and expense of finding “cash” to pay the full interest it owes. There is nothing at all strange or remarkable about this. Even if you have convinced yourself that Achilles will never catch the Tortoise.
“At this point it seems you are reduced to claiming that not all ‘Public Debt’ is REALLY ‘debt’ just as not all ‘deficits’ are REALLY deficits. Well okay, but there is no reason I have to join your particular Language Game (a reference to Wittgenstein BTW).”
No Bruce, that is not what I am claiming at all, reduced or not. Public Debt is really debt. And Deficits… term of art or not… are really deficits. But you need to get back in touch with reality well enough to understand that “Social Security” does not “contribute” to those debts and deficits. Congress borrowed the money from Social Security. That is Congress “contributed” to the debt. Social Security no more “contributed to the debt” than Peter Peterson did when he bought a Treasury. And when Congress pays back the money (or part of the interest on the money) that it borrowed, even though that payment shows up (however they write it down) as an expense on a budget that is in deficit, it is not “Social Security” contributing to the deficit: it is “paying BACK Social Security” that “contributes to the deficit” with “deficit” defined as “the shortfall of this period’s income, from whatever source, relative to this period’s expenses”… a useful definition for some purposes but not necessarily one that clarifies the governments actual position with regard to its total debt.
I don’t know what Wittgenstein would make of this. And I don’t much care. It is not my language game. It is my poor sad effort to rescue you from a language trap you have created for yourself, with help from the likes of Blahous and Geithner.
Bruce
I understand that you understand the reality of Social Security, and I am very, very grateful for that.
But we fight these useless linguistic battles because YOU insist upon aiding the enemy with a statement that is wrong as well as misleading.
All the facts about Social Security being borrowed from and being paid back are essentially (i am going to regret saying this) as you describe them…. EXCEPT… that you think it all adds up to “Social Security contributes to the deficit/debt.”
It does not. I think that you are so in love the apparent paradox that you fail to note it is not a question of what the meaning of “deficit” is, but it is a question of what the meaning of “contributes to” is.
I have talked to a number of “most people” since you accused me of arrogating to myself what “most people think” and they all, to a man, and to a woman, agree that “contributes to the deficit” means to their ear that “Social Security has spent money it didn’t have and now “we” have to pay for it.”
That is the lie. You are inadvertently contributing to it.
I did not, however, ask Mr Wittgenstein. My experience is that even great thinkers can get themselves confused from time to time.
There is a different way to achieve LT solvency. It would require that TF assets be changed in significant ways. There would be great opposition to this, so it will not happen. That said, it would “work”.
Use 2013 TF data and also a starting point of 12/31/13 TF assets (I will use OASDI combined as the following would also be a permanent ‘fix’ for DI.
As per Goss, to be sustainable, the TF must have assets = a minimum of 100% AND it must be of a size that annual interest income is equal to 1) any annual shortfall between current income and expenses and 2) an amount that when included would increase the TF so that the 12/31/xxxx TF principal is equal to the next years benefit payments.
Start with (and don’t go berserk) that the TF extinguishes a portion of the TF. It rips up some of the exiting paper. The amount to be extinguished is 2.764T Minus 2014 Benefit payments (864B) = 1.5T. The 12/31/13 TF balance becomes $864B. Note = Total debt is decreased by 1.5T with the stroke of a pen.
Numbers (all from 2013 SSA)
A) NEW 12/31/2013 OASDI TF Balance = 2013 benefits = 864B
B) 2014 cash shortfall (aka Primary Deficit) = 75B
C) 2015 Benefit payments = 914B
At the end of each year there is a payment from Treasury. for 2014 it would = 75B + 50B = 125B total. This would establish the new TF balance on 12/31/14 at 100% of 2015 benefits.
The objection will be that there was a raid on SSTF. But Webb can explain that the TF is just an accounting device. The annual “Top Up” must be assured. I would make that a commitment of the country similar to the legal language now in the Special Issues and all Public Debt. The commitment to pay the annual amount has the Full Faith and Credit of the USA. It would be a mandatory payment – Congress could not touch it.
What would this achieve?
1) Immediate Long Term Solvency
2) A resolution of the 2016 DI issue
3) Eliminates the 2033 cliff from the discussion
4) Eliminates (approximately) $100B of on-budget interest expense
5) Eliminates $1.5T of Debt
6) It puts any shortfall on the budget (the $125B (annual) top up would be a mandatory payment on the budget)
1-5 are good news, #6 is the problem. I think the SS shortfalls should be on the budget. Congress could do what ever it likes to reduce the future years on budget expense. They could do a NW, raise the cap, change the COLA or whatever else might be considered necessary. But Congress can’t get out of the annual obligation to top up the TF to achieve the LT solvency.
Is this smoke and mirrors? Yes, but it does change things. It eliminates the issue of solvency, It eliminates the 2033 issue.
I think Goss would be okay with this.
Krasting
so we should just rip up 20 centuries of human understanding about what “debt” means, and what “paying your bills” means in order to accomplish with your Rube Goldberg plan what we can accomplish just by paying an extra eighty cents per week for our own needs will accomplish?
Coberly – Ask Webb, he’ll tell you that a TF is not necessary, it works out to the same thing. So when you replace one Promise To Pay with another Promise to Pay solvency is achieved.
You think there is real money in the TF, actually its just borrowing authority.
And what happens in 2033? The TF is then zero, and everything has to go on the budget then. This just brings it forward. But, if you like, we can wait to about 2028 when TF assets = one year’s worth of benefits.
You can stick with the current arrangement, but understand you’re facing a cliff with SS. It’s not so far away that you can take your eye off of this reality.
Krasting I do not believe that the Trust Fund is just an accounting device.
Do not. And I repeat DO NOT evoke me as any defense of ANYTHING you post unless I have explicitly endorse your SPECIFIC point and referenced you BY NAME in doing so.
I am not a party to your game and trying to make me such is a one way trip to the comment trash can.
Plus your plan is not only Rube Goldberg-ish but to the extent I understand it profoundly misguided. As Social Security is currently structured all transfers from the General Fund are amply justified by the fact that they are either interest or principal repayment on Treasuries backed by Full Faith and Credit of the U.S. Moreover those interest payments and principal redemptions are exempt from the Appropriations process and so to that degree isolated from annual political schenanigans.
