Once again: The Social Security Trust Fund is neither a fiction nor bankrupt. That is a myth.

[TheWraith]

Since this has been going around, the myth that wouldn't die, I suppose I need to take a few minutes to correct the facts.

There is a widespread belief and claim, pushed by various people for various reasons, that Social Security has had money "borrowed" or "taken" from it by the government to be spent on whatever, and that therefore it's really secretly empty, been stolen, filled with IOUs, or whatever other story you want to spin. Usually this is pushed in the same breath as implying (or outright stating) that both parties are conspiring to kill seniors and that Social Security is a fraud. Despite that, this storyline has found a substantial home on the left, particularly among the "attack the Democrats" faction.

Here's the thing though: This claim is false. It's not "sort of" or "controversial," it's just outright false. Anyone who pushes this claim is either misinformed or outright lying.

This money has not been "stolen" or "spent" simply because it's not all sitting in one giant vault somewhere gathering dust. It has been invested, in the same way that putting your money into a certificate of deposit isn't the bank stealing from you just because that money is no longer sitting in your pocket. Frankly, I expect to hear that kind of ignorant pseudo-sophistry from the Ron Paul types who live off paranoia and a failure to understand monetary policy, but it always annoys me to hear some on the left claiming something not just wrong but blatantly intended to deceive and undermine confidence.

The Social Security Trust Fund currently contains about $2.6 trillion dollars in assets, mostly in the form of US treasury bonds. These investments are there for the same reason that any money is invested anywhere: to produce returns, in this case increasing Social Security revenue through interest. An interest rate of 2.4%, which is the average that the SSTF collected last year, doesn't sound like much... but on $2.6 trillion dollars, that's $63 billion a year extra that's being collected by the Social Security system. Not to mention that if you simply piled cash in a vault, not only would it not grow in value, the SSTF would actually shrink due to inflation. Because of its investments, Social Security is MORE financially sound, not less, and with no substantive risk since it's based on legally binding US treasury bonds. US bonds are, in fact, legally enshrined in the constitution, with the 14th Amendment establishing that their validity "shall not be questioned."

In summary, the claim that the trust fund has been "stolen" or replaced by "IOUs" is patently wrong, akin to saying that if you can't physically see your money sitting in a bank vault it's not there. It's an absurd claim, and one we should put to rest for good.

[joeglow3]

1. Great. And if Obama decided he wanted to redeem all those investments tomorrow, how would he?

Would he have trillions in cash to invest elsewhere?

[TheWraith]

3. Your comment makes no sense.

For one thing, the President can't simply "redeem" the SSTF bonds for several reasons. Most importantly being that he doesn't control them. The Social Security Trust Fund does. You might as well ask why someone doesn't sell their uncle's house, when they don't own it.

[joeglow3]

46. You know the point I am making and are intentionally ignoring it.

What would happen if a company contributed $50 billion to a union pensions trust, then took out the money and gave the trust legal notes and then distributed the funds to their shareholders? Would you, as a union member, feel safe about the "investments" held by your pension trust?

[Scuba]

79. Apple, meet orange.

[joeglow3]

82. Cop out

and you know it.

[TheWraith]

152. No, I'm saying that your point is not a point at all. It's nonsense.

You're creating a completely imaginary situation which in no way relates to the actual situation. An accurate metaphor would be your bank loaning out money backed by your certificate of depost to do useful things while you didn't need that money, but that scenario doesn't help justify the right wing talking points that somehow the government has "stolen" that money.

[Yo_Mama]

128. The Trustees don't control them

Those assets are almost solely special obligation funds, which means they are legally non-marketable. The only thing the trustees can do with them is give them back to the general fund in exchange for money.
http://www.ssa.gov/oact/ProgData/specialissues.html

Which means that if the trust funds did not exist, the funding of SS, DI and Medicare would work exactly the same way as it does today. When there's inadequate direct revenue, general fund gives money to the trustees to pay benefits. The money the general fund gives the trustees comes either from tax revenue or from borrowing, and Congress controls both.

In no sense of the word do the trustees control allocations of money from the trust funds to pay benefits.

[ronnie624]

132. He doen't appear to be interested in his thread anymore.

Thanks for the link.

[lacrew]

37. I only wish these 'investments' were called debt on the opposite side of the ledger

For decades, since politicians 'saved social security', the surplus has been put into the general fund.

The OP is correct in stating that these are assets on the SS side...but the debt owed to SS is rarely counted in our national debt. The line of reasoning is 'its not a debt owed by the public'.....well ok. If the public doesn't owe this debt, who does? Apparently nobody...and on the debt side, these are not called loans - they are 'intragovernmental transfers'.

All of this begs the question - if the SS trust fund holds $2.5 in paper, who pays this off? We the people.

So isn't it really a game of semantics?

At the end of the day, SS does not have enough cash for the long term...and will be reliant on cashing in on some of its paper. That money comes from us...if SS isn't broke, well then we the people are. Which is practically the same thing. To say otherwise presumes that the cash will come from some source outside of the US.

[HiPointDem]

39. "who pays this off? We the people." Not exactly. The money was borrowed from workers,

and high-income workers paid less of their income, percentage-wise.

The money will be repaid from income taxes, which capital (through e.g. capital gains and investment income) and high-income workers pay disproportionately (the top 5% of filers pays more than half).

This is as it should be, since this income bracket was gifted with large tax cuts for 40 years while payroll taxes on workers were increased to produce the increasing surpluses that were borrowed by the feds to fill the gap.

[joeglow3]

47. So this will come from our non-existent income tax surplus?

Thanks. That clears things up.

[HiPointDem]

50. Interesting how you ignore what I said and change your argument. First it was that "we the people"

would just be repaying ourselves, now it's that there's no income tax surplus.

Gee, there was no "surplus" for the wars in Iraq and Afghanistan either, yet somehow they continue.

Rescinding Bush's tax cuts to the top 5% will take care of repayment of the debt to the SS Trust Fund. And quite rightly, as this group has benefited from 40 years of tax cuts while taxes on workers have been raised through payroll tax hikes to create a slush fund to disguise the cuts on capital.

[liberalmike27]

64. I agree

What, is the idea that we're not going to pay back all that 2.6 trillion we collected SPECIFICALLY for paying out social security? I don't f__king thing so. You republicans borrowed it to give the rich tax cuts, and as he said, to fight one war after another, without paying for it. You're going to pay it back.

[liberalmike27]

52. I just responded to

A Bloomberg article in our local rag. They mentioned we'd payed out $736 Billion this year, and stated it was "America's largest program." I pointed out that all-in, we spend 1.2 Trillion on military attack and defense, plus caring for our veterans, for one.

Then I took them to task for not mentioning we collected 807 BILLION in taxes, which as you say, amounts to about 70 Billion more collected even last year, than we paid out, in effect funding our government now, and depositing money into the treasuries, as you point out.

The article was disingenuous at best.

[PoliticAverse]

2. The SS trust fund is not in "US treasury bonds". n/t

[closeupready]

4. Correct - if "is not" means "is".

nt

[TheWraith]

5. Um, yeah, it is. It's required to be by law.

The SSTF is required to be invested in US government bonds backed by law.

The trust funds run surpluses in that the amount paid in by current workers is more than the amount paid out to current beneficiaries. These surpluses are given to the U.S. Treasury (and thus become part of the general federal budget) in exchange for special U.S. government securities, which are deposited into the trust funds. If the trust funds begin running deficits, meaning more in benefits are paid out than contributions paid in, the Social Security Administration is empowered to redeem the securities and use those funds to cover the deficit.

http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

[PoliticAverse]

10. Nope. The Social Security trust fund is not in "US Treasury Bonds"...

It's in "Special Issue" securities issued by the Treasury.

