The social security myth

[Old Codger]

Social security does NOT add to the deficit except when they "borrow" the funds from it to use to pay for their wars. That is a fact, all of the money in the social security fund is put there by the people not by any other tax on anyone but working people and employers for that specific purpose. It is in fact an earned, paid for entitlement it should never have been mixed into the "discretionary fund". If a private company did it the way the gov. has done it they would be facing possible prison terms. But the government and it's elected officials are not being held to any ordinary "rule of law". The entire discussion should never be taking place, it is total propaganda, nothing more and nothing less.

[sabrina 1]

1. Yes, and it cannot be said enough. But the media and politicians

are hoping the people don't understand this. That is why it is imperative to make sure everyone we know understand it.

And worse, IF they cut SS in any way, the money, as Pelosi pointed out, will NOT go into the Fed. Govt fund, it will remain in the SS Fund. However, they will continue to borrow that money once they know it is there, and that will only RAISE the debt because it still has to be paid back.

It's giving debt defaulters another loan, knowing their credit is so bad that only a fool would do so.

[kentuck]

2. Maybe they should stop borrowing from the SS fund?

That might be a good bi-partisan start?

[dkf]

3. Well in the future it will when the "surplus" runs out if you want to keep benefits as legislated.

I wonder how many people get this.

It won't be part of the regular budget or add to the deficit if benefits paid equal receipts collected immediately following the use of the surplus. But that would mean an instant cut of about 20% of benefits down the line.

So this is really what the debate is about...what to do when the "surplus" runs out because the rules determining the funding are going to raise less funds than are needed for the payout.

Ironically our politicians are trying to be responsible about addressing this now. It's you all who say "don't touch it" who are irresponsible. I wonder if this isn't how most run their lives though. I wouldn't be surprised.

[Recursion]

4. Well, hold on

Those bonds will have to be paid off, by us, when the trust fund starts redeeming them, and that will require some combination of:

1) More borrowing
2) Tax increases
3) Reduced spending elsewhere
4) Inflation

New borrowing would pretty much be one-for-one (slightly less since it will be more expensive to borrow in all likelihood) so it would not have much of an impact on the total debt, but annual deficits will be higher as the Trust Fund is drawn down.

[mike_c]

5. yes, and the compliant media will make it a meme....

We MUST cut social security and medicare because of the DEFICIT! The sky is falling! The sky is falling!

Obama is playing the same game. He is just as aware as we are that SS makes no contribution to the federal budget deficit, and that the SS trust has been used as a government piggy bank for generations, ripping off American workers to pay for dubious wars and tax breaks for wealthy industries. Obama knows it. We know it. Yet he still plays the game, counting on most Americans to be utterly ignorant as he joins the rest of the ruling class in perpetuating the fraud.

This no longer has anything to do with the struggle between political parties. Now it's down to the struggle between the ruling elite and the rest of us, fighting over dwindling resources and government services. The democrats are mostly just kinder, gentler republicans, all out for the same fraud. The media-- driven largely by cheap cable TV news entertainment brokers who need controversy to stoke their viewership like babies need mother's milk-- will stoke the fires of partisanship to keep the crisis going for as long as possible, while actually participating in it economically and philosophically.

There is no actual American leadership any longer. The president is America's CEO. Congress is its executive staff. The Supreme Court is its board of directors. Together, they serve one goal-- to increase profits for their corporate masters and thus line their own pockets as well, not to mention keeping their jobs. I am sick to death of what has happened in this country during the last few decades. These days, the partisanship is just window dressing to keep the media happy and the people ignorant of the real issues.

[econoclast]

6. SS and the debt

SS is "off budget". The budget deficit does NOT include SS in any way. ( except perhaps the interest paid to the SSTF on their holdings of US Treasury securities ... I have to check that out ). But if the budget deficit is 500 billion dollars and SS has a 100 billion surplus, that does NOT reduce the deficit to 400 billion dollars. What it DOES do is reduce the amount of the 500 billion deficit that the government has to borrow IN THE MARKET. 

Since SS is required by law (and has been since the 1930's) to invest any surplus in US Treasuries, this means that if the deficit is 500 billion dollars and SS has a 100 billion surplus, that does NOT reduce the deficit to 400 billion dollars, but then the government sells 100 billion in US Treasuries to SSTF and only has to borrow 400 billion INTHE MARKET. 

FYI. For a period starting in the LBJ administration and ending in the Reagan administration SS WAS "on budget" and SS surpluses WERE put "on the budget" and any SS surplus did reduce the reported budget deficit. They called it the "unified budget". There is a school of thought that thinks LBJ did this to hide the true cost of the Vietnam war.   But that stoped in the 1980's and SS was again put "off budget". 

What about when SS itself has a deficit? IE SS takes in less in taxes than it pays out in benefits. I think this is the first year that will happen. Then, the process works in reverse.

Suppose the government deficit is 100 billion dollars. But suppose SS has to pay out 20 billion in benefits in excess of what they collected on taxes. Where do they get the money? They redeem 20 billion of their treasuries. Ok. Where does the treasury get the money from if the government already has a deficit. They borrow it in the market. So, the budget deficit is 100 billion but they have to go to the market to raise 120 billion dollars. 100 to finance that year's budget deficit and 20 to pay off SS

So, SS doesn't impact the budget deficit, but does impact how much the government has to raise in the market.

To turn the 2.4 trillion in assets in the SSTF into the cash needed to make future payments, those assets have to be redeemed. Which means that, since the government seems likely to continue running budget deficits, to get that cash the government will have to borrow an additional 2.4 trillion dollars in the market. That is an additional 2.4 trillion on top of what they need to borrow to cover the annual budget deficits.

Question. Can we borrow an additional 2.5 trillion dollars in the market on top of the regular deficits at reasonable interest rates?