SS is broken

[MajorChode]

And that is no lie. The lie came in the 1980's when Raygun told us he "fixed" SS.

The promise of Raygun's SS trust fund was that benefits could be maintained without a cut or increasing payroll deductions throughout the boomer retirement years. If you take that promise on face value, the trust fund will not be exhausted until 2052 (going by the CBO projection which is considerably more realistic than the trustees' report). By 2052, the boomers will all be dead and buried for the most part and SS can return to a strictly pay-as-you-go system as it was prior to the mid 80's all the way back to the depression era.

On the surface, it looks like Raygun's master plan is working exactly as intended. However, all of this assumes that the SS trust fund is a real and tangible thing. The reality is it isn't and never has been. There simply is no SS trust fund. It doesn't exist. It never has existed.

When FICA is deducted from your paycheck, where does that money go? Does it go into a specific bank account somewhere that is specifically earmarked for SS? Nope. That money goes directly into the general fund. Currently SS collections exceed disbursements and have been since the mid 1980's. So where does the surplus go? Does it go into a special bank account? Nope. An IOU gets issued because the gov is running on deficit spending. The fact is the SS "trust" fund never existed anywhere but on paper.

So what happens when the SSA has to cash in this nonexistent "trust" fund? Well, the SSA is empowered by law to simply cash in its IOUs without any appropriations or approvals from congress or the president. This means the gov has but 3 choices(assuming no changes are made to benefits). It can cut spending, increase taxes, or increase borrowing. None of those options are politically viable, so they will proactively cut SS benefits so the "trust" fund never gets tapped into, ever, so Raygun's promise is effectively broken, but that promise was over 25 years ago, so who really cares about such things?

The really great part here (if you are a Repugnant) is that this means the huge FICA increases of the 1980's which created the "trust" fund effectively financed the tax cuts on the wealthy in the Raygun and Bush II years because the massive deficit spending it caused was partially masked by the SS "trust" fund. Remember the wealthy don't pay FICA, so what actually happened was a massive wealth distribution from the poor and middle class to the wealthy. This has been going on for the last 25 years. So who really thinks this course will be reversed and the rich will actually pay back what they have been given?

[Hannah Bell]

1. The rich paying back what they got is exactly what needs to happen. Thanks for publicising the crime

some more.

Every bit helps.

But SS is not "broken".

Our government & ruling class are broken.

[MajorChode]

2. I described the symptom, you described the problem

[Hannah Bell]

3. ss isn't broken. as a symptom, or a problem.

as you yourself must concede, the money could be paid back in exactly the same way it was taken; by raising income taxes on the rich.

in fact, simply rescinding the bush tax cuts on the top 1% would bring in about a trillion over 10 years, which is more than enough to redeem 40% of the TF securities during the same period, about 1/3 of the span of the boomers impending retirement period.

I repeat, SS isn't broken. at all.

the ruling class are thieves. that doesn't mean SS is broken. It's fine. The thieves don't want to pay, that's all.

so we have to make them.

by publicizing the real problem, you've contributed to that effort, & i salute you.

[MajorChode]

5. Could doesn't mean will

As you concede, the catfood commission is looking to "fix" SS because it sees it as a symptom of the deficit problem even though SS hasn't ran a deficit in its 75 yr history. I find it far more likely that they will simply adjust benefits rather than ever take the risk of tapping into the "trust" fund. So broken or not, SS will be "fixed". I hope I'm wrong.

[Hannah Bell]

8. no, it doesn't. but that's why we fight, to increase the odds that it WILL.

we don't sit whining that it's hopeless & there's nothing we can do.

those people are the worst kind of sleazebags, & i savor the day when they shall be universally mocked in the streets by all decent citizens, as well as small children & dogs.

[MajorChode]

46. I'm not advocating conceding defeat

But when a "liberal" president appoints a deficit reduction committee and fills it with people known to want to cut entitlements, I'm thinking we have a very much uphill battle.

The problem is the time to fight was back in 1983, and we are some 25 years behind.

[sabrina 1]

88. Stop, you're being ridiculous. The Catfood Commission is trying

to steal the huge SS fund as they have been doing for decades. SS doesn't need 'fixing'. It is NOT the cause of the deficit, their buddies on Wall St. caused that little problem, along with the wars and a few other bad policies.

