The straignt dope on social security

[TPS]

DC raised a serious issue with respect to government financing of the social security fund when he asked, “why does gross debt increase when government’s total revenues (including SS taxes) exceed its expenditures (including SS payments)?” This gets at the nature of how government has hoodwinked the American public on social security.

 

The greatest sleight of hand in recent history occurred in the 1980s under Reagan/Greenspan. With one hand Reagan cut taxes for the wealthy, and with the other (Greenspan Commission) he raised payroll taxes in order to help “finance” future expenditures. The straight dope is that government uses all current revenues it receives to fund all current expenditures, and if there is a deficit (surplus ) across all of its accounts then it will cause government to sell (pay off) securities (finance its real deficit), and thus increase the privately held debt measure. The Gross debt measure incorporates government’s fictitious “funding“ of the SS account. That is, the excess funds collected on the SS account over the past 25 years are borrowed by the government (and the government spends it like any current revenue), and in return the SS “trust” fund gets credited with a security. Government “borrowed” the SS tax revenues from the trust fund and used them to fund its current expenditures.

 

The so-called SS “surplus” is currently over $4 trillion; that is, the SS fund has a bunch of government IOUs with a notional value of $4-plus trillion. So what?

 

The SS account is now (or soon will be) paying out more than it takes in, so how will SS (the government) make the excess payments today? It will take some of its IOUs (treasuries) it was credited with and sell them on the open market, which now become part of the privately held debt. Now assume the government stole or spent the SS revenues over the past 25 years (which it did), and there are NO IOUs on the SS account--nothing, nada, zip. How will it fund today's increasing SS payments? It will sell a new treasury on the open market today—IT’S THE SAME THING! It doesn’t matter whether that treasury security was created/credited 20 years ago or it’s created today, the government has to raise funds today.

 

On the other hand, government could once again tell us that SS will go broke 20 years from now, so we need to raise SS taxes or cut benefits today in order to “fund ” those future liabilities, thus increasing its current receipts and cutting current expenditures.

Once again the American people will be suckered into this…

[TPS]

DC raised a serious issue with respect to government financing of the social security fund when he asked, “why does gross debt increase when government’s total revenues (including SS taxes) exceed its expenditures (including SS payments)?” This gets at the nature of how government has hoodwinked the American public on social security.

 

The greatest sleight of hand in recent history occurred in the 1980s under Reagan/Greenspan. With one hand Reagan cut taxes for the wealthy, and with the other (Greenspan Commission) he raised payroll taxes in order to help “finance” future expenditures. The straight dope is that government uses all current revenues it receives to fund all current expenditures, and if there is a deficit (surplus ) across all of its accounts then it will cause government to sell (pay off) securities (finance its real deficit), and thus increase the privately held debt measure. The Gross debt measure incorporates government’s fictitious “funding“ of the SS account. That is, the excess funds collected on the SS account over the past 25 years are borrowed by the government (and the government spends it like any current revenue), and in return the SS “trust” fund gets credited with a security. Government “borrowed” the SS tax revenues from the trust fund and used them to fund its current expenditures.

 

The so-called SS “surplus” is currently over $4 trillion; that is, the SS fund has a bunch of government IOUs with a notional value of $4-plus trillion. So what?

 

The SS account is now (or soon will be) paying out more than it takes in, so how will SS (the government) make the excess payments today? It will take some of its IOUs (treasuries) it was credited with and sell them on the open market, which now become part of the privately held debt. Now assume the government stole or spent the SS revenues over the past 25 years (which it did), and there are NO IOUs on the SS account--nothing, nada, zip. How will it fund today's increasing SS payments? It will sell a new treasury on the open market today—IT’S THE SAME THING! It doesn’t matter whether that treasury security was created/credited 20 years ago or it’s created today, the government has to raise funds today.

 

On the other hand, government could once again tell us that SS will go broke 20 years from now, so we need to raise SS taxes or cut benefits today in order to “fund ” those future liabilities, thus increasing its current receipts and cutting current expenditures.

