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Does Social Security contribute to the Deficit? Yes by running scored surpluses it has reduced them and WILL CONTINUE TO REDUCE DEFICITS FOR MOST OF THE 10 YEAR WINDOW.

The graphic above actually has lots of lessons but I want to focus on year end balances in Social Security. The Table is taken from CBO's 2012 Budget and Economic Outlook. In a previous post I showed that increases in Social Security Trust Fund balances result in increases in Intragovernmental Holdings which results in an increase in Total Public Debt. But the equally serve to REDUCE deficits under standard CBO scoring rules. More below the squiggle.

From the Table we can see that the Social Security Old Age & Survivor's Trust Fund is projected to increase from a year end 2011 total of $2.493 trillion to a 2021 peak of $3.001 tn before dropping fractionally to $2.991 trillion by year end 2022 and the end of the 10 year scoring window. But even with that last year drop we are looking at a 10 year increase in assets in OAS of $498 billion. Every dollar of which scores as a reduction in cumulative deficits. (Though oddly scores as that same amount of extra debt).

Now there are caveats and extra context here, but if we take the same view that the CBO scorers do, workers via past contributions to their retirement system and earnings thereon are ponying up HALF A TRILLION DOLLARS in deficit reduction over the next ten years. That is whatever problems there are with 'Entitlements' generally, exactly zero of that has to do with RETIREMENT checks of the Greedy Geezers in their Lexus's. Now certainly you can boost that 10 year surplus by cutting Gramma's check, but that doesn't mean that Gramma's past checks or Great-Gramma's past checks or Gramma's checks in the next 10 years are in any way the source of the problem or should be the source of the solution. Social Security Retirement has been reducing the deficit since 1983 and will continue to do so until 2021. And even when it starts scoring on the other side of the ledger, it will start slow and after all only represent repayment of principal and interest used to offset other deficits for a whole generation.

 Now longer term there are two problems with OAS. On the one hand no matter how equitable and fair the concept of repaying debt may be, and the answer to that is "pretty God Damn fair and Hella equitable", the money does have to come from somewhere. Moreover some thirteen years after Social Security starts contributing to deficits via Trust Fund pay down, the Trust Fund is in fact totally paid down resulting in a sudden mismatch between Scheduled and Payable Benefits and so a cutback from the former to the latter. And as it turns out there is a whole range of Policy Options to deal with both problems. But there is exactly nothing in the numbers to suggest that the short term response to a HALF A TRILLION 10 YEAR SURPLUS is immediate benefit cuts for seniors that ARE NO PART OF THE PROBLEM.

Okay, now for the caveats. That same Table shows that the Social Security Disability Trust Fund is well and truly broken. And in fact if we pulled back a little and looked at past numbers we would see that it actually broke in 2005. But in the very nature of things you can't Privatize DI, beneficiaries simply wouldn't have time to self-fund. Moreover it is harder to demonize quadraplegics (who after all might be Gen-Xers after a motorcycle accident) than Greedy Boomer Geezers. So instead of taking steps to fix what was broken (DI) we have seen an all-out assault on what ISN'T broken (OAS) and whose long term vulnerability to breakage need not come in the form of immediate benefit cuts.

To recap the series of posts this week: Cutting Social Security benefits actually serves to increase Debt Subject to the Limit so dragging it into a Debt Limit discussion makes no sense at all. Social Security has been running and will continue to run surpluses for almost the whole of the Ten Year Budget window used by CBO and OMB to score spending and tax legislation. For a cumulative HALF A TRILLION DOLLARS. While we could drag it in to a deficit discussion the only real reason to do so would be to kick the olds to save a few bucks for the top 1%, there is no higher principle involved and they certainly aren't doing it "for the grandchildren". Except maybe PGP's grandkid via estate tax 'reform'.

Social Security DOES contribute to the deficit. By having REDUCED IT by a cumulative $2.5 trillion since 1983 and by projecting to continue to reduce it by an additional $0.5 trillion over the official scoring window. How it somehow became the problem is a tribute to innumeracy if nothing else.