I trust Galbraith, Krugman, Dean Baker and Mark Weisbrok on the subject of Social Security NOT anti-SS warrior, Alan Simpson, or Pete Peterson.

As Krugman says, Simpson et al, and now you, are 'telling Zombie Lies'.

[Romulox]

33. How do you propose to make the rich pay anything back?

:hi:

[amandabeech]

69. I know what I'd do, Romulux.

1) I'd direct the proceeds of a securities transfer "Tobin" tax to SS, Medicare and Medicaid. My thought is that some of the purchase money or loans likely goes to the top half of the income distribution.

2) I'd put a surtax on the estate tax, and put a special, small tax on estates just below the level on which the recently expired tax would be paid. Off the top of my head, I'm thinking 3-5% on estates above, say, 3 million, which is a lot considering all the legal tax avoidance provisions.

3) I'd put a surtax on interest payments above a moderate level, say $30,000 a year for individuals. I'd have something of a similar nature for payments to business entities.

4) I'd bring back the sales tax on luxury goods.

5) I'd up the cut-off level for levying SS taxes to the point that the percentage of income covered by the tax is the same as it was at its highest level. I would then put a surcharge of 3-4% on incomes above that level.

6) I'd get out of Afghanistan, except for some special forces and a few other troops to back them up in case AQ comes back, I'd make sure to get out of Iraq on time and I'd pull back from some of our other overseas military commitments.

7) I'd amend our trade agreements to account for labor, safety and environmental standard differences and any other provisions that make those agreements unfair to American workers, enforce the provisions in each agreement, particularly the currency exchange fluctuations, and consider terminating some of them.

Well, that's for starters. It would take a President and Congress with allegiance to the bottom 40 or 50% of us to do it, but that time may come.

[MajorChode]

84. Raise their taxes

It really is just that simple.

[girl gone mad]

4. The government doesn't have to borrow to pay back SS.

The Trust fund can be supplemented at any time, subject to legislation. They did it once before, in 1982 when the Trust Fund was close to being depleted.

The US federal government can always fund its social security obligations and any other nominal obligations that it faces. There is no need to store up surpluses or increase taxes to do so. Under the modern fiat monetary system, the federal government does not face significant financial constraints, merely political ones.

[MajorChode]

6. The situation you describe fits into the 3 options

If the gov is in deficit spending, benefits paid over and above FICA receipts results in additional debt. If the gov is running in surplus, additional benefit payments results in additional spending. The third option is to decrease spending to offset the difference.

The funds have to come from somewhere. The only question is where.

[girl gone mad]

9. By law, surplus SS revenue is invested in..

special series bonds (this is the "trust fund"). These bonds are already accounted for in the national debt.

It makes no sense to talk about a sovereign currency regime "saving" money, so the notion of an SS surplus is entirely ludicrous anyhow. It makes about as much sense as me keeping a file full of letter y's on my computer to use when I post messages.

In a fiat monetary system, the national government can spend what the market will bear, but for the political constraints mentioned previously. Federal taxes do not fund anything and the government does not need to save up money to repay its debt.

[MajorChode]

51. Exactly

If the "trust" fund doesn't help existing taxpayers in paying the boomers' retirement obligations, it was a figment of imagination from day 1.

None of those who want to claim the "trust" fund is real have been able to address the simple question of where the money will come from once FICA surpluses cease to exist. In order to keep benefits constant, taxes will have to be raised, other gov programs will have to be cut, or borrowing will have to increase. There simply is no other option. With this in mind, there is zero tangible benefit to the trust fund, because it never softened the blow of the boomers' retirement obligations, which was the whole idea from inception.

[Statistical]

54. You seem to forget that the $2.5 trillion borrowed from SS trust fund

prevented the need for us to borrow $2.5 trillion more. At 4% average yield that is $100 billion in hard currency that isn't paid to foreign debt holders.

You can call it an accounting trick all you want but the reality is if SS didn't have a surplus and that surplus wasn't used to buy special series T-bonds then if revenue & spending had remained the same then we would had to issue $2.5 trillion more in public debt which would have mostly been bought by foreign entities.

I would rather the govt owe $2.5 trillion plus interest to Boomer's future retirement than foreign entities.

[MajorChode]

60. Here's what you're missing

You simply assume that if FICA hadn't been increased to create a surplus, we would still owe $2.5 trillion more. That is a poor assumption.