The 'Special Issue' bonds in the trust fund differ from normal 'US Treasury Bonds' in 2 important characteristics:
The Special Issues are not 'marketable' - they may be held only by the trust fund and cannot be sold to the general public.
The Special Issue securities can be redeemed by the trust fund at any time (normal 'US Treasury Bonds' can only be redeemed at maturity).

http://www.ssa.gov/oact/ProgData/specialissues.html

[TheWraith]

11. They're bonds... issued by the US treasury.

This isn't exactly rocket science. Yes, they're slightly different from marketable treasury bonds, so they can be redeemed when necessary. Big whoop. They're still US treasury bonds with all the legal protections that implies.

[PoliticAverse]

13. The 'legal protecton' issue is a red-herring. Since the securities are an internel-debt obligation

of the government they can be eliminated with simple congressional accounting trick.

In fact the entire Social Security program could apparently be eliminated by congressional action
as Fleming v. Nestor found it isn't a contractual obligation to individuals (see http://www.ssa.gov/history/nestor.html ).

[TheWraith]

19. Congress could of course abolish Social Security.

Something one act of Congress does, another can get rid of. I don't think that's likely. As far as "accounting tricks," the 14th amendment establishes the constitutional legality of US debt, and internal debt is still debt. So unless Congress passes a bill to eliminate Social Security, and it's signed into law, there's not a lot to worry about there.

[bemildred]

6. Yep, the real problem is they don't want to pay the money back.

That would require taxing our wealthy sacred cows.

[Fumesucker]

7. Are you saying the government will have no financial difficulty redeeming the SS T Bonds?

Out of the general fund?

[TheWraith]

15. Assuming that we don't fuck up the debt limit, and/or crash the economy.

It's not like we're going to be cashing a $2.6 trillion dollar check all at once. Even when we hit the height of draining the SSTF, it's going to be over the course of 10-15 years that that money is drawn out, at a rate of roughly $200 to $250 billion a year. That's a lot, but it's not a crushingly huge amount if the budget is in otherwise decent shape.

[Snake Alchemist]

26. We can just print it. nt

[sendero]

72. Bingo...

... that is exactly what we will do. It is the only thing we CAN do.

Sure, those are bonds and they are owned by the trust fund. But when they are "redeemed" the govt must come up with the money somewhere.

When you are running the absurd deficits we have right now that could be a problem. But no worries, they can print the money (not literally, just magically create the dollars like the Fed is doing RIGHT NOW) and everything is cool.

Except every dollar already in existence is worth less. And if you keep printing too much, nobody wants your dollars any more and they can get pretty devalued.

[Fumesucker]

51. At what point do you foresee the budget being in decent shape? n/t

[hughee99]

8. Exactly, the SS trust fund is secure, now on to the next issue...

The government has massive debts, we need to raise taxes so you can pay back the SSTF (aka YOU) on their bonds once they start having to cash them in.

The government will ensure that the people's money is safe in the trust fund, by having the same people underwrite the government's debt to it.

[Cleita]

9. They still are pushing that meme on the MSM. I just saw one yesterday with the headline

that said Social Security would be bankrupt by 2033. What a way to twist the truth with with a misleading headline.

[TheWraith]

12. There's two problems with that headline.

Technically it's SORT OF correct that it's projected that the SSTF will be drained by 2033. However, there's two problems with that. One, since the SSTF isn't the only source of money/revenue, that's not exactly "bankrupt." Two is that those projections are just that, projections, based on current conditions. When you're projecting 20 years out, that's kind of like trying to predict the weather 6 months ahead of time. Between now and then economic conditions are going to dwarf whatever other factors there are in calculating how long the trust fund lasts: interest rates, unemployment rates, average wages, etcetera.

[Cleita]

14. Also, according to Bernie Sanders SS will still be able to pay 80% of benefits even

if nothing is done. So that headline is nothing but scare tactics propaganda.

[TheWraith]

17. Something like that. I believe the usual estimated number is 75%.

Although again, that's one of those things that it's hard to know since it depends a lot on outside conditions. Most notably, how many people are working at the time. High unemployment means less SS revenue, low unemployment means more.

[Romulox]

89. Let's just cut benefits by 25% NOW, then, so that seniors in 2033 can get what's been promised!

Since it's not a big deal, you know.

[TheWraith]

156. By all means, continue acting silly and creating strawmen. nt

[eridani]

65. You forgot the third problem--the trust fund is SUPPOSED TO disappear

Until 1983, Social Security was pay as you go, current workers paying for current retirees. Anticipating the demographic "pig in a python" boomer retirement, the Social Security Trust Fund deliberately began accumulating a surplus--thus boomers prepaid their own retirement as well as supporting their parents. After the pig makes its way through the python, the surplus will disappear, asi it was designed to do, and the system will go back to pay as you go.

http://blog.buzzflash.com/hartmann/10015

[The Wielding Truth]

16. I heard that too and was surprised that it was put out there as fact.

Then I heard Bernie Sanders refute it.

[Romulox]

18. *Every penny* of the so-called "Trust Fund" has been spent. It's a fact that can't be ignored.

The only source to "pay back" this depleted fund is contributions from future workers. That's it.

Any talk of "investment" is foolishness.

[TheWraith]

20. I'm sorry, but you're completely wrong.

As I outlined in the OP.

[joeglow3]

48. And your logic would land me, a CPA, in prison if I tried to pass that off as "accounting."

[HiPointDem]

69. Hogwash. Corporations lend between divisions and assets all the time, showing debt on one side

of the ledger and asset on the other. Often for tax purposes.

[joeglow3]

70. Show me a company that pulls money out of a trust fund for retirees and spends the money.

[HiPointDem]

71. uh, all corporate retirement funds?

[joeglow3]

84. You did not answer

Name a SINGLE company that legally contributed fund to their pension trust and then had the pension trust loan the money back out to the company to spend (or dividend out).

[Recursion]

111. Plenty of pension funds are bondholders for their own company

It's one of the more common ways to do capital financing. Obviously they're not going to put *all* of the money there (or any one place), and there are safeguards and firewalls and due diligence stuff that has to be set up, but do you really not know that happens?

[Cleita]

21. BS. The money "borrowed" is in T-Bills.

This country has never defaulted on T-Bills.

[Romulox]

41. That's factually incorrect. They are "special issues", not T-bills. They are not tradeable. nt

[Cleita]

45. They are very safe. The US government hasn't never, ever not paid up. Also, as another

DUer pointed out, the minute SS is privatized, that fund will be a cashable gold cache for the Wall Street Banksters to raid and they know it. If it was as worthless as they try to pretend it is, they wouldn't be working so hard to privatize it.

[Romulox]

49. OK, but that doesn't contradict a thing I said. I didn't call for SS to be privatized, either. nt

[Kaleva]

22. Not really.

For every dollar in the Trust Fund that is redeemed to pay out benefits, the national debt is reduced by a dollar. Thus the federal govt. is free to borrow another dollar without adding to the debt.

The interest paid though does add to the debt and that's the big problem. But there isn't really any problem with the Trust Fund itself.

[Romulox]

42. No, this is also incorrect. Every dollar spent from the Trust Fund offset other potential borrowing

but it doesn't reduce the national debt.

In other words, the government "borrows" from the Trust Fund in preference to the Chinese, but it doesn't use the money to pay down debt.

In fact, the US continues to grow its debt at an unprecedented pace.

[Kaleva]

53. Never said it reduces the national debt.

I said that paying it back, other then the interest, doesn't increase the national debt.