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Comment Preferences

  •  Tip Jar (15+ / 0-)

    socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

    by Bruce Webb on Mon Jan 07, 2013 at 01:06:34 PM PST

  •  Thanks for this informative post Bruce. (3+ / 0-)
    Recommended by:
    2laneIA, phonegery, whaddaya

    What is you understanding of the date through which the Social Security Trust Fund is totally solvent through.

    A few year ago, I read read 2037. Then for the most of the last year I've read 2034.  Yesterday on of the news networks reported 2038.

    What ever it is, that date is not a being "broke" date but merely a very small shortfall.

    My understanding that raising the income cap by $15,000, would extend it's total solvency until the 2070s, or raising the withholding tax by a fraction of a percent or so, could extend it to the end of the century?

    My other questions is about Medicare which is a different fund, but I understand the part of the Medicare premiums are taken out of the Social Security Trust Fund, so it seems one likely development due to rising Medicare cost as populations age is that we might have to increase the Medicare premium, rather than further cut benefits, or "payments."  

    My understanding is this may have an impact on the SSTF, which can be easily fixed with one of both of the two ideas above.

    I just want to check to make sure we are all on the same wavelength and correct in our facts.

    The means is the ends in the process of becoming. - Mahatma Gandhi

    by HoundDog on Mon Jan 07, 2013 at 01:17:31 PM PST

    •  Where to start. (3+ / 0-)
      Recommended by:
      whaddaya, HoundDog, vigilant meerkat

      I am on my way out the door. But a quick answer to your first set of questions can be found by examining the table that leads off this recent diary:
      http://www.dailykos.com/...

      Shorter: it takes more than $15k and more than a fraction but yes it can be done. See particularly Options 2-4 and 6.

      Medicare premiums are not "taken out of the Social Security Trust Fund" but ARE generally deducted directly from SS benefit CHECKS.

      The premium already increases by formula and in such a way that for the lowest income SS recipients it can gobble up almost all of the annual COLA. What SS gives, Medicare takes and all in the same transaction. Thank you for your lifetime of work sir!

      There are already surcharges on upper income folk for Medicare some old and some brand new and so unlike SS there really isn't a revenue based solution. Instead the solution has to come on the cost side, which in order to avoid actual service cuts, means hitting providers in the pocket book.

      But medical specialists, medical equipment manufacturers and Big Pharma are not only a good part of the Republican base they also (out of the goodness of their hearts) have bought for cash a substantial chunk of the Democratic Party establishment. Which is why Medicare reform tends to come in the form of cost shifting to beneficiaries rather than cost saving out of the pockets of providers. Oddly enough (and I know this comes as a surprise to all of us) Money Talks.

      But none of that Medicare piece has any direct effect on the SS Trust Fund, the financing streams don't intersect in that way.

      socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

      by Bruce Webb on Mon Jan 07, 2013 at 02:17:58 PM PST

      [ Parent ]

      •  Thanks for this clarification. This seems (0+ / 0-)

        consistent with other information I have.  

        I don't see how we can achieve the needed savings to Medicare just from cutting back on provider compensation which is already lower than true costs in some cases.  

        The means is the ends in the process of becoming. - Mahatma Gandhi

        by HoundDog on Mon Jan 07, 2013 at 03:32:41 PM PST

        [ Parent ]

        •  In what cases? (1+ / 0-)
          Recommended by:
          vigilant meerkat

          Dean Baker and CEPR are the go to sources here and I just got an update from Nicole at CEPR at a list serv I belong to.

          If we had the same health care cost curves of any of Germany, Australia, or Canada our Debt to GDPratios would decline to 60%. Perfectly sustainable by any measure. And onthe final analysis all the savings found by those emininetly First World countries comes by a differential share of national income going to providers.

          Maybe the Doc Fix is no fix, maybe actual bargaining with Big Pharma would drive those other countries cost up in ways that reduce the net differential (if the U.S. is truly subsidizing the rest of the world via R&D being offloaded on our citizens), but we can't or shouldn't assume that preferred margins by providers actually equal the marginal cost of care. Or else the American medical profession wouldn't have what is in effect an elaborate tariff scheme to keep out foreign competition.