[Statistical]

64. Actually it is a very good assumption.

Given Congresses willingness to spend beyond its means.

However I do concede that one of 3 things would have happen:
a) spending would have been reduced over the last 30 years
b) taxes would have been increased over the last 30 years
c) public debt would have been increased over the last 30 years.

Most likely it would have been all three.

Not having trust fund would mean SS would be insolvent with no guaranteed mechanism for cash beyond 2016. While the trust fund isn't a perfect solution it does mean that SS will exist for decades longer.

[MajorChode]

73. SS would have existed regardless

Prior to 1983, the methodology for SS was pretty simple. If obligations exceeded income, they simply raised FICA to meet the demand. There's no reason why that scheme would not have worked throughout the boomer years. It would have just meant FICA would increase more than it had in years past (assuming economic growth remained relatively constant which is probably a poor assumption to begin with). Even if you assume all the doom and gloom predictions of the trustees are accurate (which is a poor assumption), FICA will still be able to pay 75% of all benefits even in the worst boomer retirement years without bothering the general fund at all. So the very worse case scenario is FICA would have to be raised by 25% over current levels. So it goes from 6.2% to about 7.75% only for the relatively short period of time to get over the boomer hump. Another option would be to simply increase regular income taxes to make up the difference and let the rich help with this perceived problem, or simply borrow the money to do it and pay it back later.

No matter how you stack it, the '83 SS reform was a piss-poor idea that was ill conceived.

[Statistical]

76. "No matter how you stack it, the '83 SS reform was a piss-poor idea that was ill conceived."

However it would have placed the increased FICA burden on those working in order to benefit those who had retired. By doing it early it means those person who benefited from the FICA raise also paid the FICA raise.

Still you can call it "a piss-poor idea" no problem with that.

However that is a far cry from:
a) saying SS is broken
b) saying the federal govt can avoid repaying the $2.5 trillion trust fund.

Both are false. Had you posted this as your OP it would be a much different response.

[Hannah Bell]

86. no, it didn't. first, part of that is interest that wouldn't have existed at all.

second, tax cuts, most of which went to the top 5%, accompanied the borrowing.

[girl gone mad]

56. Taxes do not have to be raised unless we face inflationary threats..

which aren't on the horizon right now.

Operationally, there is no such thing as the US government running out of dollars, so we are not dependent on foreign borrowing and we are in no danger of solvency crisis. There is no financial reason to cut benefits or spending, only political reasons.

[Birthmark]

7. Saying SS is broken...

...is simply blaming the victim. It makes no sense. SS is fine. The problem is the theft of SS funds. Fortunately, the thieves in this case are rich. They can easily make restitution (preferably with interest).

"Problem" solved.

[Warren Stupidity]

10. "There simply is no SS trust fund." - wrong.

If the treasury notes that constitute the trust fund are worthless then so are all the other t-bills the government has issued. The only thing broken is that if and when payouts exceed income the budget will no longer float on ss surplus. Oh well. Guess we will have to borrow the difference or cut the military budget.

[Statistical]

17. Bingo.

The entire world financial markets would see a non-repayment of the SS trust fund bonds as a general default of US Treasury.

Simply put the govt has not choice. It absolutely will repay every single penny of the trust fund with interest. To not do so would be the utter collapse of the dollar, the US economy and likely the entire government.

[Warren Stupidity]

20. 14th amendment says "can't default."

The gummint is locked in. That is why they are pushing so hard to scam us out of our pensions.

[MajorChode]

30. The gov has plenty of choice

It has the choice to never get into a situation where the "trust" fund will have to be used by simply cutting benefits, which was my entire point to begin with. Why else would the president stack the so-called "National Commission on Fiscal Responsibility and Reform" with people who are known to have a deeply seeded desire to cut entitlements?

Nowhere in my message did I claim the gov would default on anything.

[Statistical]

31. Indirectly via this statement

"There simply is no SS trust fund. It doesn't exist. It never has existed."

The trust fund cosists of bonds issued by treasury in exchange for cash transferred from SS to general fund.

The operate in exactly the same manner as any other t-bond.

You give govt cash, govt gives you a bond.
SS gives govt cash, govt gives SS a bond.