[HiPointDem]

68. Intragovernmental borrowing is ultimately a wash, except for interest payments (which are below

market, so even then it's a wash or money-maker).

Whether or not the US should pay down its foreign debt and with what funds is a different question.

[Romulox]

87. Agreed, but let's not lose sight of the underlying fact: the money has been SPENT. In Iraq.

Afghanistan. On the War on Drugs. And bankster bailouts.

Invested? Pffff.

[Recursion]

107. All of which are "investments"

Not all of them the wisest possible investment, but it's not like the money disappears: it goes into the economy.

[Romulox]

129. LOL at wars in Iraq, Afghanistan as "investments". Whats the ROI?

[Recursion]

133. Well, for instance, I was a Navy contractor for some of that time

and part of the ROI was the fact that I had a job from which FICA levies could be taken. And the littoral combat ship got built, which is definitely an asset.

[Romulox]

161. You have a real hard time with private vs. public debt/benefit. nt

[MannyGoldstein]

28. *Every penny* of your so-called "bank accounts" has been spent.

Last edited Tue Apr 24, 2012, 03:25 PM - Edit history (1)

and must be paid back in the future by depositors and debtors. You think your deposits get put in a vault?

[Romulox]

40. This isn't disagreeing with me...nt

[girl gone mad]

55. Correct.

But for whatever reason the SS chicken littles never seem concerned about 3 trillion in "missing deposits" at Bank of America, for example. Unlike Bank of America, Fed Gov is the issuer of our currency. They can always cover all sovereign debts.

[Romulox]

88. Bank of America's obligations (SHOULD'NT) be on the shoulders on unborn taxpayers.

MAJOR difference between the government and private business is: who pays? and WHO BENEFITS?

[Recursion]

94. But they absolutely are

To meet future withdrawal needs any bank will have to get that money from somebody. And it's odd to say they "shouldn't" be like that, since that has always been the way banking works.

[Romulox]

95. No. Private businesses are typically capitalized by investors, not taxpayers. Banks are special,

due to massive corruption (e.g. the bankster bailouts.) That's the reference to "shouldn't", which should be obviously in the context of this conversation.

[Recursion]

98. I didn't mean literal taxpayers, I meant depositors

Your being able to get money out of your bank account in the future absolutely depends on the banks' having customers depositing money in the future. That's exactly how banking works.

[Romulox]

102. Well, I did *literally mean* taxpayers, since that's what this discussion is about. nt

[girl gone mad]

56. We have a sovereign currency.

It isn't necessary to collect a dime from current or future workers to pay our SS obligations.

[Romulox]

85. LOL. Then just give each of us a zillion-trillion-gazillion dollars of this "sovereign currency"

and we'll all be RICH!

Or perhaps there's some other complication?

[girl gone mad]

159. Of course there would be other complications to drastically increasing the money supply.

Who is talking about doing anything like that?

[Recursion]

76. The same is true of 401(k) plans

Basically any retirement strategy relies on an economy existing in the future

[Romulox]

86. 401ks are really a horrible example of long term fiscal dependability. Probably the worst you

could've picked.

[Recursion]

92. Any invested asset has been "spent". That's the point of investing it (nt)

[Romulox]

97. 401ks are NOT guaranteed by future tax payers. They have little (or nothing) in common with SS. nt

[Recursion]

99. SS payments aren't guaranteed by future tax payers, either

There's no FDIC for SS. There's not even "accounts" for it to insure.

[Romulox]

100. Snark removed: The future stream of payments to SS beneficiaries will be from future taxpayers.

Or, to put it another way, future generations of taxpayers will be asked to "pay back" the money "borrowed" from the Social Security Trust Fund.

A 401k is a basket of stocks and other equities purchased on the private market. The taxpayer is not on the hook to pay a stream of payments in to 401k participants.

[Recursion]

101. Well, no, presumably we'll borrow to retire the intragovernmental holdings

That's kind of the whole point: we can borrow 2.5 trillion to redeem those bonds without actually increasing the debt.

[Romulox]

103. An economic model based on the miracle of fish and loaves, then...

From whom may we borrow this money, "without increasing the debt"? The same Social Security beneficiaries for whom only 75% of benefits will be available in 2033?

That sounds more like theft than simple free money.

[Recursion]

104. The same people we borrow from now: it's called "the bond market"

And do you literally not get that? We borrow $1 to pay off a $1 bond: where do you see an increase in debt coming out of that?

[Romulox]

105. Um, this thread is about the so-called "Social Security Trust Fund". That's created from payroll

deductions of workers, not "the bond market".

[Recursion]

108. *facepalm*

I'm assuming you're just trolling now, since this should be obvious to a five-year-old:

To pay back the bonds held by the Trust Fund, the government will probably borrow money.

For every dollar paid off (that is, a dollar less in debt), a dollar will be borrowed (that is, a dollar more in debt). 1 - 1 = 0, so the redemption and the borrowing cancel each other out, and the debt is not increased.

[Romulox]

110. Facepalm backatcha. SS has a structural deficit such that it cannot pay out scheduled benefits.

That's even if the Chinese agree to finance every penny of the so-called "Trust Fund" via you're imaginary cost-free lending.

[Recursion]

113. How do you see any new debt being added?

1 - 1 = 0 is fairly simple arithmetic, so I really am curious how it is you're screwing it up so badly.

[Romulox]

120. That's right, your arithmetic is too simplistic. You're talking about new borrowing, and

offsetting it against so-called "internal debt" (the so-called Social Security Trust Fund.)

You can't spend every penny you have, then borrow more and claim you haven't increased your debt because you've written yourself an IOU. In short, you're confusing the identities of the debtor and the lender. The US taxpayer is both the debtor AND the lender as to the Social Security Trust Fund.

However, in your scenario, the US taxpayer is the debtor and the Chinese government (the largest purchaser of US debt) is the lender. That's new third-party debt, and it will have to be paid on schedule, by those very same people for whom full benefits will not be available.

[ronnie624]

124. They talk as if we're not already in debt to the tune of trillions of dollars

and increasing that debt by the minute.

[lumberjack_jeff]

109. In the same sense that every penny of the mortgage money my bank loaned me was spent.

How dare they demand repayment! I spent it!

[Romulox]

112. Except banks are private businesses who don't (normally) fund themselves via taxes.

That's a huge difference.

[lumberjack_jeff]

116. Different? Undoubtedly. Non sequitur? Absolutely.

The relationship between the lender (workers) and the borrower (the government) is the same relationship as me and my bank. Regardless of how the borrower will come up with the cash for repayment, the borrower can't simply say "I spent it. Sucks to be you!" without recourse and without harm to their perceived full faith and credit.

[Romulox]

131. LOL at this: "Regardless of how the borrower will come up with the cash..." That's the rub, innit?

"the borrower can't simply say 'I spent it. Sucks to be you!' without recourse and without harm to their perceived full faith and credit."

OK. You concede the money is spent, and your argument is?

[Recursion]

134. You're essentially saying it's impossible to save money

The Italians figured this out in the 1300s or so, though. People have done it ever since.

[Romulox]

135. Spending money and saving money aren't the same thing. It's a silly argument. nt

[HiPointDem]

136. if you save in a bank or investment fund you're lending your money to someone to spend.

[lumberjack_jeff]

145. "The money"? ALL money is debt. It's irrelevant what the government spent the loan proceeds on.

The debt is still there. That debt, like the money I owe my bank, is an asset to the lender.

The money was loaned, not spent.

[Recursion]

146. I remember being surprised when I took a banking class...

...that debts are "assets" and deposits are "liabilities", but it makes sense when you think about it. A bank that simply held its depositors' money would go out of business very quickly.