Your proposal would transform interest payments mandated by law into an annual appropriation that could be hijacked by every passing budget and debt crisis or given the Republican Senators willingness to attach just about anything to any bill whatsoever and then filibuster it it if they don’t get a vote on their amendment. Meaning that Social Security would be held hostage potentially multiple times a year, sometimes directly and sometimes just as a passive victim of the process. That is there is no way to ensure that that annual “top up” would be “mandatory”.
And I don’t think the budget accounting works either.
Webb- Sometime in the last five years you wrote about the fact that the TF is not necessary. So that is why I asked Coberly to run it by you.
The “hostage” issue you speak about goes away with the Full Faith and Credit promise to pay the annual adjustment amount necessary to maintain solvency. I agree that if this were not a mandatory payment, congress would mess with it. I want to be very clear, this can’t be changed.
Some more numbers:
As of 12.31/13 The TF was 2.764T. If a discount rate of 4% is used to evaluate the holdings and the future interest payments the NPV of the TF is still 2.764T.
What is the NPV of my proposal? Since it eliminates the unfunded portion the value of this equal to the 9.5T NPV of the unfunded under current law.
What is the value of this plan based on the infinite horizon? $15T. This plan would also bring this down to zero.
So the value, to SS, of this plan is multiples of what the TF has today.
This was just a different effort to achieve LT solvency – that was the topic of all this, No?
I don’t think there is any un-flawed plan for SS. All the options have warts.
Coberly,
You said, “When Congress pays BACK the money it borrowed FROM Social Security…”
Does it really require congressional action for SS to cash in some of its treasury holdings? Does Congress have to approve the transaction or is it just a transaction between the treasury and SS authorities?
Congress does not have to approve the loaning of SS money to the treasury, does it? Again, isn’t it just a transaction between treasury and SS?
Coberly/ Bruce Webb: SO, its OK for The Capitalist to live of INTEREST from money lent to The government or anyone else, but NOT The Workers? (ie. The Northwest Plan)
Critter
to be honest i don’t know. but i don’t think that’s what i was saying.
Krasting
I am pretty sure you are accusing Bruce Webb of having written something that I actually wrote… and you have misunderstood that.
I have said that it would make to material difference, or any real injustice, if the Trust Fund were stolen by a flying saucer. BUT I like the legal niceties, and the chain of ownership way of doing things. Your “plan” would destroy all that, and, as Bruce Webb says, subject SS to constant gaming by the Congress.
It would also raise taxes… something you say I can’t do when I would raise a “pseudo tax” on the people who will get the SS benefit… that is enable them to pay for their own increased benefit. You would raise taxes in general on everybody whether they expect to collect Social Security or not.
The Bad Guys would like nothing better than to turn SS into “welfare” paid out of the general fund by whim of the politicians they control. But SS was carefully designed to be worker paid so the workers would not let the politicians take it away. After 70 years of lying it looks the politicians may have found a way to steal SS from the people, at least people who think like you.
Back to the Trust Fund: if it disappeared today “all” that would happen is that the 80 cents per week per year that will be needed starting in 2018 or so would be needed immediately and might be as much as a couple of bucks per week per year.
This would not be material, nor would it be “unjust”: The boomers would still get the pensions they paid for. And the after-boomers would still get the pension they pay for, though they would pay a little more, a little sooner than they expected. They will still get their money back plus interest in the form of a longer retirement at higher benefits.
On the other hand, if Congress stole the trust fund.. that would still be theft. And we should not let it happen, even if it is disguised by some scheme such as yours.
And while we are on the subject of Krastingisms..
you said above that the new Trutees and CBO reports have reported vast changes in SS outlook since I first showed that 80 cents per week per year would pay for it’s future needs. you think this means that my 80 cents per week figure must now be out of date.
not so. what changes, as Bruce Webb tried to explain to you, is that the 80 cent increase needs to start sooner and probably run a little more often toward the beginning. It is even possible that under some circumstance more than 80 cents per week would be needed…. say, 90 cents per week.
But just going “Wow, that was a Big One!” is not the same as actually understanding the numbers. But the bad guys know that you and most people will never understand the numbers so they keep pulling bigger and bigger numbers out of their hat to keep you scared.
How about another dumb question…or two…or three.
How is SS cashing in treasury certificates any different from me cashing in some treasury bonds that have matured? Am I causing the debt to increase? Am I being unamerican?
Jerry Critter
hardly dumb questions. you have put your finger on exactly the point i am trying to make with Bruce.
your cashing your savings bond does not cause the debt to increase.
Social Security cashing it’s bonds does not cause the debt to increase.
Bruce knows this. He just gets a little tongue twisted when he tries to explain it.
As I understood him above, however, he is not saying that “cashing” the bonds causes the debt to increase.. he is saying that as long as Congress keeps borrowing money from SS… even by not paying all of the interest due… that increases the debt, and … here’s where he goes wrong… that is the same as “Social Security increasing the debt.”
But for SS to be increasing the debt, SS would have to be borrowing money, more strictly, borrowing from the public, which it does not do, and cannot do under present law.
Bruce understands Social Security and the law. He just doesn’t understand the language.
But as to whether you would be being Unamerican to cash your bonds… I think there are people who would feel that you were. They are crazy. And the first day they had nothing else to live on but to cash one of their government bonds, they would understand why that was not unpatriotic.
Jerry cashing in Social Security Special Issue Treasuries decreases the debt, it doesn’t increase it.
On the other hand net redemptions of those Treasuries score as deficits.
Which is why it is a huge mistake for people to shift from talking about the one to the other in regards to Social Security. They are not the same at all.
As to “Congress repaying”, well Congress has nothing to say about Trust Fund Redemptions. Those transactions occur between the Managing Trustee and the Secretary of Treasury. Who under the law are the same person. As long as the Trust Fund holds assets the Commissioner is authorized to pay benefits. On the other hand Congress is free to change the level of those benefits. But once they are set in law the rest of the process is outside of their control.
In the final analysis the Social Security Trust Funds are just dedicated accounts at Treasury and transfers are controlled by current law.
Bruce,
Seriously?!? Decrease debt and raise deficit with the same transaction? Something is seriously screwed up with the definitions you are using. It makes no sense at all.
Jerry:
They are cashing in an IOU (special treasury). If the gov rolls a special treasury, it remains a debt (IOU).
Social Security surpluses from whatever source are considered revenue and also serve to build up Trust Fund principal by “purchasing” Special Issues. As such they decrease CBO’s combined deficit number even as they increase the Bureau of Public Debts count of Total Public Debt.