The only way there is "no SS trust fund" is if the govt doesn't repay those bonds. Failure to repay those bonds is prohibited and even if it weren't would cause the largest economic collapse in recorded history. So the govt will repay those bonds and as a result the trust fund DOES exist.

So when you begin with this claim:
"There simply is no SS trust fund. It doesn't exist. It never has existed." that has to be refuted.

If there is no SS trust fund by the same logic any money in private treasury bonds is equally "gone or never existed".
Ever single penny of the trust fund will be paid with interest. Failure to do so would be the entire collapse of our economic system and currency.

Now EXCLUDING the trust fund (which does exist) there is roughly an 13 year gap. The trust fund will be exhausted (after being repaid with interest) in 2037 however SS won't become cashflow positive until 2060 (or 2065) thus some changes to SS have to be made.

Period. If not in 2037 the trust fund will be exhausted and the amount of money collected that year from payroll taxes will be less than the amount promised to retirees.

However this has NOTHING to do with "the trust fund doesn't exist" which is a complete and outright lie.

[MajorChode]

40. If Enron type accounting tactics helps you sleep better at night, good for you

I simply refuse to drink that cool-aid. YMMV.

The "trust" fund is only a reality if national savings increased as a result of the trust fund and exactly the opposite happened. The reality is the "trust" fund was spent as soon as it was acquired.

The authors show that prior to the adoption of a unified budget in 1970, an increase in the surplus of the trust funds did not reduce saving by the rest of the government. The government appears to have had the ability to save before the advent of the unified budget, but has lost that ability since. The $3 trillion of assets in the trust funds represent the cumulated surpluses of their operations, with interest. However, the money has been spent or returned to taxpayers and not saved, at least not by the federal government.

From the perspective of Social Security, the trust fund does represent real claims on the rest of the government. Thus, the presence of the trust fund may prolong the life of Social Security beyond the date at which tax receipts fall short of benefits payments. However, from the perspective of future generations of workers, the trust funds do not represent incremental wealth. Even if Social Security's life is lengthened, workers 15 years from now will have to pay off the obligations in the trust fund through increases in other taxes and cuts in other government services. The trust funds themselves do not provide any assistance to future generations of workers in coping with the inadequate income of Social Security to pay the legislated benefits

http://www.nber.org/digest/may05/w10953.html

[Statistical]

50. If you had $100K cash in your personal retirement account....

and you then bought 1 $100K t-bond so your retirement account consisted of

$0 cash
1 $100K t-bond

what would the value of your retirement account be?

By your logic it would be $0.00.

[MajorChode]

58. False analogy

The hazard with arguing with analogies is that if your analogy doesn't match the situation, it's fallacious to begin with.

Your analogy might be a little more accurate if you had said, you would write yourself a promissory note with the promise of somehow paying it back with interest, but it was ridiculous to begin with because a person doesn't have the option of arbitrarily increasing their income (as the gov does by raising taxes).

Why don't you try actually addressing my argument directly instead of building strawman after strawman?

The question is simple, but you are only providing a half answer. The question is, what happens when legislated SS benefit payments exceed OASI income? The answer you have provided is that the gov will simply cash in its IOUs (which I already said in my OP). You have dodged the bigger question of what is the ramifications of doing that AND keeping SS benefits constant. There are only 3 options:

1) Raise taxes
2) Cut other gov programs
3) Increase borrowing

The whole premise of the SS trust fund was to prevent those things from happening. The "logic" wasn't just mine, it was also the point of view of the NBER which you summarily ignored.

[Statistical]

59. No it wasn't that was your flawed understanding.

The whole premise of the SS trust fund was to prevent those things from happening.

False. Maybe that is where you are confused. SS by law is required to ONLY make payments from FICA revenue and balance of trust fund (and interest on any asset in the trust). Thus income taxes can't be used to fund SS or at least not directly. The reason for trust fund had nothing to do with income taxes and everything to do with an uninterupted flow of cash for SS from 2016 onward.

Had nothing been done obligations would have exceeded revenue in 2016. SS administration would have been prohibitied from making further payments until money was added to the trust fund. However by what mechanism, and how would they do it. Republicans would likely call it welfare and say payments should be cut to reduce benefits to the new lower revenue level.

