“First, any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1983 to 2011, it collected more Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.”From the Concurrent Resolution on the Budget— Fiscal Year 2013 (p. 104) This document is commonly referred to as “The Paul Ryan Budget.”
Prioritize Your Concerns About Social Security
If you have to fret about the threat to Social Security, the quote above the curlies is where you start. Don’t dismiss it too quickly. These words aren't as inscrutable as they seemed when they appeared in the “Concurrent Resolution” that was passed in the House of Representatives on March 29, 2012. These words become alarming with “Debt Ceiling Debacle 2” looming on the horizon.
Pay attention when you hear the word “default” because it includes the $2.6 trillion in Treasury securities (bonds) held in the Social Security Trust Fund. Here are the words in Ryan's budget:
The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.By blocking a rise in the debt ceiling, the Republicans can jeopardize the Social Security Trust Fund's ability to redeem the Treasury securities it holds. This is the primary threat to Social Security. It's a real threat.
The Debt Ceiling, Default, and Social Security
The Social Security program has been operating at a surplus. Revenue collected exceeds benefits paid. Each year, the surpluses have been borrowed to fund general government needs. The IOUs held by the Social Security Trust Fund are in the form of Treasury securities that were issued with a guarantee against loss. A default caused by freezing the debt limit at the current level puts all Treasury securities in jeopardy, including the $2.6 trillion held by the Social Security Trust Fund.
Freezing the statutory debt limit (debt ceiling) at the current level will have consequences. They were spelled out in a letter from the Chairman of the Treasury Borrowing Advisory Committee, Matthew E Zames, to Treasury Secretary Tim Geithner in the early stages of “Debt Ceiling Debacle 1.” It is explicitly clear that Chairman Zames was warning about consequences “that could likely occur if Treasury were to default on its obligations as a result of a failure to raise the debt limit in a timely manner.” If you choose to minimize the possibility of default, come with notepads, pencils, Excel spreadsheets, and figures that show how principal and interest on the debt will be paid when due from revenue collected.
Where Left and Right Meet
A popular subculture promotes a very understandable rejection of US banking and finance, and its currency and monetary system. Their chatter about banksters, fiat money, printing money, the worthlessness of our currency, and the zero value of all paper including Treasury securities is everywhere. Let me translate what they’re saying for you: the $2.6 trillion in Social Security funds is gone. You have no IOU. You have a worthless piece of paper. To me, this sounds exactly like the con that Paul Ryan is trying to pull, as if the left and the right wrap around and meet on common ground on this point.
If the US is flying on fumes and it's in danger of crashing at any moment when the fumes run out, that's something that should happen by itself. Instead, what I see is a plan to deliberately cause a crash by cutting the fuel lines. Unfortunately, when the hated banksters go down, everyone else goes down with them. Lost in the disaster would be the $2.6 trillion that legally belongs to Social Security beneficiaries. I'm not going to give those benefits away, based on a Nihilist fantasy about the worthlessness of money. Discussions about this usually end up in a rabbit hole where reason and logic hold no sway.
What happened to the $2.6 trillion?
The surpluses were borrowed for decades. During the Bush administration, about $1.1 trillion from the Social Security Trust Fund helped to pay for lower tax rates on upper incomes, the wars, Medicare Part D, and all other government outlays.
Didn't the payroll tax cut harm Social Security too?
This is a variation on another popular theme is political discussion. It boils down to “Aren’t the Democrats just as bad as the Republicans with undermining Social Security?”
The payroll tax cut placed dollars in the hands of consumers who spend them. The increase in demand adds vigor to the economy.
The payroll tax cut didn't harm Social Security because the short amount was replenished from the General Fund. It shows on the fund's balance sheet and it's visible in the data that the fund makes available online.
1) $102.68 billion was transferred from the General Fund to the Trust Fund to replace what wasn’t collected in revenue because of the payroll tax cut. (At the link refer to the last line of the second table for year 2011.)
2) If there was no payroll tax cut, any surplus would have been borrowed and spent. Instead, the foregone revenue prompted the partial repayment.
3) The payroll tax cut kept the Social Security surplus from being used to disguise the true amount of the budget deficit as it was used for many years in the past.
Unify in opposition against any attempt to reduce Social Security benefits or otherwise harm the program. This is something that all Democrats can share as a baseline progressive position.