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View Diary: Hell, No! Social Security Contributes Nothing To Deficit (119 comments)

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  •  The fundamental reason (0+ / 0-)

    why it doesn't contribute to the national debt is that paying a social security recipient out of the trust fund balance (rather than payroll tax revenue) requires the 1:1 replacement of federal debt to the trust fund with federal debt to the public.

    Without checking it I doubt that chained CPI goes this far, but the clear intent by some in Congress is to see Social Security's cashflow be zeroed out in perpetuity through benefit cuts now while the $2.8 trillion trust fund balance (or greater) remains in perpetuity.  That would represent an intention by the United States government to never repay $2.8 trillion in sovereign debt and would thus be a de facto default even if not de jure.

    Fake candidates nominated by the GOP for the recalls: 6 out of 7. Fake signatures on the recall petitions: 4 out of 1,860,283.

    by GeoffT on Mon Apr 08, 2013 at 05:12:58 PM PDT

    •  Not really (3+ / 0-)
      Recommended by:
      GeoffT, dclawyer06, rivercard

      It is a feature of any fix of Social Security that restores actuarial balance and particularly one that comes solely on the revenue side via such things as a cap increase that Trust Fund Balances never decline in nominal terms.

      That is not a 'de facto default' that is the definition of 'sustainable solvency'. Yes it is counter-intuitive but true for all that.

      The Trustees define actuarial balance/solvency as having a reserve (the Trust Fund) with a year end principal balance of 100% of next years cost. Since the nominal Cost of Social Security goes upward every year even without the effects of growing caseload (i.e. Boomers) simply by the effects of price inflation, so to the nominal value of the needed reserve to meet the 100% requirement. In Social Security lingo a Trust Fund Ratio of 100.

      Right now the Trust Fund Ratio is around 350 and so putting Social Security on a permanent path to solvency and delivery of 100% of the scheduled benefit would mean shrinking that ratio back towards 100. But under any plausible path that means a combination of sinking Trust Fund ratio and slowly increasing nominal Trust Fund balance as cost rises to meet the value of those retained assets.

      And the more progressive your solution, say a total cap increase or an extension of FICA to all earnings and not just wages and equivalents actually serves just to increase the rate that Trust Fund balances increase and so delay the time that they would need to be redeemed. Which ideally would be never as the Trust Fund ratio settled somewhere above 100 and Trust Fund balances continued to increase year over year to match the structural increase in cost.

      And it is not just inflation, you also have longevity effects, and the temporary effects of the Baby Boom all combining to increase nominal cost year over year, and as it turns out forever. Even after the system settles out into the perfect equilibrium that is 'sustainable solvency'.

      It turns out that very little about Social Security finance and its accounting moves in ways that common sense would tell you it should.

      BTW Chained CPI would backfill about 25% of the current actuarial gap and so only delay and not prevent redemption. The only thing that ELIMINATES redemption is a 100% fix. Which arithmetically can come either via progressive revenue increases or regressive benefit cuts.

      SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

      by Bruce Webb on Mon Apr 08, 2013 at 06:06:30 PM PDT

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      •  I think I must have been unclear (2+ / 0-)
        Recommended by:
        rivercard, Bruce Webb

        The issue I see in the current GOP politics is the intention to change benefits and change them now so that the Trust Fund swells exponentially and indefinitely and SS recipients never see that nest egg that they have built up since the 1980s - not to achieve actuarial balance but to aim for an actuarial surplus and to do so before the fund balance starts to drop.  Which neatly explains why it's suddenly being considered an issue now (when the fund is at its projected peak) and not twenty years hence.

        There are all sorts of major crises visible on the 20-year horizon: intensifying global warming, peak oil, aquifer depletion etc, but this is somehow the only one of them that's being brought to the fore now.  Following the money, $2.8 trillion that never has to be repaid because of benefit cuts is $2.8 trillion of revenue that you can spend on something else, like a war or two.

        The right thing as I see it is to use the Trust Fund balance for its intended purpose (including long-term liquidity), and use the time it affords us to soft land a longer-term fix so that payroll taxes don't suddenly leap by 4% or benefits aren't cut by 1/5 come 2035, which would no doubt be quite jarring to the economy.

        Thanks for the chained CPI actuarial gap-filling number.

        Fake candidates nominated by the GOP for the recalls: 6 out of 7. Fake signatures on the recall petitions: 4 out of 1,860,283.

        by GeoffT on Mon Apr 08, 2013 at 07:09:51 PM PDT

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        •  Exponential Swelling (1+ / 0-)
          Recommended by:
          GeoffT

          Bit there is a point where that gets counterproductive. The Bad Guys run into the "Why are we cutting when we have $5 trillion in the bank?" query.