By SS loaning money to govt general fund it now has a guaranteed source of income for next 30 years. The federal govt is obligated under Constitutional law to repay those bonds. So the govt WILL repay those bonds and SS now has a revenue stream for 30 after expenditures exceed current year FICA revenue. Problem solve (well at least till 2040s).


The question is, what happens when legislated SS benefit payments exceed OASI income?
1) Raise taxes
2) Cut other gov programs
3) Increase borrowing"

Exactly! No disagreement Any or all of the 3 are needed. So how does that hurt SS? The govt is obligated to repay the Treasury notes it issued to SS trust. Those repyaments are simply an expenditure like any other in general fund. How the govt choses to balance the books doesn't really matter but the govt will repay those bonds. SS is solvent until 2040s as a result. It will drawn on a combination of payments from general fund (via trust fund mechanism) and FICA taxes to make obligations until 2040s.

Had you said that income taxes will need to rise to repay the 30 year loan SS provided then I would have agreed with you but that wasn't your claim.

That is true. Likely a combination of spending cuts and increased taxes will be needed as SS begins to require more and more repayment of the fund. However even at the peak that "draw" will only be about $100 billion a year. The Bush tax cuts on those making $250K or more a year cost about triple that.

The idea that income taxes need to rise means SS is in danger or is broken is silly.
Will income taxes need to rise? Yes (likely)
Is SS broken? No they are unrelated items.

You do understand the reverse is true.

Had there been no trust fund them for the last 30 years we would have to:
1) Raise taxes
2) Cut other gov programs
3) Increase borrowing

By borrowing from trust fund we avoided borrowing 9or maybe more accurately borrowed less) from the Chinese.

So yeah starting in 2016 the general fund will be REQUIRED (under Constitutional law) to make payments to SS fund. ON NOES.
Income taxes (which is the only progressive tax we have) will need to rise to offset that increased spending. OH NOES
Spending may need to decline. OH NOES.

Yup it is a crisis alright. A crisis for the rich. Income taxes WILL RISE and when that happens it will hurt the rich more than anyone else.

The combination of govt backed bonds and interest payments has made SS MORE SOLVENT that it ever has been in history. Now there is a question about what happens in 2040 but at worst the trust fund bought SS 25 or so years.

[MajorChode]

62. Sounds great if you simply assume taxes on the rich will be raised

You have simply come full circle to my original argument. It is time for the rich to pony up and repay what was loaned to them 25 years ago. You simply assume this will happen. I don't. The direction our current DEMOCRAT president seems to be going is to cut SS benefits rather than raise taxes on the rich. I hope your assumptions are correct. I have no confidence they will be.

[Statistical]

63. You don't get it. Even if they cut benefits the govt STILL IS OBLIGATED TO REPAY THE BONDS.

The federal govt received $2.5 trillion in cash and issued $2.5 trillion in bonds backed by full faith and credit of US govt. The govt MUST repay those bonds. cutting benefits would eliminate that need to repay the bonds. Failure to do so is a violation of the Constitution.

You are confusing the issue. There are two totally unrelated "issues" with SS.

ONE) General fund will need to repay SS notes it issued. That will happen and benefit cuts can't help that. Every single penny will be repaid. It will happen by a combination of a) spending cuts, b) increased taxes, c) increased public borrowing. This can not be avoided under Constitutional law.

TWO) Even will full repayment the fund will still run out of cash in 2040 and has roughly a 20 year gap before turning cashflow positive (last of Boomers stop collecting). This is a longer term issue but will require either
a) reducing SS expenditures
b) raising SS revenue

The first issue will simply resolve itself. The govt HAS to repay the bonds. SS will receive $2.5 trillion plus interest over next two decades from federal govt general funds.


The second issue can be accomplished mostly with raise of the cap and raising the rate by 0.5%. Benefit cuts could be used to accomplish this but it isn't necessary, wasn't your point in the OP, and STILL WON'T PREVENT INCOME TAXES RISING as SS trust fund is repaid.

[MajorChode]

66. ...

[Statistical]

70. Not a strawman simply a correction of your continued false claim.

From the last post:
"The direction our current DEMOCRAT president seems to be going is to cut SS benefits rather than raise taxes on the rich. "

From the OP:
"This means the gov has but 3 choices(assuming no changes are made to benefits). It can cut spending, increase taxes, or increase borrowing. None of those options are politically viable, so they will proactively cut SS benefits so the "trust" fund never gets tapped into, ever, so Raygun's promise is effectively broken, but that promise was over 25 years ago, so who really cares about such things?"