[Dragonfli]

23. K&R for the truth /nt

[bvar22]

24. Hi, Wraith!

I seldom agree with you,
but for THIS post:
[font size=9]DURec![/font]

...and thanks for addressing a persistent myth that just won't DIE.
Too many Democrats who favor giving the SS Funds to their friends on Wall Street keep repeating this nonsense.




You will know them by their WORKS,
not by their excuses.
[font size=5 color=green]Solidarity99![/font][font size=2 color=green]
--------------------------------------------------------------------------------------------------------------------------------[/center]

[pa28]

25. An argument to cut SS usually comes in two parts.

The first part is the factually incorrect that the trust fund is "broke" and stuffed with "worthless IOU's". I don't understand why some on the left insist on buying into this false notion.

One day we'll have a new Republican president who will propose turning the trust fund over to financial institutions for active management. When that happens I assure you the government will find a way to make good on those "worthless IOU's".

[Cleita]

31. Best coming to a logical conclusion argument that I have seen.

[Snake Alchemist]

27. Relax, this money can just be printed when it is needed to be paid out. nt

[Kingofalldems]

32. Wow, got those talking points in twice in one thread

Good job.

[Snake Alchemist]

33. It's called reality. Ben will just fire up the presses. nt

[Uncle Joe]

35. So your believe in a reality that Ben will be firing up the presses 21 years from now? n/t

[Snake Alchemist]

36. LOL, hopefully not. Whoever is at the wheel at that point. nt

[LanternWaste]

91. I imagine many people subscribe to bumper stickers as their reality.

I imagine many people subscribe to bumper stickers as their reality. I'd guess its consistent simplism allows for a much easier life...

[Snake Alchemist]

93. So where do you think the money will come from? Be specific. nt

[Nye Bevan]

60. OK, so you're saying Social Security is fine because we can always roll the printing presses

to make the payments. Which we can (although this concept does raise other issues), but being able to do this in no way requires any kind of "trust fund".

[Uncle Joe]

29. Kicked and recommended.

Thanks for the thread, TheWraith.

[MannyGoldstein]

30. Rec. Right on

Thanks.

[alc]

34. can the trustee's sell the "US bonds" on the open market?

Can Congress decide to pay them off with more of the same (but with added value from interest), which are also non-marketable?

The money should not be sitting in a vault. But it should be invested in something that is guaranteed, rather than something Congress can play games with. If Congress can't play games with it, what exactly were Pelosi and Obama (and other Democrats) talking about 2 years ago.

Are the values of these bonds included in the official US debt? I've found sources that say yes, and sources that say no. Some government reports look like they are but others look like they are not. If they are not, it's a big red flag.

The answer to my first question is "no". The trust fund contains "special issue bonds" and one of the "special" features is that they are non-marketable. It's tough to find out all of the details about these bonds (e.g. is there a timetable where they must be paid off with something of use - like dollars)

To most big investors, these "us special issue bonds" are a mater of internal governmental bookkeeping, not debt. And it doesn't matter if Congress finds ways to get around redeeming them for something of real value - it won't be considered a default on debt and may be considered a sign that Congress is serious about dealing with it's internal finances before defaulting on external debt.

[PoliticAverse]

38. They are included in government debt statistics. They are considered 'Intragovernmental Holdings'

See: http://www.treasurydirect.gov/NP/BPDLogin?application=np

04/23/2012

10,858,204,873,838.22 Debt Held by the Public
4,761,969,175,722.01 Intragovernmental Holdings
15,620,174,049,560.23 Total Public Debt Outstanding

[EdinGA]

43. Regardless of IOUs or T-bills...

...The fact is that eliminating the cap on SS contris and subjecting ALL income ,(earned or unearned) to collection would eliminate any talk of underfunding, either of SS or Medicare. In fact, it would make Medicare for all a completely doable process w/o additional taxation and Social Security benefits could be raised for recipients and the age threshold lowered, (65-66 down to 55) without imperiling the system. This in turn would open countless job opportunities for younger Americans.

But of course no one wants to openly discuss that as it means a crimp on some of those "wealth management" plans of the idle rich and the rentiers.

[Romulox]

44. People don't want to lift the income cap, because they don't want benefits means-tested.

Lifting the cap without limiting benefits may be a lateral move, otherwise.

So many of the people arguing that the Trust Fund is "invested" rather than spent are also adamantly against lifting the cap.

[eridani]

67. Bullshit. There is already "means testing" in the form of capped payouts

Currently $32K or so max, regardless of how much you put in. Also, the initial benefits formula is skewed to favor lower income people, and I would surely not have any trouble with skewing it further in that direction.

[Romulox]

90. It's not my argument, so don't rail against me. Google previous DU discussions on the subject.

We're talking about hypothetical situations in which ALL income is subject to SS contributions. MANY have argued that payments would therefore also have to be uncapped, lest the program "be turned into welfare".

It's not my argument, and I'm not misrepresenting it, either, so please put away your claws!

[eridani]

153. Sorry--hard to keep the subthreads separate

Capped payments and initial benefits calculations favor lower income people. It only becomes "welfare" if you stipulate that past a certain retirement income level you get NOTHING. That too has been proposed.

[lumberjack_jeff]

118. Benefits are progressive.

one who made 10x more than the neighbor during his or her working days doesn't get 10x in retirement benefits. Lifting the cap does not necessarily mean astronomical benefit payouts, and that is not means testing.

[Romulox]

130. I agree with lifting the cap and means testing. Many do not. nt

[lumberjack_jeff]

144. I agree with lifting the cap. I do not agree with means testing.

If you paid the premiums (SS taxes) you are entitled to the benefit. The fact that the benefit formula is biased towards those who paid less in taxes isn't the same thing as means testing.

[eridani]

154. +10000 n/t

[Romulox]

158. If semantics get you there, I'm fine with that. Your suggestion would be right in line

with the present implementation of the system, and I believe most everyone who is calling for the SS contribution cap to be lifted would agree.

[allenwsmithphd]

54. The Awful Truth About the Social Security Trust Fund

"This claim is false. It's not "sort of" or "controversial," it's just outright false. Anyone who pushes this claim is either misinformed or outright lying."

I wish with all my heart that the above words were true, but they are not. I am a progressive Democrat
who has been immersed in researching Social Security funding ever since I first stumbled onto the "awful truth" while doing research for a book in 2000.

The United States government has been systematically
depositing all surplus revenue from the 1983 payroll tax hike into the general fund and spending it on wars and other government programs. Every dollar of the $2.6 trillion in surplus revenue generated by the 1983 payroll tax hike has been spent on other programs. Not a dime was saved, and unless money is saved, it cannot be invested. The government has replaced the money with $2.6 trillion in IOUs which are nothing more than accounting records of how much Social Security money has been spent. The IOUs, called special issues of the Treasury, are not bonds in the true since of the word. They have no monetary value and cannot be sold. So Social Security has nothing in reserves except those IOUs that may or may not be repaid. It is because of this terrible predicament that conservatives are pushing so hard to cut Social Security benefits. The surplus money was supposed to be used to buy public issue marketable Treasury bonds in the open market. If that had been done, these marketable bonds could be sold in the open market at any time by the Social Security trustees to raise cash with which to pay benefits. But the IOUs cannot be sold, and the government does not have the money to repay the money it has "borrowed" or "stolen." In addition, the government has never paid a dime in cash interest on its debt to Social Security. It "pays" interest simply by issuing more of the same worthless IOUs that are already in the trust fund.