          Anyway CEPR is the place to go on this one. Or Dean's CEPR blog Beat the Press. Dean is just like me except that he knows more, writes better, and has a sense of humor not as bitter as apricot pits/cyanide. Okay not much like me at all. Go read.

          socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

          by Bruce Webb on Mon Jan 07, 2013 at 04:00:59 PM PST

          [ Parent ]

      •  You're right, of course, that "There are already (0+ / 0-)

        surcharges on upper income folk for Medicare some old and some brand new and so unlike SS there really isn't a revenue based solution. Instead the solution has to come on the cost side, . . ."

        But have you seen this Kaiser Health News piece, "Affluent Seniors Could Take A Hit On Medicare."

        This article is very worrisome.  Here's an excerpt and the link to the piece.

        . . . House Minority Leader Nancy Pelosi, D-Calif., has left the door open to asking wealthy seniors to pay more, and public opinion polls show support for the idea.

        . . . "When you’re talking about seniors, the definition of wealthy seems to be a whole lot lower than when you’re talking about younger people," said Maria Freese, director of government relations and policy at the National Committee to Preserve Social Security and Medicare. "Just because they’re retired, it doesn’t mean their expenses are much lower."

        Current law already requires seniors with annual incomes of $85,000 and above ($170,000 for couples) to pay more than others for Medicare Part B, . . .

        Premiums for wealthier seniors will range from $139.90 to $319.70 per month.

        About 5 percent of seniors fall into the higher-premium group now. President Barack Obama wants the share of beneficiaries paying more for their coverage to grow over time to one quarter of all beneficiaries.  If that were the case today, people with incomes as low as $40,000 a year would be paying higher Medicare premiums, according to Tricia Neuman, senior vice president of the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

        Under Obama's proposal, more people will fall into the higher-paying category over time because the trigger levels wouldn’t be adjusted for inflation until that one-quarter target is reached. While the threshold would still be $85,000 for an individual, that would buy a lot less in the future than it does today, and tomorrow's seniors would likely have higher nominal incomes than today’s retirees when they first go onto the Medicare rolls.

        Obama's proposal also would boost the premiums paid by everyone in the higher-income group by 15 percent, with no one paying more than 90 percent of the cost of their coverage.  The White House estimates that Obama’s proposal would save approximately $20 billion over 10 years.

        My concern is the old "slippery slope" theory.  Once the door is opened (which it already has been, I believe under Bush), where does it stop?  As this article points out, if this policy was expanded to the top 25 percent today, it would hit seniors with annual income as low as approximately $40,000.

        I hope that we can figure out a way to stop this trend.  And because of "semantics"--the use of words such as 'the wealthy,' a lot of people won't mind, and therefore won't pay much attention to the details.

        As as they say, "the Devil's in the details."

        Mollie

        “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

        by musiccitymollie on Mon Jan 07, 2013 at 06:56:56 PM PST

        [ Parent ]

  •  thanks for the info. (3+ / 0-)
    Recommended by:
    phonegery, whaddaya, vigilant meerkat

    I try to keep it simple.

    I look at SS as a separate entity from the US General Fund,which it is.
    Tell me if I am wrong.

    As a separate fund, we pay into it,and as it grows, we invest those funds in US bonds.
    When we need to pay benefits,we either pay out of current cash flow or if necessary we cash in bonds.

    I am struggling to see how the Trust Fund and SS have any impact on deficit or debt,outside of the debt the general fund owes thru the bonds.

    I do not see how it reduces the deficit or increases it.

    Certainly I agree that it does not belong in any deficit or debt discussions, and that any increase or decrease in benefits simply impacts the life of the reserve by shortening it or lengthening it.

    I am all for finding efficiencies that can stretch the trust fund dollars out further, mainly in medicare, but am really struggling how reducing benefits ends up impacting the deficit in a positive way.
    Can you explain the accounting?

    •  Social Security is legally 'off budget' (1+ / 0-)
      Recommended by:
      whaddaya

      Social Security surplus/deficits are nonetheless included in the most widely reported measure of 'federal budget deficit'. As it happens since 1983 SS has by that measure been in surplus and so lowered the 'unified budget' deficit. Even though by some standards there is no such thing as a 'unified budget'. Which doesn't stop CBO and OMB and JCT from using it as their topline number.

      As to debt. All US bonds score as part of Total Public Debt. As they should. This includes the Special Issues held by Social Security as well as all the other holdings shown in the Table above which in turn make up almost all of Intragovernmental Holdings, itself about a third of Total Public Debt. Moreover Intragovernmental Holdings also count against Debt Subject to the Limit.