You do understand that is no legal under Constitutional law. congress can cut benefits but that doesn't eliminate the obligation for the Treasury to repay the bonds it issued to the SSA. Cutting benefits will not prevent the raising of income taxes (or cutting of spending) to repay the SS bonds. Period. Any such claim is a falsehood. The federal govt issued $2.5 trillion in bonds and is obligated to repay them. It doesn't matter what happens to benefits the exact same amount will be repaid down to the penny. There is no way to avoid this repayment of $2.5 trillion plus interest, except a general default which is prohibited under the Constitution. Even if SS was dismantled tomorrow, ended forever, the govt would STILL be obligated to repay those $2.5 trillion plus interest to SSA (who likely would setup private account for taxpayers a Republican dream).

I can see you are just interested in pushing a number of RW falsehoods about SS. They exist solely to create a lack of trust in the system and lead to its eventual dismantling (likely by legislation that lets people opt out and use "private saving accounts"). The RW hasn't been able to destroy SS so they simply hope to create a self fulfilling prophecy. One you seem hell bent on perpetuating.

[MajorChode]

74. It's a "correction" to something I never claimed which is why it's...

Cheers!

[Statistical]

75. I provided your exact quotes. Two false claims.

Those are your exact words copied and pasted.

Here they are again in case you are confused.

"The direction our current DEMOCRAT president seems to be going is to cut SS benefits rather than raise taxes on the rich. "

False. A reduction in benefits will not erase the obligation to repay the $2.5 trillion and as such income taxes are rising regardless.

From the OP:

"This means the gov has but 3 choices(assuming no changes are made to benefits). It can cut spending, increase taxes, or increase borrowing. None of those options are politically viable, so they will proactively cut SS benefits so the "trust" fund never gets tapped into, ever, so Raygun's promise is effectively broken, but that promise was over 25 years ago, so who really cares about such things?"

False. That would be an Unconstitutional default of a bond issued by treasury and backed with full faith and credit of US govt.
Even if SS was scrapped the federal govt would STILL be obligated to repay the bonds in the trust fund. Likely Republicans would push to have that windfall places in private accounts but even the complete elimination of SS wouldn't prevent the repayment of the trust.

[MajorChode]

78. News flash: When you don't address the poster's argument and instead invent others, this is strawman

For further reading:
http://en.wikipedia.org/wiki/Strawman

The word "default" does not appear in any of my quotes. I tell you what, if you ever find a quote where I claimed the GOV would default on anything, I'll kiss your ass and give you till noon to draw a crowd. Fair enough?

There is no need to default on anything if the "trust" fund is never used. It's really a pretty simple concept, but it's one that you either refuse to understand or choose not to for duplicitous reasons. Either way I'm not going down this road anymore. This will be my last post on the subject. Feel free to have the last word as such things appear to be greatly important to you.

Cheers!

[Statistical]

80. Even if the trust fund isn't used the BONDS STILL MUST BE REPAID TO AVOID DEFAULT.

The trust fund can only be used for SS obligations it contains $2.5 trillion in bonds issued for that purpose. Cutting benefits doesn't make those bonds go away.

Only two outcomes to a bond.
a) full repayment at maturity
b) default

So saying the govt won't tapped the trust fund but won't default on bonds is silly. That would mean income taxes will still go up (to raise revenue to repay the bonds) and then trust fund will just have $2.5 trillion in cash it doesn't need. Starting to understand that there is no way for the govt to avoid repaying the bonds. Cutting or ending social security wouldn't eliminate repayment of the bonds.

"There is no need to default on anything if the "trust" fund is never used. "
No default = no avoiding repayment of the bonds = no avoiding taxes rising.
If the trust fund is "tapped" or not is irrelevant.

No the govt has two choices
a) pay the bond = higher income taxes to generate the revenue to make full repayment
b) default

Reducing benefits would simply mean a buildup of cash in the trust fund it wouldn't prevent income taxes from rising.

The govt made a promise with full faith and credit of treasury to provide repayment at certain date and time. If the money is needed or not is not material.
If the terms aren't met THAT IS CALLED A DEFAULT.