Similarly Social Security deficits require net redemptions of those Special Issues to make up the difference and so decrease Total Public Debt. But Trust Fund redemptions don’t score as Revenue any more than withdrawals from your Savings Account counts as income. Making the deficiency of Revenue Including Interest to Cost an addition to the combined CBO deficit.
Net Trust Fund redemptions decrease Debt. On the books of the Bureau of Public Debt.
Deficiency of Revenue Including Interest in meeting Cost increases deficits. On the books at CBO and OMB.
The Trust Funds are assets to Social Security and liabilities to the Bureau of Public Debt. This leads to odd results.
Jerry
there is nothing wrong with Bruce’s definitions, just with the way he explains them.
My explanation with no doubt some non material error in details: debt is the amount of money the Congress has borrowed that it has to repay. this includes both “debt borrowed from the public” and “debt borrowed from Social Security.”
“the deficit” on the other hand is the difference in any year between the money taken in by the government and the money paid out by the government. the deficit is normally made up by “borrowing from the public.” increasing the debt. but a part of the deficit goes unseen because it is made up by borrowing from Social Security and is accounted as “money taken in,” without mentioning that it is borrowed, also increasing the debt, and has to be paid back.
legally this is no problem, because “the government” knows damn well that it has to be paid back, and does so routinely. but politically it is a problem because the Liars talk about paying back the money borrowed from Social Security as though it were Social Security doing the borrowing, and by implication increasing the deficit and the debt.
i believe Bruce used “deficit” to mean two different things in his reply to you. one is “the deficit”… the budget deficit as i just described it. the other is the Social Security “cash flow deficit”… the difference between “income excluding interest” and “costs” in Social Security’s “budget.” the income excluding interest is mostly payroll tax. the costs are mostly benefits. and the “interest” is mostly just carried on the books not needing any actual cash to change hands… until “income excluding interest” is less than “costs”, at which time SS “collects” some of the interest as income, cashes some of its bonds, and congress has to find real money to provide the cash… which it usually does by “borrowing from the public.”
i hope i am not being as confusing as i think Bruce is.
Bruce in fact knows more than i do. He just can’t tell a borrower from a lender when it comes to talking about Social Security and the deficit.
[caveat… Bruce CAN tell the difference between a borrower and a lender… he knows that SS is a lender and not a borrower. he just can’t “tell” about it. the critical word here is “when it comes to talking about” it]
Well, the whole thing is stupid. SS and debt/deficit should not even be mentioned in the same sentence. SS is an independent entity. It loans money to the government when it has extra. Government deficit and debt is a result of congressional actions, not SS actions.
People trying to make a connection are being deceptive. That’s my opinion and I am sticking to it.
There is an interesting debate going on outside of Angry Bear on the topics of SS, Debt and deficits. Have a look:
http://www.latimes.com/business/hiltzik/la-fi-mh-a-conservative-defends-20140519-column.html
Thanks for the tip BK….Andrew Biggs is a player.
D.C. – Yes, Biggs is a player in this discussion. So is Blahous, Geithner and Hiltzic.
It amazes me that these folks can’t agree on the basics of Debt, Deficits, Funding Deficits, Primary Deficits, Trust Fund accounting etc.
Not much different than the running discussion between Coberly and Webb (two more that understand SS).
If the people who are a position to influence the outcome, and others who are broadly informed on the topic can’t agree, then what is the chance that Congress can do anything? About zero, I would say.
Krasting
I pretty much agree with you about that… no chance for Congress to do anything sensible.
The reason we can’t agree…is that some people with a lot of money want to destroy Social Security, so they hire lots of people to tell lies about it.
Some of the liars are very good at their jobs. Andrew Biggs is the best liar of the lot. Then there are the half assed experts like Blahous and Geithner who know a tiny bit and don’t have time… or motivation… to actually think, so they give you word-association expert opinion without knowing what they are talking about. I am being generous. It is quite likely they are lying. They certainly have the same perspective as the liars.
Then there are lots and lots and lots of people who don’t know anything but try to “think” by assuming something that they heard is true “and therefore obviously” something else is true. Only it isn’t.
And there are the “progressives” some of whom know the “truth” but have agreed to suppress some of it because they think they have a chance to turn America into a European style “social democracy” by making the rich pay for the poor.
Bruce and I are having a different sort of disagreement. Bruce generally knows more than I do. But I think his explanations of what he knows are sometimes confusing to people.
The TRUTH is that Social Security does not add to the debt or the deficit. The workers pay for their own Social Security. Social Security is not going broke. The workers will need, if they are wise, to raise their own payroll tax about one tenth of one percent per year in about twenty of the next seventy five years, and that will keep Social Security “solvent” forever.
This is not especially hard to understand if people will take the time to understand it.
Coberly,
I agree completely with your second to the last paragraph that starts, “The TRUTH is that Social Security does not add to the debt or the deficit.”
A different set of TRUTHS are:
– SS is causing an increase in Debt to Public. That is in the $75B range in 2014, it will be $300b in 2024.
– SS is an inter generational tax. Current workers are contributing money that goes out the door to pay current benefits. Workers do not “pay for their own benefits”, they expect that future workers will pay their benefits when time comes.
– The Boomers stashed a huge chunk of ‘savings’ into SS, but that amount is still well short of what the Boomers will get paid. The TF is going to run dry before the Boomer bump goes through the python.
Krasting
this is getting tedious. your “truths” are false.
SS is NOT causing an increase in debt to the public. Paying BACK the money they borrowed FROM Social Security may or may not result in an increase in the debt to the public, just as your paying back the money you borrowed from your grandmother by borrowing money from the bank would increase your debt to the bank. But it would have NO affect on your debt. and if you went out and got a job and paid your granny back with money you earned, then paying granny BACK would reduce your debt.
If you can’t understand this you are a moral moron.
Krasting
tedious reply to your second false “truth.”
Social Security is NOT an intergenerational tax. Workers put their own money into Social Security the same way you put your money into a savings account. What the bank does with “your” money is not something you usually care about… but it does represent an indirect loan from you to another, possibly younger, person who uses “your” money so he can pay you back with interest.
what confuses you… because you are a financial moron… is that what Social Security does with your money is pay back the people of the last generation who put their money into the Social Security bank.
This is not exactly a loan, and it is not exactly a tax. It is a long understood method of financing called pay as you go.