      Whether as a matter of equity SS and Medicare should be included in these calculations in a way that draws them into what should be separate discussions seems to have an easy answer to me: No they shouldn't. Which doesn't change to fact that when you crack open CBO and OMB Reports they are, at least in some tables and for some purposes.

      As to your final question. Trust Fund assets increase precisely by the amount that income from all sources exceeds cost. That asset increase scores as a surplus for deficit calculations. Any positive change in income or negative change (cut) in cost arithmetically increases year end balances and so reduces overall deficits. And the major source of SS cost (99%) is benefits. Cut benefits = reduce 'unified budget' deficits. By cutting cost and so increasing SS surplus.

      The math is simple. It only becomes nutty when you put it into human terms. Like starving grandma to 'save' Social Security. The numbers work fine, the accounting is a piece of cake. Of course grandma can no longer afford cake. Or day old donuts for that matter. Or heat. But Glory Hallelujah we saved Social Security By Gum!!!! (per the spreadsheet).

      socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

      by Bruce Webb on Mon Jan 07, 2013 at 02:36:09 PM PST

      [ Parent ]

  •  So you're saying that when the SS trust fund (2+ / 0-)
    Recommended by:
    Mother Shipper, Nina Katarina

    gets less in FICA tax than it pays out in benefits, it contributes to the deficit?

    •  No. Social Security is in surplus now. (2+ / 0-)
      Recommended by:
      notrouble, Nina Katarina

      And Social Security gets less in FICA (and even tax on benefits) now than it pays out in benefits.

      Social Security is in Surplus. Social Security is Cash Flow Negative. At the same time. Per the most widely reported number of 'Surplus/Deficit' what I am calling CBO's 'top line' number as reflected in the reposted CBO tables I have been putting up.

      Under this 'top line' definition of 'deficit' Social Security will remain in surplus as long as 'income including interest' continues to exceed 'total cost'. Or in an equivalent formulation in any year where Trust Fund assets show a 'net increase'.

      On the other hand under current projections there will come a time in the next decade where 'income including interest' fails to meet 'total cost' at which point Trust Fund assets then totaling right at $3 tn will start seeing net redemptions. Per the table above in 2022. That reduction in assets will under this particular measure of 'surplus/deficit' score as the latter even as total assets for 2022 end up at $2.9 tn dollars and not on track to be exhausted until 2034. Making for a funny kind of 'bankruptcy' or 'budget deficit' as far as that goes.

      Backing up a bit, CBO has an alternative measure of 'deficit' with the (to me) confusing label 'primary deficit' which measures Social Security on a 'excluding interest' or cash flow basis. By that measure Social Security has on a combined basis been in 'deficit' since 2009 and neither Trust Fund assets or interest thereon even enter the calculation. This is what underlies or perhaps is bolstered by the 'phony IOU' argument.

      That certainly isn't MY argument, I am on year fifteen of crying 'bullshit!' against those who proclaim it, and this post, properly read, doesn't remotely support it.

      On the other hand if your question replaced "you're saying" with "Biggs and Hassett of AEI are saying" it would be an accurate statement. Because they insist that the proper measures CBOs 'primary deficit' and not the one implicitly used in the MSM by citing numbers drawn on it.

      socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

      by Bruce Webb on Mon Jan 07, 2013 at 04:27:38 PM PST

      [ Parent ]

      •  If SS Trust fund is "credited" for interest (0+ / 0-)

        on the trust fund balance, isn't there a "debit" somewhere for interest expense?

        •  Interest on Trust Fund assets (1+ / 0-)
          Recommended by:
          Mother Shipper

          not immediately needed for benefit payments (in 2011 about $69 billion out of $114 billion in total accrued interest) is credited to the Trust Fund in the form of new Special Issues and so get added to the existing and rolled over Special Issues that comprise the previous year Trust Fund balance. As such they get added directly to Intragovernmental Holdings and so to Total Public Debt and Debt Subject to the Limit. So they certainly score as a debit there.