You are claiming you aren't saying default while simply saying the govt will never repay the bonds. Guess what? That is a default.
No matter how much or little social security benefits are over the next two decades the govt will repay $2.5 trillion plus interest to the SSA trust fund.

Your claim that reducing benefits will avoid an increase in income taxes is FALSE. Reducing benefits will not avoid the bonds being repaid (and the cost incurred to do so).

[MajorChode]

82. Not only is this irrelevant, it's far from accurate

Let's say China decides not to cash in all the gov securities. Let's just say for the sake of argument, they wipe their ass with them and flush them down the toilet, and they send the US a letter saying all their debt is forgiven and need not be repaid. Does this mean the US "defaulted" on their original loan? Nope, and to suggest otherwise is quite silly. There's actually quite a bit of precedent for this throughout history. The US and many other nations have forgiven the debt of other nations on many occasions. This doesn't have the effect of decreasing credit rating. In fact the reverse is true.

So what is stopping the US gov from forgiving it's own debt it made to itself? The answer is...
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Wait for it....
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Just a little longer...
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Absolutely nothing short of the stroke of a pen!

In fact, not only can it forgive it's own debt, the gov is not obligated by the Constitution to pay anyone any SS benefit, ever! This has been well established by multiple USSC rulings. With one stroke of the pen, congress can dissolve SS just as easily as they created it, or they can modify benefits, increase benefits, or do whatever else they want. In fact, there is many instances throughout history when the US has denied SS benefits even to those who were fully vested in the system and they had no legal recourse.

So even if your false premise was correct (and don't forget it was YOUR premise, not mine), it's completely irrelevant anyway. If the US never taps the "trust" fund, it can remain just as it is until you or I or the original premise for the trust fund is nothing more than a distant memory (as if it isn't already).

[Statistical]

85. Tapping the trust fund is not the same as repaying the bonds.

First of all where do you get this idea that one "cashes in" a bond. It isn't a personal check. A bond has a fixed date of maturity. On maturity the bond if paid in full with any accrued interest. That payment is remitted to the bond holder or his/her agent.

The SSA trust fund contains thousands of bonds they have an average maturity of about 14 years. Every year roughly $200 billion of those bonds mature and the treasury pays them in full to the SSA. The SSA then looks at balance of receipts and expenses and if necessary purchases new bonds. There is no "cashing in" or not needing the money. If Treasury doesn't need the money then it simply will buy new bonds. Still the repayment happens.


As far as credit markets don't care about forgiveness? Really. Are you out of your mind? :rofl: Which planet is this that credit markets don't care about debt forgiveness cause it certainly isn't Terra. Please show me a single sovreign debt in which credit rating didn't tumble massively. Forgiveness is essentially a soft default.

You still don't get it. What money the SSA needs for a particular year is irrelevant. The bonds will repaid. On maturity the Treasury will remit funds equal to the amount of the bond plus accrued interest to the SSA just like it has done thousands of times in the past 50 years. Every single one on time and with full interest. The govt hasn't failed on a debt obligation yet and isn't about to start.

Your claim that benefits will be cut in order to avoid repayment of the trust fund is just nonsense. Cutting benefits won't eliminate the bonds and they bonds will still mature and require repayment.


Obviously nothing will convince you. We will see in a decade if a single bond payment has been missed, defaulted, or forgiven. If that isn't enough time for you we can check back in 15, 20, 25, 30, 35, and 40 years if you are still around. Every single one will be paid on time and with full interest. Your claim is a bogus RW talking point designed to undermine confidence in SS in favor of private accounts. A bait and switch and then those very same unreliable bond payments will be used to fund private accounts to the benefit of the rich

[Romulox]

34. There is no truth to this.

The government has no legal obligation to "pay back" recipients of SS, nor is there any logical reason why it cannot default on the SS trust fund but not real treasury bonds. There is no connection between the two.

[Warren Stupidity]

49. 14th amendment says "can't default.", see section 4.

Although Sec. 4 ''was undoubtedly inspired by the desire to put beyond question the obligations of the Government issued during the Civil War, its language indicates a broader connotation. . . . '(T)he validity of the public debt'. . . (embraces) whatever concerns the integrity of the public obligations,'' and applies to government bonds issued after as well as before adoption of the Amendment. 74

http://caselaw.lp.findlaw.com/data/constitution/amendment14/37.html#1

The government is obliged to make good on SS trust fund t-bills. It could of course at any time stop making payments to pensioners by a simple act of congress, it would still be obliged to continue interest payments on trust fund t-bills. persumably it would do so while the elderly went dumpster diving en-mass.