What it certainly is not is “the young paying for the old.” The old already paid for their benefits…. and that includes the “interest” “time value of money.”
Krasting
tedious reply to your third un-true “truth.”
The boomers paid more into Social Security than needed by pay as you go financing in order to pre-fund PART of their own retirement… that part that would be more than arguably “fair” for the following generation to pay as we go. By the time the TRust Fund runs out… runs down to the normal “reserve” level… the Boomer prepayment will have done exactly that. There was never any need that it should pay ALL of the boomer retirement.
If you can’t understand this, you are a … well, word problems must have been really hard for you in the fourth grade.
note to my reply to Krastings first untrue Truth:
in any case, Krasting “having to” borrow money from the bank to pay back money he borrowed from his grandmother is NOT his grandmother causing his debt to the bank to increase.
re Hiltzig and Biggs (see article linked by Krasting May 20: 7:35 a.m. above)
Biggs is lying. Hiltzig is essentially correct. But in an effort to say it simply enough for the average newspaper reader to understand, he isn’t “exactly” correct on the details.
This gives Biggs and Blahous an opening to say Hiltzig is “dead wrong.”
This is the problem Bruce Webb is trying solve. It is also the problem I am arguing with Bruce about because I think his “explanations” just make things worse. But Bruce Webb knows what he is talking about… he just can’t find a way to say it straight… and he honest and a good guy.
Biggs and Blahous are not honest and not good guys.
The PROMISE was, “It will be there for you when you get old”. YET, allversudden, WE get old and it ain’t there. THEN a NEW plan comes to the young WORKERS that if ya pay just a little more—it will be there for ya when ya git old. Kinda like the “Fuck yer neighbor jungle club” to join ya gotta get fucked.
What is the reality? Congress just plain doesn’t want to pay its DEBT to the American WORKER( with, of course, ACCRUED INTEREST)Congress Critters would rather throw THAT money to their BFFs on Wallstreet, take that kickback, and spend the rest of their lives sitting on their Laurels and playing with their Hardys
Mike Meyer
it will only be there if you pay for it. it’s gonna cost a little more because you are going to live longer, and because “the young” will likely not be getting as big raises in pay while working as the last generation did.
this is not the fault of Social Security. it may be that “growth” is reaching its limits, or it may just be that “the rich” have found better ways to keep from paying a fair wage.
thing is, whatever it is, you need to pay in advance for your own retirement… you will get a little interest on what you pay, so you will actually end up getting about twice what you paid in. though some of that “twice” is inflation, even if you saved your own money outside of SS you’d have to work pretty hard to get interest on your money that even equalled inflation.
So I don’t like the bad guys any better than you do, but don’t make the mistake of blaming it on Social Security or that somehow you can find a better deal than Social Security if you don’t come up with the extra eighty cents per week per year to pay for it.
or is it the eighty cents that bothers you?
where is it written that one generation always gets exactly as good a deal or better than the last. you gain or lose more money from a couple of years in the draft, or one recession, or five years of low interest rates, or one stock market crash, or one increase in the price of bread, or the price of cars… yet no one cries in their beer…
but raise the price of Social Security… eighty cents per week… and everyone is crying “they stole it from us!”
Coberly: Banks make money off INTEREST and bankers live well. Insurance companies make money off INTEREST and insurance salesmen live well. Payday loan sharks make money off INTEREST and they live well too.
The TF makes money off INTEREST and is growing YET THE WORKER must pay more and receive less ????
Congress DETERMINES BENEFITS. That EXTRA 80 cents will get raised to a lot more the next time a Reagan hits office and the benefits doled out by a bought off Congress will go down under the cries of “Yes the TF is growing but the INTEREST PAYMENTS add to the deficit/debt”. Congress will suck up THAT 80CENTS like a crack head on a pipe sucking up the rent.
Mike
they would like to. that’s what i am fighting against. the first step to beating the bastards is to get everyone to understand how SS works and why it might cost an extra eighty cents per year if you are going to be living longer but making less:
hint if you make less money you have to put aside MORE money as a percent of wages to live through retirement.
i agree that congress are bad guys, but yelling at them won’t beat them. understanding what is going on might.
and there is such a thing as numbers. bankers may live on interest. SS can live in part on the interest on the money it saved. but unless it saved a lot more , there won’t be enough interest to live on entirely.
and the finances work out better, and safer, if SS is pay as you go and relies on the least interest possible… no more than what is provided automatically by rising wages over time.
Michael Hiltzik is almost the only person writing for a newspaper of record (about five American papers be considered such) who is deeply knowledgeable about Social Security.
On the other hand Mike and I have exchanged e-mails just today fighting more or less the same fight that Dale and I are. And yet he is doing Yeoman’s Work striking back at the outright falsehoods of Biggs and Blahous who I hasten to say are NOT using the same definition of ‘deficit’ that CBO does in their top line numbers. Instead they are deploying a third version that is rather confusingly called ‘primary deficit’ by CBO but which equally ignores the way Trust Fund interest scores on ‘deficit’ and ‘debt’.
Bruce
i don’t think it is more or less the same fight. Blahous and Biggs are liars. You are not. Neither am I.
you are right about the “primary deficit”… at least if you mean it’s another way the liars fool people about social security contributing to the deficit.
but if you meant that Hiltzig is fighting v you…. i think you should take the hint. there are a number of meanings of “deficit,” and if you play their game you will lose. and so will the people who need social security… though they are likely to lose in any case.
Well it is Michael Hiltzik and I that are having the minor debate. And as far as “taking the hint” it seems the Refs have me ahead on points and Mike conceded a point about how the issue was reported at his own paper.
So I am not inclined to throw in the towel just yet.
who are the refs?
and exactly what point did “Mike” concede?
and how did he concede it?
i’d hate to think you are confusing him too.
I made the point that ALL of the newspapers of record (NYT, WaPo, Globe, LA Times) report figures for the ‘deficit’ that include Social Security outlays and revenues and so mirror what some claim is the non-existent ‘unified budget’ defict. He said he wasn’t sure that was true of his paper so I Googled up pieces from their main DC and budget reporting folks that show that yes they do use that number in their lede. Although as Mike pointed out there can be some mention of the distinciton of ‘on-budget’ and ‘off budget’ down further in the piece. Still the combined number is what shows up in their headlines and ledes, and in everyone elses as well.