Once again the American people will be suckered into this…

This must be too difficult for most of you to understand...

[Doc]

I thought that (the part you bolded, not it being too difficult for most of us to understand) was common knowledge?

[ieatcrayonz]

This must be too difficult for most of you to understand...

 

Or maybe they are too mad to type because they relaize that this part:

 

The SS account is now (or soon will be) paying out more than it takes in,

is caused by hippies getting old. Yes, these are the same hippies that never produced a thing for our society and are now bringing about its downfall.

 

 

Or maybe they were hoping you could set the record for replying to yourself within one thread. Sorry if I ruined that.

Edited October 27, 2010 by ieatcrayonz

[TPS]

I thought that (the part you bolded, not it being too difficult for most of us to understand) was common knowledge?

Wow! If that was the case, that people realize their payroll taxes aren't really saved, then they are dumber than I ever gave them credit for.

[Rob's House]

This must be too difficult for most of you to understand...

What you explain is not particularly difficult to follow. Your point, however, escapes me.

[Doc]

Wow! If that was the case, that people realize their payroll taxes aren't really saved, then they are dumber than I ever gave them credit for.

How so?

[OCinBuffalo]

I was going to thank you for explaining a complicated issue in such a concise way, but I didn't get to it. However, if you are going to call us all dumb(typical liberal) then forget it.

 

Oh, and: is there a way to boil this down, not in a cliched way, but in a way that makes sense and means something? In a way that we could ask a question to politician without it taking 10 minutes? Saying "no funding future SSI liabilities" is sort of dorky and nobody knows what you mean.

Edited October 27, 2010 by OCinBuffalo

[KD in CA]

This must be too difficult for most of you to understand...

 

And?

 

What does it matter as long as idiots continue to give their blessing to a government that spends billions beyond its means, continues to allow millions of useless people to sit on the federal gov't payroll (accruing pension benefits that also aren't taken into the current accounting), will only point out the sins of one party when it comes to wasteful pork spending, and will oppose the privatization of SS accounts that could actually be set up to be outside of the rest of the federal budget.

 

I stopped believe I'd ever see a SS cheque when I was about 25.

[OCinBuffalo]

I stopped believ[ing] I'd ever see a SS cheque when I was about 25.

I was trying to go for the "Social Security and Norman Rockwell, 2 things that are quaint, but are useless to me." in my sig, but I can't seem to get the words together. It's been frustrating me for months.

[Magox]

I stopped reading it once it got to

The greatest sleight of hand in recent history occurred in the 1980s under Reagan/Greenspan.

[/dev/null]

I stopped believe I'd ever see a SS cheque when I was about 25.

 

I had the same epiphany when I was 16, got a job at BK, and asked my Dad what all those taxes were for.

[Jim in Anchorage]

Wow! If that was the case, that people realize their payroll taxes aren't really saved, then they are dumber than I ever gave them credit for.

I knew that when I was geting $1.80 a hour washing cars at Anderson ford on Abbot. What would you have me do so I didn't look "dumb"? Stage a tax revolt?

[DC Tom]

Wow! If that was the case, that people realize their payroll taxes aren't really saved, then they are dumber than I ever gave them credit for.

 

Of course people think their payroll taxes are saved - remember the whole concept of the "lockbox" to keep the Social Security "trust fund" safe? People think that because that's what they've been told - by both parties.

 

What's worse, most people don't realize that the surplus Social Security is "loaned" to the federal government. They think that's kept safely locked away (invested in safe investments, no less ) for when it's needed, and have absolutely NO concept that the SS surplus is actually borrowed by the federal government against future government income.

 

And it's patently ludicrous to call Clinton's budget "surplus" a surplus because the government borrowed more from Social Security than it needed. It's still borrowed, hence still an outstanding liability, regardless of the fact that it's hidden in the Social Security trust as an "asset". If a public company tried to hide debt by securitizing it as an asset and hiding it in a subsidiary, the corporate officers would go to jail.

