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View Diary: Scarborough is complaining that "taxing the rich" won't "fix" Social Security (26 comments)

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  •  geez, do none of these people know the basics (0+ / 0-)

    of budgeting?:

    Social Security isn’t responsible for the federal deficit.
    yes dr. reich (and dr. krugman) it is, in part. now, for purposes of full disclosure, i am not a nobel prize winning economist, nor have i ever been a member of any president's cabinet. i am but a simple country cpa, with a minor in econ. i've also been doing my job for the bulk of my adult life, not quite 30 years now.

    first, one must understand the basic difference between a budget and an income statement, the two are not the same, and represent two completely, yet not unrelated, things.:

    budget: a schedule of receipts and expenditures. if the expenditures exceed the receipts, you have a deficit. if receipts exceed expenditures, you have a surplus. we like us some surpluses. if receipts and expenditures are equal, you have a balanced budget. balanced budgets are good, but not as life affirming as surpluses. budgets are traditionally done using the cash method: cash receipts we expect to receive, and cash payments we expect to make.

    income statement (P & L): a schedule of revenues and expenses for a specific period of time, usually a calendar year, but always a 12 month cycle. if revenues exceed expenses, you have a profit. if expenses exceed revenues, you have a loss. notice the difference in terminology? those words actually have specific meanings, and they are NOT interchangeable. income statements can be done using either the cash or accrual method of accounting. most companies use the accrual method, as it reflects a more accurate matching of revenues and expenses for the period.

    here's where dr's reich, krugman, stiglitz, et al go astray, with respect to social security and the budget deficit:

    the social security trust fund consists of special gov't bonds (debt), purchased with the excess FICA taxes paid during the year. if FICA taxes received during a year are not sufficient to make the social security payments required, some of those bonds must be cashed in, and the funds used to cover the shortfall in receipts. this means the gov't must either take money from the general fund, to redeem those bonds or, lacking sufficient funds in the general fund, borrow the money (sell other bonds) to do it. the required expenditure results in a deficit (or, as is more likely, simply adds to the already existing deficit for the year, which must be made up for in borrowed funds).

    this is actually pretty simple, and why all these obviously really, really smart guys keep getting it wrong is a mystery to me, a simple country cpa. it turns out to be a mystery to some other diarists on kos as well, as one of them (don't ask me who, i forget) recently wrote a diary on this very issue.

    so, to summarize: social security payments do not add to the country's LOSS for the fiscal year, but they most assuredly can and do add to the country's DEFICIT for the fiscal year.

    any questions class?

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