Feel free to do your own Googling here, I think you will find that NOBODY leads (or ledes) with the on-budget number. Although some like Lori Montgomery of the WaPo will cite Bigg’s numbers that omit Trust Fund interest from the calculation.
But by all means continue the battle to define the words “contribution” and “to” and “for” and “from”. And accusing me of unwittingly giving aid and comfort to the enemy because I am just not getting it. Because as I told our mutual friends in an attempt to get them to drop this line of argumentation “I got nothing but time”.
Three simple words: NET CASH FLOW.
One would assume that this term has a straight forward definition. There shouldn’t be much disagreement of the meaning to these words in an accounting sense. But the two heavy weights on this topic do not agree at all.
When it comes to the SS books, SSA and CBO have a completely different definition of the term Net Cash Flow. The difference between CBO and SSA comes to a mind thumping $1.2 Trillion over the next decade.
I wrote about this discrepancy recently:
http://brucekrasting.com/whats-trillion-among-friends/
What SSA calls Net Cash Flow CBO defines as Primary Deficit.
So for those who have been reading this (and for those who have been contributing) it is no wonder that there is some basic misunderstanding of exactly what the hell is going on, and really just how should we be counting the beans
There should be no debate on what’s what – this is accounting, not rocket science. But if CBO and SSA are so sharply different in the use of the language of accounting, then there is no reason to believe that the rest of us could either figure it out, or put up a plan to address the issues.
FUBAR??
How about facts and reality, not accounting tricks.
thank you Jerry.
During this thread Coberly has accused just about everyone of lying, but he did make one exception – Stephen Goss the Chief Actuary of SSA. So what did Steve have to say today?
In testimony before a Senate committee he said quite a bit. These are some of his words:
“The Congress, on behalf of the American people,will need to decide whether to (1) maintain currently scheduled benefit levels, which would require increasing program revenue from 4.5 to 6 percent of GDP, (2)
reduce scheduled benefits by 25 percent, or (3) implement
some combination of these options.”
He repeated this in a different section of his presentation but he used a different metric to define how much taxes would have to increase:
“In order to avert depletion of trust fund reserves, changes will be necessary to (1) reduce scheduled benefit levels by about 25 percent, (2) increase scheduled revenue by about 33 percent, or (3) make some combination of these changes.”
He says that taxes have to go up by either 1.5% of GDP, or an increase of 33% of scheduled revenues. Read through these numbers.
– 1.5% of GDP in today’s dollars = $240B. This suggest that Goss is thinking that the Immediate And Permanence increase number is now around a 4%.
– A 33% increase in scheduled revenues is also equal to a 4% increase in payroll taxes (from 12.4 to 16.4)
If 4% is to be the new required Immediate and Permanent increase, then it is equivalent to a NW plan that increases PR taxes (combined) by .2% for 35 years and reaches a level of 7% higher (all in 19.4%) for the remaining 40 years. That’s even more ridiculous than a $240B tax increase today. (but less ridiculous than a 25% cut across the board of all current and future benefits)
Goss says that a combo is the only feasible approach. A phased in tax increase on all workers like NW could be a part of the fix, but there is no single solution any longer. Face it.
There will be means testing, changes to the benefit formula, changes with the cap, changes to COLA, changes to the FRA age and yes, a long term increase in PR taxes. These changes will not be consider until after the next presidential election. By then, the hill to climb will be much higher than it is today.
The Goss testimony:
http://www.finance.senate.gov/imo/media/doc/Goss%205%2021%202014.pdf
Krasting
The 4% is NOT “immediate and permanent.” Goss does not say “immediate.”
If you take 2 tenths of one percent and multiply it by 20 you get 4%.
4% of payroll is about 1.5% of GDP. (payroll here means “taxable payroll… pay less than the cap. It is about 36% of GDP.)
I don’t think 6% of GDP is an alarming number to pay for the basic needs of about one fourth of the population, especially when you remember they paid for it themselves.
So where do you come up with 35 years and 7% higher?
krasting
i did not accuse “everyone” of lying. Only a small number of people, mostly paid by Peter Peterson.
Since I did not name all the people who are not lying, I suspect you don’t realize they are there.
Bruce Webb said
“Which question and answer I like a lot better than outright denial that Social Security REALLY has an externalities at all once you solve for the question of societal equity. That is all that “borrowing from” stuff.
So what if Social Security “contributes to the debt”? If there is a way to save Social Security in its current form that obviates the need to pay that debt back?”
I never denied that Social Security has externalities.
Note that in Bruce W’s mind, “contributes to the debt” appears to mean ” by creating a need to pay that debt back.”
Paying back the debt owed TO Social Security is NOT Social Security “contributing to the debt.” When you ask your brother in law to repay the ten dollars you lent him, you are not contributing to his debt. Nor are you contributing to his “deficit” even if he has a piece of paper he calls his budget on which he calls his deficit the difference between the money he has coming in, including your ten dollars, and the money he has going out, on, say, beer. Nor will you be contributing to his deficit when he has to count paying you back as “money going out”…
You could think of it that way. HE certainly could think of it that way. after all it’s “his” budget and he can call it whatever he wants. But if you asked most people… if paying you back the ten dollars you lent him contributes to his deficit. they would say no.
And when most people hear an “expert” say “Social Security contributes to the deficit” they think it means that Social Security spends money it doesn’t have creating a debt that will force the rest of us to pay taxes to pay back.
Social Security did not, does not, spend money it didn’t/doesn’t have. Congress spent money it didn’t have. When we pay that back, we will NOT be “paying for Social Security,” we will be paying for whatever Congress bought with the money it borrowed FROM Social Security.
You don’t see in the budget… neither the On Budget nor the Unified Budget… and item that says “cashed Peterson’s savings bonds” or “Peterson deficit (the difference between Peterson’s purchase of bonds and and his selling of bonds…. ) so you don’t hear anyone talking about Peterson contributing to the deficit.
Social Security did not “create the deficit,” and it will not “create a debt” if Congress keeps borrowing from it… even it it is only borrowing part of the interest it owes on money it already borrowed.
Yes, I am tired of saying this. But the difference is critical. Blahous and Gibbs and Geithner and Peterson are trying to mislead the public into believing that Social Security is an unsustainable, debt creating, burden. Bruce Webb knows that it is not. He just can’t bring himself to say so clearly.
For a while, recently (until Jan. 1, 2013), the FICA tax rate was reduced by 2 percentage points, but the Trust Fund was credited anyway, with the amount that would have been collected.