 

Oh, wait...most of them did. Except for Ken Lay, who died before sentencing.

[....lybob]

1. It isn't the SS fund that spends too much and takes in too little it's the general fund that spends too much and takes in too little.

 

2. If the American government is seriously considering defaulting on their securities I say fine but default all the way down the line, they can't default selectively on SS obligations.

 

3. If there is a default then the so called entitlement payroll taxes were just regular Income Taxes so lets never hear again how the poor don't pay Fed income taxes.

[TPS]

Of course people think their payroll taxes are saved - remember the whole concept of the "lockbox" to keep the Social Security "trust fund" safe? People think that because that's what they've been told - by both parties.

 

What's worse, most people don't realize that the surplus Social Security is "loaned" to the federal government. They think that's kept safely locked away (invested in safe investments, no less ) for when it's needed, and have absolutely NO concept that the SS surplus is actually borrowed by the federal government against future government income.

 

And it's patently ludicrous to call Clinton's budget "surplus" a surplus because the government borrowed more from Social Security than it needed. It's still borrowed, hence still an outstanding liability, regardless of the fact that it's hidden in the Social Security trust as an "asset". If a public company tried to hide debt by securitizing it as an asset and hiding it in a subsidiary, the corporate officers would go to jail.

 

Oh, wait...most of them did. Except for Ken Lay, who died before sentencing.

Maybe I missed it, but I expected to see "you're an idiot." For anyone who has been here for awhile, you probably know what influenced last night's post--sorry.

 

lybob, I agree with all of your points, especially #3. Conservative talking heads have convinced people that the poor don't pay taxes--BS!

DC, I would still argue that one should define a surplus/deficit relative to all revenues and expenditures in a given period--it's the income statement of government. One has to look at whether the government has positive (surplue) or negative (deficit) net income during the period. By your definition, you would be mixing in balance sheet issues, which is probably something the government should do to give the public more information in the debate--determine the net present value of future liabiities on SS and medicare. As I recall a former budget guy has tried to inform people using this concept.

 

What should anyone do about this farce? Make sure your representatives know that you know it's a scheme, especially as we are now moving to the debate about how to "fix" the deficits, and they will try to use SS as a way to convince us that we need to raise taxes. As lybob said, it's all about the general fund. We all know that spending has to go down, but they will go after revenue increases, and my prediction is "they" want the middle class to foot most of the bill. Look for a strong push for an increase in payroll taxes and a VAT.

[Gary M]

 

 

lybob, I agree with all of your points, especially #3. Conservative talking heads have convinced people that the poor don't pay taxes--BS!

 

 

When they are talking taxes it is usually federal income tax.

 

While I don't consider myself poor (two cars, cell phones, Directv, and kids go to private school until 6th grade) based on income and number of dependants(6), I haven't paid federal income tax in years.

 

So the only people dishing BS is the Obama admin, when they say they are going to cut my taxes. If they let the Bush cuts expire I will pay income tax again.

[Magox]

Look for a strong push for an increase in payroll taxes

It will never happen.

1. It isn't the SS fund that spends too much and takes in too little it's the general fund that spends too much and takes in too little.

 

3. If there is a default then the so called entitlement payroll taxes were just regular Income Taxes so lets never hear again how the poor don't pay Fed income taxes.

 

Wrong on both of these accounts.

[KD in CA]

I stopped reading it once it got to

 

The greatest sleight of hand in recent history occurred in the 1980s under Reagan/Greenspan.

 

Evidentally he was out of the country when both the ARRA and the Affordable Healthcare Act were passed.

Edited October 27, 2010 by KD in CT

[TPS]

It will never happen.

 

 

Wrong on both of these accounts.

You must not understand what he is saying or misinterpreting it. It's very simple, each year the government uses all of the revenues it takes in to fund all of its expenditures.