A common claim by supporters of Social Security is that it has never added to the deficit and because it is barred by law from borrowing never can. This claim has had some push back by other supporters and of course opponents claiming that this is pure nonsense, that redemption of the current Trust Fund balance means that funds will have to come from somewhere, and most likely from borrowing from the public, and that this HAS to add to the deficit. Well the whole subject is complicated, and I personally only know one person who could reliably claim to understand it from top to bottom. On the other hand Paul Van de Water is pretty busy these days at CBPP, so I guess it is up to me to take the first lame steps along the highway to conceptual clarity. And the first stop is figuring out what the various federal entities mean by 'deficit' 'surplus' 'debt' and 'unfunded liability'. And the place I suggest starting is with the Analytical Perspectives on the Budget, the 498 page document released to explain and expand on the raw numbers of the President's budget and specifically chapters 12-14, available as a standalone PDF here: Budget Concepts and Budget Process. More ambitious Kossacks can just read the whole thing and after 52 pages be light years ahead of most other commenters in the blogosphere. For those who don't have that kind of time or inclination, I am going to extract some defintions and quote some text and try to give a kinda informed explanation of what it all means. All that in Extended.
To start with lets just look at some definitions from the glossary section starting on page 133.
Budget means the Budget of the United States Government, which sets forth the President’s comprehensive financial plan for allocating resources and indicates the President’s priorities for the Federal Government.
Unified budget includes receipts from all sources and outlays for all programs of the Federal Government, including both on- and off-budget programs. It is the most comprehensive measure of the Government’s annual finances.
Off-budget refers to transactions of the Federal Government that would be treated as budgetary had the Congress not designated them by statute as “off-budget.”
Currently, transactions of the Social Security trust fund and the Postal Service fund are the only sets of transactions that are so designated. The term is sometimes used more broadly to refer to the transactions of private enterprises that were established and sponsored by the Government, most especially “Government sponsored enterprises” such as the Federal Home Loan Banks.
Deficit means the amount by which outlays exceed receipts in a fiscal year. It may refer to the on-budget, off- budget, or unified budget deficit.
{This one is key, italics mine BW} Outlay means a payment to liquidate an obligation (other than the repayment of debt principal or other disbursements that are “means of financing” transactions).
Outlays generally are equal to cash disbursements, but also are recorded for cash-equivalent transactions, such as the issuance of debentures to pay insurance claims, and in a few cases are recorded on an accrual basis such as interest on public issues of the public debt. Outlays are the measure of Government spending.
Well already we are in deep waters here. Per OMB repayment of debt principal is NOT considered an outlay, although
interest on public issues of the public debt are. And if that redemption is not counted as an outlay by definition it can't be part of the 'deficit' as defined here. (And note we have no reference here to interest on non-public issues such as those held by the Trust Funds). Nor would it appear on a strict reading to be part of the 'unified budget'.
How does OMB get to this somewhat counter-intuitive result:
The budget treats borrowing and debt repayment as a means of financing, not as receipts and outlays. If borrowing were defined as receipts and debt repayment as outlays, the budget would always be virtually balanced by definition. This rule applies both to borrowing in the form of Treasury securities and to specialized borrowing in the form of agency securities. The rule reflects the commonsense understanding that lending or borrowing is just an exchange of financial assets of equal value—cash for Treasury securities—and so is fundamentally different from, say, paying taxes (p. 129)
. Jumping back and forth lets try to clarify this, at least a little with two more quotes:
When outlays exceed receipts, the difference is a deficit, which the Government finances primarily by borrowing. When receipts exceed outlays, the difference is a surplus, and the Government automatically uses the surplus primarily to reduce debt. The Government’s debt (debt held by the public) is approximately the cumulative amount of borrowing to finance deficits, less repayments from surpluses, over the Nation’s history.
Borrowing is not exactly equal to the deficit, and debt repayment is not exactly equal to the surplus, because of the other means of financing such as those discussed in this section. (p.129 and above the passage cited above)
In 2010, the Government borrowed $1,474 billion from the public, bringing debt held by the public to $9,019 billion. This borrowing financed the $1,293 billion deficit in that year as well as the net effect of the other means of financing, such as changes in cash balances and other accounts discussed below.
In addition to selling debt to the public, the Treasury Department issues debt to Government accounts, primarily trust funds that are required by law to invest in Treasury securities. Issuing and redeeming this debt does not affect the means of financing, because these transactions occur between one Government account and another and thus do not raise or use any cash for the Government as a whole. (p.129 and below the first passage cited.)
It does not get a whole lot more clear when you read the three passages in the right sequence, but certainly readers are free to give it a try.
Some lessons here:
One) borrowing can and does exceed current year deficits as seen by the $1.474 tn in borrowing as against a Unified Deficit of $1.293 tn. The one to one accounting identity some people try to introduce doesn't exactly work.
Two) 'deficits' and even 'unified budgets' exclude principal redemptions, which like it or not, and making sense or not includes those from the OASDI Trust Fund. It may increase borrowing levels from the public but since that is offset dollar for dollar from Intragovernmental Holdings that themselves score as a component of Public Debt, it doesn't on net effect the Debt Limit either. Which taken together starts to show the fundamental dishonesty of holding Social Security hostage to either continuing resolutions for current year spending OR the legislation to raise the debt limit, it really doesn't have much to do with either as defined.
I haven't even really gotten to 'debt' and 'unfunded liability', I guess a diary for another day.
(As a coda, this is why I laugh at little inside (and all too often in the open, cause I do have a temper), when people try to slow this down for me and show how obvious it is using metaphors drawn from balancing checkbooks or whatever. There is very little about the federal budgeting process that is simple, OR readily explainable from outside its particular conceptual sandbox. It is just not easy work grappling with this, and sometime the output delivered in forums outside the sandbox comes out sounding like gibberish. Which is why putting your objections in the form of a question can be a good idea, jumping to the conclusion that I must have fallen off the radish truck on the outskirts of dKos yesterday and just need some 'edicating' by my city cousins not always working out as easily as it seemed going in.)
(Update: minor spelling fixes to distinguish me from my Cousin Jed who DID fall off the turnip truck)