We could “fix” this mythical trust fund by crediting it with the amount that would be collected if the rate were raised 2 points. Or if the cap were lifted. Or if we were at full employment.
Any of these solutions exposes the true nature of the Trust Fund. In reality, it only ‘exists’ as a manually maintained three-ring bound ledger at the Federal Government Accounting Center in Huntington WV. The mythical Trust Fund is simply the Emperor’s New Clothes. The problem, if one exists, is not the level of funds in this Trust Fund, it is the ability of the economy to produce when the ratio of workers to retirees falls. IT IS NOT A PROBLEM OF MONEY, IT IS A PROBLEM OF REAL PRODUCTION.
Fortunately, the problem is framed incorrectly. The crucial ratio is that of workers to dependents, including not only retirees but also children. That ratio is not rapidly falling and it is currently higher than it was in the 1960’s and it will never go lower than it was back then.
From Coberly’s comment:
Note that in Bruce W’s mind, “contributes to the debt” appears to mean ” by creating a need to pay that debt back.”
For a currency sovereign, there is absolutely no debt to “pay back.” It is impossible. Taxpayers do not pay for spending beyond taxation or ‘borrowing’, at the federal level. Federal debt is a burden to no one.
The federal debt, being deposits in the Federal Reserve Bank, is not a burden on the U.S. economy. It is not a burden on our future generations, who will not have to pay it.
BANK DEPOSITS DO NOT BURDEN ANYONE.
Future generations won’t be involved in any way, with liquidating deposits in the Federal Reserve Bank or any other bank. Only banks “pay off” deposits — by transferring dollars from savings deposit accounts to checking deposit accounts.
Coberly says:
Blahous and Gibbs and Geithner and Peterson are trying to mislead the public into believing that Social Security is an unsustainable, debt creating, burden.
“In the big lie there is always a certain force of credibility; because the broad masses of a nation are always more easily corrupted in the deeper strata of their emotional nature . . .and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods.
“It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously.
“Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation.
For the grossly impudent lie always leaves traces behind it, even after it has been nailed down, a fact which is known to all expert liars in this world and to all who conspire together in the art of lying.”
Adolph Hitler, in ‘Mein Kampf’
SteveD,
You are full of crap!
Steve D
thanks for the quote from Herr Hitler. he knew something about lying. not sure why he was explaining it in public.
not sure what Jerry C finds to object to in that… unless he is talking about your magical money theory.. someting in which there are elements of truth.
but i think you overlook the political-psychological problem: people like to know where their money comes from as well as where it went.
i don’t think you imagine that we can just create money and that supply will follow… it will, to some extent, but… there will still be the problem of WHO gets it. and the easiest way to solve that problem is just to treat money…. and debt… as we always have. on that basis the Trust Fund is quite real.
though not as important as some think.
and the problem in the future is production, as you say, but money is how we keep track of production and distribution. the trouble with production right now is that we seem to have too much of it. the trouble with distribution is that at least some of the rich are stealing it, and some of the poor don’t get a fair share.. or “enough” which is not always the same thing.
mmt is probably fun to talk about if you have the time, but i don’t think it will ever be “policy” and it really does not have anything to do with SS: if you could create money and pay back the Trust Fund, or create money and pay benefits without raising the tax, you’d still have people complaining that SS was crippling the country (it isn’t) or that it added to the debt (it doesn’t) or that the rich should pay for it (they shouldn’t)
all i try to do is point out the answers in the real world and the fact that the needed tax increase to provide everyone with at least a basic retirement, by the standards of their time, and for their longer life expectancy, is about an extra eighty cents per week per year for about twenty of the next seventy years… and NO more.
but i’ll give you this… creating money out of thin air isn’t much different than creating “adds to the deficit” out of a way of keeping books. hell, i would have thought that ENRON would have taught us that.
something in which there are certainly elements of truth, b
Coberly once again touts his 80 cents a week story. I’ve tried my best to convince him that his plan is out of date and no longer works – he will mot listen to me.
Possibly he will consider the work of Larry Kotlikoff, his words on how big a tax increase is required:
“In short, an immediate and permanent 32% hike in the Social Security payroll tax rate (from 12.4% to 16.4%, forever) is needed to pay the existing benefits. Alternatively, an immediate and permanent 23% cut in all OASDI benefits would provide long-term solvency,”
So Coberly, this confirms what we have discussed outside of this thread. The I&P number that Goss was referring to was, in fact, an Immediate and Permanent number.
There is no way that a NW 0.1% plan works to fill the bucket at SS. So Coberly is selling a plan that will not work. Give it up already!
The article where Kotlikoff was quoted:
http://www.thinkadvisor.com/2014/05/27/replace-social-security-or-fix-it?t=economy-markets&page=1
An Professor Kotlikoff’s Bio;
http://www.kotlikoff.net/laurence-j-kotlikoff
krasting
unfortunately i HAVE listened to you. you are wrong. and i have talked to Kotlikoff. he is wrong too. i think he is a little insane. at the time i talked to him he said “there is no way” a gradual approach could “catch up” to the “present value”. i showed him that it can and would. he responded “but you aren’t going to get people to pay 16% of their income for Social Security.”
note the change from “can’t catch up” to “people won’t pay.”
Now, if you are going to live 20 years or more in retirement, you are going to HAVE to pay “16%” of your income while working to cover the expenses of being retired. it isn’t a huge burden because your pay is going to be twice what it is today. and since you can get there gradually… note that Kotlikoff did not say “immediate and permanent” to me. perhaps he, like Krasting, has forgotten… you would never even feel the extra “tax.”
it is only by treating SS as a “tax” and a horrible burden than you can fool people into thinking the magic wall street fairy is going to pay for your retirement.
it might, though you might ask the people who thought their 401 k’s were going to make them rich how that turned out.
Krasting and Kotlikoff are not able to think in complete senetences, much less complete paragraphs, and certainly not in “complete problem’s”.
80 cents per week per year will still solve the problem of having enough money to pay for living longer .
i can’t predict that the next Trustees Report of CBO report will not find a way to predict that the economy will be even worse than they have been predicting…. but even if they are right, the people will STILL have to pay for their retirement, SS is still the best way to do that. and the eighty cents might go up to ninety cents or more…. still a long, long way from being a “burden.”
I hear two opposing views.