On January 21, 2005, the Comptroller General of the U.S. Government Accountability Office (GAO) issued the following indisputable statement. "There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down."

If you are interested in finding out more about the "great Social Security theft," please click on the following link. [link:http://thebiglie.net|. You can downloan a free copy of "The Looting of Social Security."

Allen W. Smith, Ph.D.

[girl gone mad]

57. "the government does not have the money to repay the money it has "borrowed" or "stolen.""

Utter nonsense.

The US Federal government is a sovereign fiat currency regime and can always meet its same currency debt obligations. Your understanding of economics is severely lacking.

[liberalmike27]

66. Technically

Treasury bills aren't really "invested" in anything either. We just take money, spend it on war, or tax cuts for the rich, or whatever, then pay the bearer a percentage of interest. Like the Social security bonds and bills, interest is paid by the government on them.

Truth is, at some point maybe we should raise that cap. I feel no obligation to means test just because we raise the taxes. But we should actually pay back the 2.6 Trillion borrowed, not from more SS taxes, but from the general fund. Whether it's making all income subject to the same tax table, or adding more brackets on top where the richer people pay more taxes, or increasing the inheritance tax to a confiscatory level, we need to first pay back the 2.6 trillion, and maybe somewhere down the line, in 2020, or 2025 perhaps, we might consider raising the cap on SS and making sure those who earn money from capital gains pay SS taxes on that too.

But right now, this year, we actually collected 60 billion plus, more than we paid out. I don't think any "fiscal reality" should in any way force us to not pay back all that money the general fund borrowed from a well-meaning, well-functioning program.

[Recursion]

106. Are you seriously proposing the Federal government open a deposit account somewhere?

Do people who complain about the money being "spent" seriously think that would be a good idea?

[Nye Bevan]

58. I wrote myself an IOU for $2 million on a piece of paper, which I placed in a safe-deposit box.

When I open the box at age 65 I will be all set for retirement. All I will have to do is pay myself the $2 million that I owe myself.

That's the SS "trust fund" in a nutshell.

[girl gone mad]

62. Question:

Are you a currency issuer or merely a currency user?

[Nye Bevan]

63. I understand your point. We can roll the printing presses, so SS will always be fine.

But this acknowledges that the "trust fund" is an accounting fiction. Why bother having it, when we can simply print however much money we need to make the SS payments each month?

[girl gone mad]

73. In my view, we shouldn't bother.

End the accounting fiction, eliminate FICA and fund SS out of general revenue. We can all stop pretending that the government is going to run out of money some day and focus on non-imaginary constraints such as energy and natural resources.

[The2ndWheel]

81. One goes with the other it seems

There's no money problem, we can just create more. It's a sovereign fiat currency regime. The only limit is the human imagination.

Energy and natural resource constraints? We can just create more. We're humans. The only limit is our imagination.

[girl gone mad]

160. I think we can meet our energy demands with proper investment.

Natural resources are a bigger concern. If we don't control pollution and manage our ecology responsibly, we're screwed.

[lumberjack_jeff]

121. And since you have the ability to print your own money and issue your own debt...

... the situations are exactly the same.

This "kitchen table economics" gibberish gets on my nerves. Government isn't a family, a business, an allowance or a piggy bank. It's a different animal and absurdly reductionist analogies are worse than useless.

The $2 million that you loaned yourself is the least of your problem, given that you loaned $8 million to the militia down the block.

[Nye Bevan]

123. Again, that's the "roll the printing presses" argument.

Since the Government can print as much money as it needs, there is no Social Security problem, or Medicare problem, or indeed, any problem at all. Why even bother with a "trust fund"? Just add up all the Social Security claims each month, print the money required, and send it out to the claimants.

[lumberjack_jeff]

143. Why? Because to do so devalues the existing money.

Right? The millions I hold in bank accounts will be worth less if government borrows to repay social security, and I sure as hell don't want to repay it via taxes on my astronomical income.

Luckily, there's a third option. Convince the rubes via ridiculous kitchen table economic arguments that the debt I owe to them is invalid "cuz' I already spent it."

[ronnie624]

127. Debt is debt,

whether it's on a national level or familial one. At some point, it has to be paid back.

Your ideology renders your opinion on this issue illogical.

[lumberjack_jeff]

142. No it doesn't.

The upside of a fiat currency is that you can always create more of it. The only inherent worth of the currency in your pocket is that it is backed by someone else's promise to repay. Money is created by borrowing.

http://www.vantagequest.org/trees/money.htm#.T5hGWLNinw8

[Nye Bevan]

150. We could just print the money tomorrow to pay off all US debt.

And then Social Security, and everything else, would be fine.

It's so simple!

[lumberjack_jeff]

155. Except for the fact that future lenders would take that into account, yes.

It'd majorly piss off the holders of today's currency because of the resulting inflation. They hate that even more than simply paying the taxes required to retire the debt.

Besides, can you point to the president who paid off the Civil War debt? World War 1 debt?

Hint: it never was. As the economy grew, the existing debt became trivial.

[ronnie624]

163. Thanks for the interesting article

Clearly, a certain amount of debt is necessary to maintaining a supply of money and liquidity.

But your article maintains also, that the debt must be responsible. It also has this to say, which I found fascinating:

We need to move (very carefully and deliberately) toward a time when at least three aspects of our economy are based on sustainable - and democratic - values. The first is a conversion to the creation of money on a fee for service basis, rather than with the current interest load. This will get rid of the present situation where there is never enough money in the creative sector because of the constant money migration to the finance sector inherent in interest-based money.

[center]*******[/center]
The practical argument is that the idea of dividing up the earth is no longer serving the survival of the earth or our species. Anyone who persists in believing that the earth belongs to us must deal with the fact that this belief has been the value base for money and economic systems that have led to the downfall of all the major western cultures. (See again 6) It has led to an ethic in which the removal of resources from the earth has become a personal right of the owner of that piece of the earth, with no thought as to the social or ecological ramifications of that removal either now or for succeeding generations. This ethic has led, in all the major historic western cultures, to degradation of air and water and erosion and salt buildup in the soil, to a point where these resources could no longer support a healthy human population, leading to the demise of the string of world cultures listed earlier here. All these cultures broke down as a result of this environmental stress, coupled with the unrest created when wealth was concentrated, and the majority of citizens had only debt, and no stake in the future of the culture.

[center]*******[/center]
Since some individuals, communities and regions are blessed with more than their share of earth and/or personal assets, there is also a need to consider how, in at least some voluntary way, those who are blessed with more, have a stewardship and sharing responsibility toward those whose ecosystems and social systems are less blessed. Such aid must be given with great respect toward the integrity of the individuals, the social systems and the ecosystems that receive them, as well as those which give.

The alternatives before us are basic change or failure to survive. The quicker we recognize this basic equation, the easier it will be to make the transition. The longer we take, the more limited and difficult will our choices be. What can I do, and what can you do to make the transition? Check and read the following bibliography for ideas, and have at it!

[link:http://www.vantagequest.org/trees/money.htm#.T5jPFtluPhl|

[Egalitarian Thug]

147. And as soon as you become a sovereign nation, it will work for you, too. n/t

[Nye Bevan]

149. Because a sovereign nation can simply print the money it needs to pay benefits.

So sovereign nations, which control their own currency, can never have any kind of financial difficulties.

[spanone]

59. look at our newspaper this morning.

[IMG][/IMG]


bet this headline reverberated across the country from our liberal media

[coalition_unwilling]

61. Thank you. It used to annoy the living shit out of me when I was down

at Occupy Los Angeles (pre-raid), having to listen to and pretend to respect some Occupiers who maintained the tom-foolery that Congress had "stolen" our SS funds. Gawd, it was like fingernails scraping down a chalkboard.