          Which IMHO is why they doubled down on the whole 'Phony IOU' narrative in 2001 or so and introduced Infinite Horizon with the 2003 Report, they needed new reasons to reject and counter that $2 trillion and counting TF balance.

          In a sense the economic meltdown saved them from that $4 trillion projected balance with the number now projected to top out just above $3 trillion. Similarly that 2042 TF depletion date was beginning to embarrass them, particularly when it was moving out more than a year per year, suggesting depletion might never occur. 2033 and the relatively rapid deterioration from 2042 serves them well too.

          So the 2013 Report, already technically overdue but reliably reported to be coming out in May will be even more intersting than usual. Any improvement from 2033 leaves us a nice vulnerability to attack.

          SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

          by Bruce Webb on Mon Apr 08, 2013 at 09:27:23 PM PDT

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    •  You got it. Social Security will bankrupt the US (2+ / 0-)
      Recommended by:
      Roadbed Guy, Wisper

      The happy talk about how SS doesn't contribute to the deficit is as delusional as the talk about how chained-CPI is not a cut. Technically speaking SS is indeed able to balance its books. But it balances its book by grabing money from the general funds. Since this money is a debt obligation to the SS, the federal government has to fork over the money to SS, even if every other federal program has to starve. Are you prepared to see a future where foodstamps, Headstart, Medicaid, TANF, EPA, FDA, Pell Grant, defense, air traffic safety, etc, etc are all sacrificed and compromised? So it is entirely disengenous to say that SS doesn't contribute to the deficits.

      I am not a huge fan the the chained-CPI, vs other cuts, like means testing, or cap-raising. But this talk of SS not  contributing to the deficits is just plain wrong.

      •  Um (3+ / 0-)
        Recommended by:
        rivercard, ezdidit, run around

        When Social Security redeems its Treasury holdings, the government replaces debt to Social Security with debt to the public.  The total government debt is unchanged and other government cashflows are completely orthogonal.

        The government's general fund has zero obligation to make those transfers in your scenario (although it has, see the payroll tax cut that expired recently), just to repay the SS-held instruments that are due.  Creditworthiness doesn't change between one debt-to-GDP ratio (where some fraction of the debt is public) and an identical debt-to-GDP ratio (where some other fraction of the debt is public).

        You describe a scenario where the United States' creditworthiness has gone to pot and therefore debt to SS cannot be replaced by debt to the public (which includes the Fed with its virtual printing press).

        However, this is no different from a case in which the SS trust fund never existed and the government borrowed from the public instead - the only difference being who the government borrowed from, not how much it borrowed.  The debt-to-GDP ratio would be the same, the public's lack of appetite for US debt would thus remain the same and the Constitutional requirement that all creditors be paid remains the same.

        The existence of the SS Trust Fund thus has nothing to do with the cuts of your scenario.

        Fake candidates nominated by the GOP for the recalls: 6 out of 7. Fake signatures on the recall petitions: 4 out of 1,860,283.

        by GeoffT on Mon Apr 08, 2013 at 08:06:32 PM PDT

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        •  Thanks, GeoffT - trolls abound. (2+ / 0-)
          Recommended by:
          GeoffT, Bruce Webb

          Also, SS is paid for by you and me during our working lives.  See Dean Baker ("Leave It Alone; It’s Irrelevant to the Deficit") and Paul Krugman ("Cheating Our Children").  

          I'd like to think #icemilkcoffee was being ironic, but I've been here before.

          I'm sick of attempts to steer this nation from principles evolved in The Age of Reason to hallucinations derived from illiterate herdsmen. ~ Crashing Vor

          by ezdidit on Mon Apr 08, 2013 at 10:20:07 PM PDT

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        •  debt to the public (0+ / 0-)

          You just said it yourself "the government replaces debt to Social Security with debt to the public.  "

          In other words, the government will have to borrow money from the public in order to pay social security. Money which has to be paid back. In other words, social security contributes to the deficit.

          •  Debt to SS has to be paid back too (0+ / 0-)

            Otherwise it's sovereign default, same as if it were public debt.

            You seem to be stuck on this idea that when the debt (to Social Security) is repaid somehow the debt (to Social Security) is not reduced, while the same doesn't apply to debt held by the public for reasons which will occur to you later.

            If I'm charitable then I'll presume that you're simply too used to seeing the deficit figures of combined budgets - that were introduced by LBJ - which fail to count the increasing government debt to SS towards the headline deficit figure.

            Fake candidates nominated by the GOP for the recalls: 6 out of 7. Fake signatures on the recall petitions: 4 out of 1,860,283.

            by GeoffT on Tue Apr 09, 2013 at 05:47:28 PM PDT

            [ Parent ]

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