Bkrasting — There is no way that a NW 0.1% plan works to fill the bucket at SS.
Coberly — 80 cents per week per year will still solve the problem of having enough money to pay for living longer .
This is easily resolved. Show me the numbers. I don’t want quotes from other people about what they think. Do the math. Show me the math or give me a link to a spreedsheet. Be sure to state your assumptions.
I think this has already been done for the NW plan. Perhaps Bkrasting can tell us what is wrong with that calculation?
Critter
send me an email at coberly (at) peak (dot) org
i’ll send you a spreadsheet which i think is clear. if you have comments or questions i will try to answer them.
you want to watch out for krastings spread sheets the unexamined assumptions lead to nonsense and errors of orders of magnitude.
which is to say that “math” and “spreadsheets” are only as good as the person READING them. that’s you.
Coberly/Critter
Okay, workers put 80 cents more into SS every week. So at the end of year one they have contributed a total of $41.6. Yes?
Now how many workers are doing this? SS has 156m covered workers, but many of those don’t work very much. 23m workers make less than $2000. The number that actually have (more or less) full time employment is the Non Farm Payroll of 135m.
So help me. How many workers are going to participate? From that we can get an estimate of first year income.
A break down of wage data from SSA:
http://www.socialsecurity.gov/cgi-bin/netcomp.cgi?year=2012
Krasting what part of “average income worker” don’t you understand?
Workers making above the average will have that 0.1% cost them more, people making less, well less. This isn’t rocket science, multiple weekly income of someone earning right at the cap by a fixed amount and it comes out as more than multiplying the weekly check of some kid who works a part time summer minimum wage job at a beach concession stand.
And your question of “how many covered workers” is nonsensical. ‘Covered workers’ ate by definition workers covered/subject to FICA. So the answer is “all 156 million”. And if you like you can take that SSA wage data table and apply a 0.1% factor to it and see the actual range of new contribution. But don’t bother averaging. Coberly has done that for you.
Jerry, I have been trying out some new Excel skills and working on exporting some of Coberly’s 2013 NW to PDFs and then cutting extracts into blog displayble JPEGs. I have 2 1/2 weeks free and clear of work/school and expect to have a new series of SocSec posts up on AB soon -each with a handy graphic or table.
Webb says we should use the full 156m. Coberly says it is 80 cents per worker per week for the first year.
I do the math and come up with $6.489B for the workers and an equal amount from employers.
So the first year total would be $12.979B. Is this right or wrong? Shouldn’t be that difficult to agree on this, right?
If this is the wrong math, then what is the right math?
krasting
if you want to check your own work, take one tenth of one percent of the payroll for the years in question.
that should give you the right answer. then, if you aren’t too tired, you ca check to see how much one tenth of one percent of an average worker’s pay is. i used 40k as the average wage… based on what the Trustees said it was at the time. that will change from year to year.
will stay one tenth of one percent for each the worker and the employer. but it will be 80 cents per week for the average worker. you might need to think of the 80 cents as a kind of present value.
so what would the weekly income of a future worker be if the present value of one tenth of one percent of it was 80 cents per week?
A quote from Coberly from above:
“the needed tax increase to provide everyone with at least a basic retirement, by the standards of their time, and for their longer life expectancy, is about an extra eighty cents per week per year for about twenty of the next seventy years… and NO more.”
How many times has Coberly used these (or similar) words? 100 times a year? 500 times over the past 5?
So I ask him to come up with an estimate for just the first year of the NW plan. And he refuses to answer.
I want something that is so simple – What is the first year result? This is not complex stuff. If Coberly/Webb can’t do this simple math for their own program then they are either grossly incompetent or they are lying.
So again I ask Coberly for just the first year numbers. Either you have an answer or you don’t, if you refuse to answer this simple question than every time you write about “80 cents blah blah” I will provide the link to this discussion that will show that you don’t have a clue what you are talking about and you are making up numbers to support a cause that, by itself, is not close to the ‘fix’ that you think it is.
I will link Biggs and Kotlikoff to your response (or lack there of).
Bkrasting,
Just ask for the spreadsheet. It is all laid out there for you. It shows that what coberly says is true. Don’t believe it? Find the error in the spreadsheet and correct it.
Stop the blah, blah, blah, get the spreadsheet, and get to work.
Jerry – I have looked at Coberly’s spread sheet. It is flawed. It does not answer the narrow question of “How much revenue does the NW plan generate’?
I’ve sent many spread sheets to Coberly – he doesn’t like mine. So I was trying to get a hard number from him (or you) of what does a 0.2% (combined) increase generate in year-one.
The answer is simple 7th grade math. The raw data MUST come from SSA. As of today the 2013 TF report is the basis for any numbers crunching.
Look to the 2013 TF report for PR tax revenue – the intermediate case for just 2014 is $769.5B. Assume that the 0.2% increase became effective on 1/1/14.
The math is 769.5 divided by 12.4% = Taxable Payroll = $6.2 Trillion.
6.2T times 0.2% = 12.4 Billion.
So when I did the math for Coberly using the 80 cent number I come to a combined 1st year revenue number of 12.97B. Using the 0.2% of taxable payrolls the number falls a bit to 12.4B.
The correct methodology for looking at any of this is in %. So let’s focus on this result.
Critter – I’ve put yet another number up for discussion. So far no numbers from Coberly. I’m not looking at some big puzzle with 20 years of data and a bunch of questionable assumptions. I just want one number that we agree on as the basis for some further discussion.
What is the correct number for year-one revenue? Is it 12.4B or is it a different number? If it is different, please explain why.
Note: If you want to assume that the NW plan becomes effective in 2015, then the PR tax revenue # is 818.9B. Follow the same math and you get the full year 2015 NW revenue at 13.2B. I don’t care which year you chose to start.
Krasting
you wonder why i called you a liar. you are a liar or so goddamned stupid you don’t know what you are talking about. i sent you the spread sheet, it has the answers you are looking for if you aren’t too goddamn dumb to see them.
what makes you a liar is that you write that i “refuse to answer” after you get the spread sheet.
this is from the letter i sent krasting at 6:53 pm PDT today:
bruce
i don’t have time to check your work.
here is my work (sort of).