One technical note: were the SSTF 100% in cash (currency) piled in a vault, one would have to contend with the physical deterioration of the paper currency over time also, in addition to inflation eroding its nominal value.

Emphatic K&R for helping to educate.

[allenwsmithphd]

74. The Looting of Social Security

I'm sorry that the link did not show up on the previous post. Go to www.thebiglie.net to download a free copy of "The Looting of Social Security."

This book was published at a time when George W. Bush's privatization campaign was still in the planning stage, and had not yet been announced to the public. The book would have been very inconvenient if it were available to the public during the privatization campaign. I appeared on CNBC morning news on February 26, 2004, as one of two guests to respond to Alan Greenspan's call for cuts in Social Security benefits the previous day. I used the occasion to hold my book in front of the camera and lambast both Greenspan and Bush for their attempts to destroy Social Security, as we then knew it.

That little episode apparently drove the final nail into the coffin of my book. Several weeks later the book was mysteriously pulled from the market by an unknown entity. The book disappeared from bookstores across the country and was listed as "unavailable" by Amazon.com at a time when thousands of copies were in the publisher's warehouse. I tried to get my New York publisher to revert the publishing rights back to me so that I could publish the book elsewhere, but they refused to relinquish the rights. As a result, I could not republish the book anywhere for several years.

In 2010, after regaining the publishing rights, I published a new release of the book. That book is now available to everyone absolutely free as an ebook. If you would like to find out why the Bush administration did not want this book available to the public during his privatization campaign, go to www.thebiglie.net and download your free copy.

Allen W. Smith, Ph.D.
[e-mail]
www.thebiglie.net

[ronnie624]

77. Thank you very much.

You may rest assured, your book is at the top of my agenda.

No one has adequately responded to your posts. Quite frankly, I don't believe anyone posting to this thread is knowledgeable enough.

[Recursion]

75. Well said. It also means...

... That if need be we can borrow dollar for dollar to redeem those bonds without increasing the debt by one red cent.

[lumberjack_jeff]

122. Hello! This, exactly. n/t

[ronnie624]

78. If most of the current and future taxpayer revenue

is devoted to the military budget, the maintenance of empire, wars on terror, and being transferred into the hands of the elite class, where will the money for social security payments come from?

[Yo_Mama]

80. It's not a fiction, but there are no assets which the government can use to pay benefits.

The trust funds for DI, SS & Medicare are all in the "intragovernmental bucket". Here's a segment of the 2011 report:
http://www.fms.treas.gov/fr/11frusg/11mda.pdf

In addition to debt held by the public, the Government has about $4.7 trillion in intragovernmental debt outstanding, which arises when one part of the Government borrows from another. It represents debt issued by the Treasury and held by Government accounts, including the Social Security ($2.7 trillion) and Medicare ($316.3 billion) trust funds. Intragovernmental debt is primarily held in Government trust funds in the form of special nonmarketable securities by various parts of the Government. Laws establishing Government trust funds generally require excess trust fund receipts (including interest earnings) to be invested in these special securities. Because these amounts are both liabilities of the Treasury and assets of the Government trust funds, they are eliminated as part of the consolidation process for the government-wide financial statements (see Note 14 of the Report). When those securities are redeemed, e.g., to pay future Social Security benefits, the Government will need to obtain the resources necessary to reimburse the trust funds.

These trust funds have an important legal function - when they are exhausted under current law, either benefits have to be cut or law has to be changed. But they do not serve as a source of funds with which to pay benefits, and anyone who believes that they do is quite frankly deluded.

[bemildred]

83. The government can and will use all that money being hoarded by the wealthy right now to pay.

Which is exactly what it has promised to do all along.

[lumberjack_jeff]

114. Government only has one asset: it's full faith and credit.

Foreign countries invest in our debt because they trust our faith and credit more than anyone else.

[Recursion]

115. I dunno. Ours has some pretty cool buildings. And the Interstate Highway system

Not to mention a shit-ton of gold.

[lumberjack_jeff]

119. Who's going to repo it? n/t

[Romulox]

96. The trillions burned up in Iraq and Afghanistan haven't been "invested" in interest bearing accounts

That much should be obvious to everyone.

[ronnie624]

117. Yep.

Much of it came from the general fund and the social security surplus fund, and then they still had to borrow to support the blood baths in Asia. In other words, there is no surplus revenue whatsoever. The only way to create a surplus, is to raise more tax revenue somehow and cut spending on military aggression, and I don't see that happening in the foreseeable future. This should be obvious to anyone with fundamental math skills.

[allenwsmithphd]

125. The 1983 Social Security "Fix"

Amazingly, most Americans are not even aware of the Social Security Amendments of 1983, and how they laid the foundation for the greatest fraud ever perpetrated against the American people by their own government. In 1982, President Reagan appointed Alan Greenspan to head up a commission to study Social Security and make recommendations for changes. The Greenspan Commission warned that Social Security would face major funding problems when the baby boomers began to retire in 2010. To avoid those problems, the Commission proposed a hefty payroll tax hike that would require the baby boomers to prepay the cost of their own retirement. Prior generations had been responsible only for paying the cost of their parents’ retirement benefits. However, once the Greenspan recommendations were enacted into law in 1983, the baby boomers were required to pay for theirs parents’ benefits, which was customary, plus pay enough additional tax to prepay most of the cost of their own benefits, which was not customary. The net result is that the baby boomers have already paid for their benefits.

The plan was to save the surplus revenue that would be generated by the 1983 tax increase, over the next 30 years and invest it in public-issue marketable U.S. Treasury bonds, which are the safest investment in the world. If that had been done, the trust fund would today hold $2.6 trillion of “good-as-gold” marketable U.S. Treasury Bonds, which could be sold by the Trustees, in the open market, at any time in order to raise cash with which to pay benefits. It was a good plan, but it was not followed. Because the Reagan income-tax cuts were unaffordable, by 1983, the Reagan administration was desperate for a new source of revenue. It would have been politically difficult for Reagan to have called for a repeal of his income tax cuts, so he found another way to solve his revenue problems. He appointed Alan Greenspan to chair a commission on Social Security solvency. Greenspan was very effective in convincing the public, and Congress, that it would be a noble thing to increase the payroll tax in order to build up a large reserve which could be used to fund benefits for the baby boomers. How could anyone oppose such a tax increase? Is it possible that Greenspan’s later appointment to the coveted post of Federal Reserve Chairman was a partial payback for the role Greenspan played in solving Ronald Reagan’s revenue problem?

There is no way to know whether Reagan and Greenspan intentionally planned for things to work out the way they did, or whether the looting of the trust fund just evolved naturally. But what actually happened to the $2.6 trillion in surplus Social Security revenue, generated by the 1983 payroll tax increase, is indisputable. Every dollar of that money was deposited into the general fund and used for general government operating expenses. None of it was saved or invested in anything. The government simply took the money and replaced it with non-marketable government IOUs that are worthless in terms of paying benefits to anyone. Over the past 30 years, the government has misled the public into believing that those IOUs are real bonds, just like the one’s held by the Chinese and others. But they are not real bonds. They are IOU’s that are an accounting record of the spending of $2.6 trillion in Social Security money which was mostly used to fund the Reagan income tax cut. In essence, taxes paid by working Americans through the regressive payroll tax were used to replace the revenue lost by giving income tax cuts to the very rich.

Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
Email: [e-mail]
Phone: [phone]
Website: www.thebiglie.net

P.S. If you would like more information on the “great Social Security theft,” please visit my website at www.thebiglie.net where you can download a free copy of my book, “The Looting of Social Security: New release of the book “they” didn’t want you to read.”