          On the other hand and after fairly exhaustive reading in the Analytical Perspectives on the Budget, the 'textbook' that accompanies and explains the President's Budget from the perspective of OMB, it seems that interest on the Trust Fund or at least interest not taken in cash form is not scored as an 'outlay' and near as I can tell not financed in any way whatsoever. It is the Goldbug/Ron Paulite nightmare, simple debt backed by Full Faith and Credit coming out of nowhere.

          Doesn't bother me any, the U.S. commits to pay for all kinds of things in the future without explicit backing, for example any weapon's acquisition program extending for more than the current Congress. But something certain to drive your Austrian/Austerian/Hard Money freak even more crazy than they arguably are.

          What's even 'worse' and where I could use an assist, it is not clear that even that portion of Trust Fund taken in cash form to pay benefits is scored as an 'outlay' or  financed. But that is so bizarre a concept that I welcome some help in reading through the Analytical Perspectives. Because after a while my head starts to hurt. And I still haven't isolated the right budget line to my satisfaction.

          socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

          by Bruce Webb on Mon Jan 07, 2013 at 05:15:41 PM PST

          [ Parent ]

          •  You're right! It gives me a headache too... (0+ / 0-)

            I found this:

            Budgeted net interest on the public debt was approximately $245 billion in FY2012 (7% of spending). During FY2012, the government also accrued a non-cash interest expense of $187 billion for intra-governmental debt, primarily the Social Security Trust Fund, for a total interest expense of $432 billion. This accrued interest is added to the Social Security Trust Fund and therefore the national debt each year and will be paid to Social Security recipients in the future. However, since it is a non-cash expense it is excluded from the budget deficit calculation.
            http://en.wikipedia.org/...

            but I don't quite understand it.

            •  Actually it is worse than that (1+ / 0-)
              Recommended by:
              Mother Shipper

              And this is where my head really starts to pound.

              Social Security interest does not score as a budget outlay. Okay I kind of get that.

              Social Security interest does score as income for unified budget calculations. Well in isolation I get that.

              But the combo makes my head explode. Debt created out of nowhere scores as income for unified budget purposes? Surely that can't be right, surely if discounted to zero on one side of the equation it should be discounted on the other.

              Believe me and even as a dedicated Social Security Defender I plunged into federal budget accounting thinking this couldn't possibly be so. Sure it is perfectly equitable when seen from the perspective of Social Security recipients: the money was borrowed and needs to be repaid at a reasonable average rate of interest. And that happens.

              And since it represents an absolute obligation on Public Debt in the future counting it as such explicitly makes sense. And that happens.

              And since the actual debt is deferred to the future and is not financed entirely out of current cash and so current public borrowing it really isn't a current year expenditure. There would be no place to park the dollars even if financed without just recreating the problem. So that makes sense.

              But putting all those three perfectly sensible parts in juxtaposition adds up to some Rube Goldberg free lunch. Or so it would appear to either kind of Randite.

              Oh well as the Brits said back in Napoleanic War days: "Confusion to the French!" or I guess these days "to the Austrians!". (Hoist on their own Rothbard)

              socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

              by Bruce Webb on Mon Jan 07, 2013 at 06:20:19 PM PST

              [ Parent ]

            •  Here's how I understand it (1+ / 0-)
              Recommended by:
              Mother Shipper

              Surpluses from social security are credited to the Trust Fund in the form of new Special Issues and are scored as an asset for the Trust fund.

              The surpluses from Social Security are transferred to the Intragovernmental Holdings and thusly to Total Public Debt of the Federal government (the landlord) They certainly score as a debit therefore a liability.

              As a teneant who prepays my rent:
              Prepaid rent is a payment made by the tenant in advance and is an asset. (social security) For example, if the tenant had paid $120 in January for the whole year ($10 a month), they would show as of 1/31/13, $110 as prepaid rent. 120/12=10, 120-10=110. Conversely, if you were the landlord in this situation you would show $110 as unearned rent as of 1/31/13 a liability (the federal government deficit), because they have received money for rent in which they have not provided February through December yet, hence the title unearned rent. This is the matching principle, primarily the major underlying principal of generally accepted accounting principles.

              Maybe this helps?

              After all is said and done, a lot more is said than done.

              by Brahman Colorado on Tue Jan 08, 2013 at 11:27:10 PM PST

              [ Parent ]

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