[here was attachment of my spreadsheet]
i’ll be glad to help you understand what i did if it’s not clear. but the way you are going about it is too all around robin hoods barn for me.
line 18, columns C and N contain the answer that Krasting is looking for. but he is too goddam dumb to see that the difference between the “non interest income” wihtout the tax increase and the “non interest income” with the tax increase… is the number he was asking me to supply him.
so how much of my time am i supposed to waste answering an idiot who is too goddam dumb to understand the answer?
and lies about my “refusing to answer.”
in public.
Bkrasting,
The answer to your question is on coberly’s spreadsheet. Simply subtract column N from column C. That will give you the amount that the NW increase generates.
To help you out, the first year it is applied is 2018. The amount of money generated is 16 billion.
First a note on the Coberly spread sheet, then I will try to get back on point as to the numbers for the NW plan.
The spread sheet takes a bunch of assumptions and makes a numerical forecast of what the future will look like. When you look out to 2090 some big numbers come out. For example:
– Taxable payroll grows from 6.2T to 186T (30Xs)
– The TF grows to 36T from 2.7T (13Xs)
– Interest income grows to 2T from 100B) (20Xs)
-The Average income grows to 1.2m up from 44k (27Xs)
-Inflation will cause what costs $1 today to rise to $175
The only way to evaluate these numbers is using an NPV calculation, and Coberly does do that. The key variable is the Discount Rate used to measure future results in the present day. Coberly uses a rate of .0529 (5.29%). The discount rate should be a minimum of the risk free rate, most who use NPV use a discount rate that is a premium to the risk free rate,
The minimum discount rate that should be used is the weighted average interest rate (not the average). This would be close to 5.7% based on Coberly’s interest rates used in the model. I think that there should be a premium to the risk free rate (but never a discount as Coberly has done).
So if Coberly were to use a discount rate from 5.6 – 6%, his model would no longer “prove” that NW works.
Coberly will say hogwash, but the fact is that no academic would agree to use a discount rate that is less than the risk free rate. If one did this in finance, they would be fired. This is not the proper methodology to look at a 75 year time horizon.
BINGO! Jerry wins the prize!!
I’ve studied Coberly’s web sheet in the past in some detail. Yes, I knew that imbedded in this sheet was the information that answers my simple question:What are the cash flows related to the 0.2% NW plan? (Note that nowhere in the Sheet is a breakdown of the actual numbers in a separately marked column.)
And yes, all along the answer is the difference between N and C. All I ever wanted from Coberly was to put this number on the table as a starting point. Why did Coberly not just come out and answer my simple question?? He had the answer staring him in the face, but he refuses to answer X or Y.
How does Coberly’s spread sheet derive the $16B that Jerry has provided? Simple! It is exactly the same as I described above. You take taxable payroll and multiply it by the 0.2% (first year). When Coberly makes an assumption that the NW plan starts in 2018 he uses the 2018 Taxable PR from SS and multiplies it by 0.2%.
This was never a trick question on my part. I just wanted Coberly to agree on a methodology – and now we agree – at least I hope so.
Two questions:
Coberly – do you agree with Jerry and I that the correct method of calculation the first year consequence of the NW plan is to take Taxable Payroll and multiply it by the change in the tax??? (I surely hope you say yes)
Jerry – Can you look at Coberly’s sheet and tell us what year #2 (2019) NW plan revenues will be? If you can do that, can you also do the period from 2019 through 2038? (Thanks for this, if I do the math, Coberly will object)
Note: I am just looking for the annual revenue numbers for now – there is an interest calculation that must be made, but first just the raw annual numbers please.
Krasting
I DO NOT MAKE PREDICTIONS
I show what the Trustees Projections mean in terms of an average workers paycheck.
I use the same interest rate and discount rate as the Trustees. When I apply them to the Trustees numbers I get the same “prediction” as they do. When I apply them to the same numbers with the one tenth of one percent increase…for each the employer and employee… whenever the Trustees would otherwise (according to the 2013 projections) have projected short term actuarial insolvency… i get no insolvency for 75 years and the need for further increases on a steeply declining path.
you don’t understand this stuff. you keep making me answer your idiotic claims. you may “win” by default. but that is what i expect to happen anyway: stupidity and lies backed by enough money will triumph over simple arithmetic and common sense.
anyone who still cares
can read Krastings latest and watch him weasel and hope you don’t notice that he is contradicting what he said in the last few comments preceding.
now he wants another reader… who was able to find the answer that Krasting said i “refused” to give…. to spend his time chasing down Krastings mindless “method”… which is not the method i used because … well, because it is mindless.
btw
i did not “assume” that 2018 would be the “first year of the NW plan.”
2018 is the first year that the 2013 Trustees Projections show Social Security (OASDI) reaching “short term actuarial insolvency” (means that the Trust Fund is projected to fall below 100% of one full year’s reserves).
This is the “trigger” which would raise the payroll tax one tenth of one percent (about 80 cents per week) for each the worker and the employer.
Krasting does not understand any of this, but he intends to waste everybody’s time, mine especially, trying to explain it to him so that his lies and misunderstandings will not be “the last word”.
i can’t keep this up, so Krasting will get the last word. I hope no one reading this is fooled by him.
Coberly – Your spread sheet uses an inappropriate discount rate. Say what you will, that is just a fact. By using the wrong discount rate you taint all of your results.
Now, as far as the still lingering question that you (amusingly) refuse to answer – Just answer it. The results are right in front of you. The methodology you used is also in front of you. The spread sheet does not have an error – it calculates the correct amount. So please, tell us, do you agree that your spread sheets shows a 16B increase from the 0.2% increase in 2018?? This a simple yes or no. Stop obfuscating and answer the question.
Bkrasting,
I don’t know what your problem is. Obviously Coberly agrees with the numbers in his spreadsheet. It is HIS spreadsheet.
I am not going to do your math for you. Do it yourself, or don’t you know how to add a column of numbers?
He is making the same assumptions as the Trustees. That is where he gets his numbers. You don’t like the discount rate? Take it up with the Trustees.
an interested person needs to ask Krasting what is numbers (and words)mean and why they matter.
he is showing some confusion above about the use of Present Value.
by using the 5.7% discount rate that he recommends, the Trustees would… if they used his rate… have reported a 7.8 Trillion Dollar (PV) defict instead of the 9.6 Trillion they did report.
and the “northwest plan” would have showed a 75 year SURPLUS of 570 Billion instead of the 260 Billion it gets using the same discount rate as with the Trustees numbers.
Krasting does not understand any of this but he throws big words and big numbers around like he did, and fools people who don’t know how to ask questions.