[HiPointDem]

137. reagan didn't call the g-span commission to "raise money," he called it because the SS TF was

near depletion.

the bond issue is a red herring.

and the initial surplus produced by the 83 amendments wasn't very big. took a bit of time to build that up.

[Throd]

126. I'm 45 years old. I don't expect to see a dime.

[allenwsmithphd]

138. The Looting of Social Security: Pre-taxing the Baby Boomers

The Looting of Social Security: Pre-taxing the Baby Boomers
by
Allen W. Smith, Ph.D.

On April 20, 1983, one of the most significant developments in the history of Social Security legislation took place with great fanfare. It was the signing ceremony for the Social Security Amendments of 1983, which President Ronald Reagan called landmark legislation. This legislation laid the foundation for what would become one of the greatest frauds ever perpetrated against the American people by their government. Yet, today, in the midst of one of the most heated national debates on Social Security in the history of the program, almost nobody knows about the 1983 legislation. The news media carries article after article about the status of Social Security without ever mentioning that the “baby-boomer problem” was supposed to have been “fixed” by that 1983 legislation. During the debate for the 1983 legislation, the baby boomers were vilified as the ones who were threatening the future solvency of Social Security. They were also hit with a big payroll tax hike that required them to prepay the cost of their own retirement benefits, so there would not be a solvency problem when they actually retired. But the 1983 legislation, which hit the boomers so hard, is now forgotten, and the baby boomers are once again popular scapegoats.

Below are remarks made by President Ronald Reagan just before he signed the legislation into law.

“It's especially fitting that so many of us from so many different backgrounds--young and old, the working and the retired, Democrat and Republican--should come together for the signing of this landmark legislation.

“This bill demonstrates for all time our nation's ironclad commitment to social security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire… .

…Political leaders of both parties set aside their passions and joined in that search. The result of these labors in the Commission and the Congress are now before us, ready to be signed into law, a monument to the spirit of compassion and commitment that unites us as a people.

Today, all of us can look each other square in the eye and say, "We kept our promises." We promised that we would protect the financial integrity of social security. We have. We promised that we would protect beneficiaries against any loss in current benefits. We have. And we promised to attend to the needs of those still working, not only those Americans nearing retirement but young people just entering the labor force. And we've done that, too…

…So, today we see an issue that once divided and frightened so many people now uniting us. Our elderly need no longer fear that the checks they depend on will be stopped or reduced. These amendments protect them. Americans of middle age need no longer worry whether their career-long investment will pay off. These amendments guarantee it. And younger people can feel confident that social security will still be around when they need it to cushion their retirement.
These amendments reaffirm the commitment of our government to the performance and stability of social security.--President Ronald Reagan on signing the Social Security Amendments of 1983 on April 20, 1983


When the first surplus Social Security revenue showed up in 1985, it was deposited in the general fund and spent on general government operations, just like all other revenue. However, non-marketable government IOUs were placed in the trust fund as an accounting device to show how much Social Security money had been spent. Reagan set the precedent, which would be followed by the next four presidents, and their Congresses, Republicans and Democrats alike. However, when President George H.W. Bush continued the looting of the trust fund, he faced strong opposition. A group of Senators began to speak out against the looting, and they tried to end it.

In 1990, Senator Daniel Patrick Moynihan of New York introduced legislation to repeal the 1983 payroll tax hike. He was outraged that, instead of being saved and invested for the baby boomers, as was the intent of the law, the money was being used to finance other government programs. Moynihan’s position was that, if the government could not keep its sticky fingers out of the Social Security cookie jar, he wanted the jar emptied so there would be no surplus revenue to loot. Although Moynihan’s proposed legislation was supported by the conservative Heritage Foundation, the liberal Institute of Policy Studies, and the U. S, Chamber of Commerce, it did not stand a chance of passing because of the strong opposition of President Bush. Bush was not about to give up his large, secret slush fund. The looting continued, unchanged, under Presidents Bill Clinton and George W. Bush. President Obama was able to loot only the small surplus of 2009. The many years of Social Security planned surpluses came to an end in 2009, and the perpetual annual deficits began in 2010. The United States government has reached that point where annual revenue from the payroll tax will be insufficient to pay full benefits. This is when we were supposed to dig into the $2.6 trillion reserve that was supposed to be in the trust fund. But every dime of that surplus has already been spent, and the only thing in the trust fund is non-marketable IOUs that can neither be sold nor used to pay benefits. The great day of reckoning has finally come. Either the government will have to take money from the general budget to supplement the inadequate payroll tax revenue, or it will have to cut benefits. That is why so many politicians are today calling for cuts in Social Security benefits.

Allen W. Smith, Ph.D.
Website: www.thebiglie.net
Email: [e-mail]
Phone: [phone]

[Recursion]

139. The trust fund has still never had a year in deficit. I'm so tired of that lie

People freaked out last year because if you exclude interest income, the trust fund is in deficit. But if you exclude wage income, my bank account is in deficit too. It's a drummed-up non-issue.

[HiPointDem]

140. Either the government will have to take money from the general budget..."

"Either the government will have to take money from the general budget to supplement the inadequate payroll tax revenue, or it will have to cut benefits."

not the only two choices at all.

[Recursion]

148. Err... the whole point of this was that it's easier to borrow

Either the government will have to take money from the general budget to supplement the inadequate payroll tax revenue, or it will have to cut benefits.

*bang head on desk*

No.

Those two options are not exhaustive of the possibilities. Congress can also borrow money to redeem the bonds held by the Trust Fund... and do so without increasing the overall debt, since it will be a dollar-for-dollar issuance for retirement of bonds (and in fact, currently the cost of borrowing is negative, so Treasury would make money out of that deal).

[Recursion]

141. The money has been squandered on things like the Internet and Pell Grants

Things which obviously have had no appreciable ROI for the government

[allenwsmithphd]

151. The So-called Trust Fund “Bonds”

The Looting of Social Security: The So-called Trust Fund “Bonds”

By Allen W. Smith, Ph.D.

The Social Security Amendments of 1983 included a hefty payroll tax hike that was designed to generate large Social Security surpluses for about 30 years. These surpluses were supposed to be saved and invested in marketable U.S. Treasury bonds, which could later be resold to finance benefits for the baby boomers. The plan was to build up a large reserve in the trust fund, during the surplus years, and then draw down the trust fund, during the deficit years, which began in 2010.

If the plan had been followed, the trust fund would now hold $2.6 trillion in good-as-gold marketable assets, which would be enough money to enable Social Security to pay full benefits for at least two more decades. But the plan was not followed. Instead of saving and investing the surplus Social Security revenue, the money was put into the general fund and spent on wars and other government programs. The spent money was replaced with government IOUs called “special issues of the Treasury.” These IOUs are not marketable and cannot be sold or used to pay Social Security benefits. They are nothing more than an accounting device to keep track of how much Social Security money has been spent for other purposes.

Prior to 1994, the IOUs consisted only of accounting entries recorded in government ledgers or stored on computers. However, some members of Congress began to worry that someone might actually demand to see the IOUs, so legislation was passed that required the physical printing of documents to serve as certificates of indebtedness. Today, when a new IOU is issued, it is printed on a laser printer located at the Bureau of the Public Debt office in Parkersburg, West Virginia. Once printed, the document is carried across the room and placed in a fireproof filing cabinet. That filing cabinet is the closest thing to the mythical Social Security trust fund that exists.

Every dollar of the $2.6 trillion in surplus Social Security revenue went into the general fund and was spent on general government operations. None of it was saved or invested in anything. Anyone can verify that none of the money was saved, or invested, by simply examining the federal budgets of the past 25 years. If you add up the total federal revenue, including the payroll tax revenue, and compare the total with the total federal expenditures, including the payment of Social Security benefits, you will find that the federal government spent all of its general revenue, plus all of the Social Security surplus revenue, and still had to borrow massive additional amounts of money just to pay its bills.

For the past 25 years, the government has misled the public to believe that the surplus Social Security money was actually being invested in government bonds, as it was supposed to be, when, in actuality, the money was spent as general revenue and was, therefore, not invested in anything.

The official Social Security website (http://www.ssa.gov/oact/progdata/fundFAQ.html#n1), which used to boldly state that all surplus Social Security revenue was invested in government securities, has been softening its language to more accurately reflect the truth. However, their words continue to be misleading. The current statement on the official website, with regard to what happens to Social Security taxes, states the following:

“Tax income is deposited on a daily basis and is invested in ‘special-issue’ securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.”

The Social Security Administration has come a long way from their earlier statements, which were extremely misleading. In the second part of the above statement, they admit that, the Social Security cash, “goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.” This part of the statement is true. It describes what has happened to every dollar of the $2.6 trillion in Social Security surplus.

The first part of the statement, “Tax income…is invested in ‘special-issue’ securities” is not true. If the money all goes into “the general fund of the Treasury,” it is all spent for general government operations. Thus, none of the money was saved or invested in anything. The government “borrowed” the surplus money and issued “special issue” IOUs to account for the spent money. The only ways that the government can redeem these IOUs are by 1) raising taxes, 2) decreasing other spending, or 3) borrowing the money.

In the Summary of the 2009 Social Security Trustees Report, a single sentence, buried deeply within the report, spills the truth about the so-called “trust fund bonds.” That sentence reads:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

The above official declaration by the Social Security Trustees, that the IOUs provide no income to the Treasury, should make it clear that Social Security does not have any surplus money with which to pay benefits. The government had to borrow $41 billion in 2010, even more in 2011, and it will have to continue to borrow in all future years. Social Security continues to have the incoming flow of payroll tax revenue, but it is insufficient to pay full benefits. All of the talk about Social Security being able to pay full benefits until 2036 is based on the myth that the Social Security surpluses were saved and invested as was the intent of the 1983 legislation. Social Security does not have any real assets with which to pay future benefits. Social Security and the American people are at the mercy of the government and partisan politics. It is true that the government owes $2.6 trillion to Social Security. If the money is all repaid with interest, the fund will be solvent for at least another 20 years. But that is a big IF! The reason that conservatives are calling for benefit cuts is that they do not want to have to repay the looted money. Given our current political reality, I think it is highly unlikely that Congress will vote for higher taxes or authorize cuts in other programs so that the money can be transferred to Social Security. The first year that the government is unable or unwilling to take money from the general fund in order to make up for the shortfall in payroll tax revenue, is the year that full benefits will not be paid.

Allen W. Smith, Ph.D.
Website: www.thebiglie.net
Email: [e-mail]
Phone: [phone]

[lumberjack_jeff]

157. The first year that benefits are not paid is the first year that "full faith and credit" dies.

The government is always able to run a deficit. And even a cursory examination of the history of the US shows this to be true.

Welcome to DU. But you're still wrong.

[allenwsmithphd]

162. The Looting of Social Security: The Code of Silence

The Looting of Social Security: The Code of Silence

Senator Tom Coburn (R-OK), on March 16 of this year, said during a senate speech, “Congresses under both Republican and Democrat control, both Republican and Democrat presidents, have stolen money from social security and spent it. The money’s gone. It’s been used for another purpose.” In so doing, he broke the sacred code of silence about the misuse of Social Security funds that has been in effect ever since the Reagan administration began using Social Security revenue for non-Social Security purposes in 1985.

It had been a long time since members of Congress openly talked about the looting of Social Security. In 1989, Senator Ernest Hollings (D-SC) warned, “…in the next century, the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate bank notes,” and the following year, Senator Harry Reid (D-NV) described the looting as “embezzlement” and “thievery.” But, except for those minor efforts, the practice of taking money from the trust fund, replacing it with non-marketable IOUs, and then spending the money for wars and other programs, has remained a dark secret for a quarter century. When I first discovered it in 2000, I was so outraged that I wanted to tell the whole world so everyone would be outraged. But I soon learned that nobody in the mainstream media wanted to hear what I had to say.

I saw the AARP as my most likely ally in exposing the great Social Security theft. I sent William Novelli, then CEO of the AARP, review copies of my new book, “The Looting of Social Security,” as soon as I received the first copies from the publisher in early 2004. As an active member of the AARP, I assumed that the organization would help me inform the public about the theft. But, to my astonishment, I learned that the AARP was a part of the code of silence.

I received a personal letter from William Novelli, dated April 9, 2004, in which he scolded me for daring to make the looting of Social Security public knowledge. He wrote, “Saying that the trust funds have been looted could result in people losing confidence in Social Security, and that is counterproductive.” After that one communication, the AARP wanted nothing to do with me because I was trying to expose the looting.

If the AARP had supported my effort to expose the looting of Social Security in 2004, I believe the looting could have been halted at that time, and the trust fund would today hold “good-as-gold” marketable Treasury bonds. Instead, the senior organization contributed to the misinformation by publicly stating that Social Security had enough money in the trust fund to pay full benefits until 2036. They also insisted that the trust fund money was in U.S. Treasury bonds “just like those held by China.”

The American people were told in 1983 that the tax revenue generated by the payroll tax hike would be saved and invested to build up a large reserve in the trust fund. This money would then be available to supplement the inadequate payroll tax revenue, once the baby boomers began to retire. Congress and the public supported the payroll tax hike in a way that they would never have supported a similar increase in the federal income tax because they believed the American government would keep its word. If the public had known that the surplus Social Security revenue would be channeled through the general fund and used for non-Social Security purposes, they would never have supported the 1983 payroll tax increase.

Members of Congress have known about the looting of the Social Security trust fund from the very beginning, but only a few of them have been willing to speak out against the practice. Similarly, the leaders of the AARP have known about the looting for many years, but they have chosen not to make the looting an issue. Instead of being outraged by the looting, and demanding that the stolen money be repaid, they have just ignored the problem. With the mainstream media honoring the government’s desire to keep the looting secret, the public has remained in the dark. With government officials and the leadership of those organizations, who are supposed to represent the interests of seniors, remaining mum, and the mainstream media participating in the code of silence, the American public remains under the impression that the promises made in 1983 have been kept. The objective truth is available, but very few are seeking it.

In the Summary of the 2009 Social Security Trustees Report, a single sentence, buried deeply within the report, spills the truth about the so-called “trust fund bonds.” That sentence reads:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

This report was signed by Treasury Secretary, Tim Geithner, and all the other Social Security trustees. The report represents the official position of the Trustees, but the above sentence was deliberately buried deeply within the report where few readers would notice it. When I pointed these words out to Allan Sloan, senior editor at large of Fortune Magazine, who had missed the sentence when reading the report, he thought they were so significant that he quoted me in his August 10, 2010 Washington Post column.

The fact that the government has spent all of the $2.6 trillion of surplus Social Security revenue for non-Social Security purposes is a matter of public record. But that truth is so covered up that most Americans will never find out about it as long as the government, the senior organizations, and the mainstream media continue to honor the code of silence.


Allen W. Smith, Ph.D.
Website: www.thebiglie.net
Email: [e-mail]
Phone: [phone]