[Statistical]

52. Really you think the rest of the world would see the US govt simply writing off

$2.5 trillion in obligations as a good thing?

Would you try to buy or sell t-bonds if you saw that happen? Would it increase or decrease your trust in US solvency? Would it increase or decrease the likelihood of US defaulting on general T-bonds.

The US credit rating would plummet to nothing overnight (slightly above Zimbabwe and slightly below South Africa). The idea that the US could selectively default on $2.5 trillion without affecting the US dollar, value of existing trasuries, or carrying cost for taxpayers is silly. If the US had no debt except SS trust fund then yes it likely could default with no/minimal consequences.

Given we had trillions in public debt even the slightest drop in credit worthiness has a real cost in hundreds of billions in carry cost (interest).

[sabrina 1]

89. Yes there is a legal requirement for the government

to pay back what they borrowed from the fund (not the recipients, the fund) and no, it cannot default it will have to stop fighting wars, raise taxes, sell something else, but the government will find a way to pay back the fund. Cutting benefits will do nothing to pay back the fund, it will, as Statistical pointed out very clearly, simply increase the amount in the fund.

And what possible benefit is there, should they do that, for anyone?

Let me guess. The Privatizers of Social Security are drooling over all that money. The more there is, they more their greedy eyes see going to their favorite 'investments'.

Anyone who supports a cut in benefits, doesn't belong in Congress. The SS fund is NOT for gamblers on Wall St. It has one purpose, and only one. Anyone and that includes this president, who tries to divert funds from SS into private investments, should lose their jobs.

[uponit7771]

11. No it's not, there's PLENTY of money if the government pays it back and they STOP...

...spending the surplus created yearly.

[Warren Stupidity]

13. The surplus should go in a warehouse?

The surplus goes into t-bills. Those are considered just about the safest most conservative investment around. Of course the current budget, with its absurd military bloat, is counting on that surplus t-bill purchase to help float that bloat, and when the surplus goes away - we either borrow more or cut something (what, what could we cut?, what 700B insanity in the budget never gets a second look?)

[stray cat]

15. Great! I'm glad to hear you have the money you are willing to lend to pay it

I was afraid no one was crazy enough to lend the US that much money given their track record

[Statistical]

18. Why wouldn't the govt spend surplus money.

I mean does it make any sense to store it in a giant vault with trillions of $1 bills.

If the govt didn't spend the trust fund money each year (and replace that with T-bonds) it would simply have a giant cash pool of money and at the same time BORROW even more for the general fund.

The US govt "borrowing" against the trust fund actually makes it stronger. The value of those funds benefit from compounding interest rather being slowly eaten away by inflation.

The US govt will repay every cent of the trust fund. They simply can't avoid it.

[mmonk]

12. Nope. It has run 25 years of surpluses and there is 2 trillion

in treasury bonds + interest currently in the fund with there still being a dedicated tax.

[mmonk]

14. From Paul Krugman

Social Security is a government program funded by a dedicated tax. There are two ways to look at this. First, you can simply view the program as part of the general federal budget, with the the dedicated tax bit just a formality. And there’s a lot to be said for that point of view; if you take it, benefits are a federal cost, payroll taxes a source of revenue, and they don’t really have anything to do with each other.

Alternatively, you can look at Social Security on its own. And as a practical matter, this has considerable significance too; as long as Social Security still has funds in its trust fund, it doesn’t need new legislation to keep paying promised benefits.

OK, so two views, both of some use. But here’s what you can’t do: you can’t have it both ways. You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government — but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke.

And bear in mind what happens when payroll receipts fall short of benefits: NOTHING. No new action is required; the checks just keep going out.

So what does it mean that the co-chair of the commission is resurrecting this zombie lie? It means that at even the most basic level of discussion, either (a) he isn’t willing to deal in good faith or (b) the zombies have eaten his brain. And in either case, there’s no point going on with this farce.

http://krugman.blogs.nytimes.com/2010/06/21/zombies-have-already-killed-the-deficit-commission/

[Statistical]

19. You can't have it both ways - EXACTLY.

"OK, so two views, both of some use. But here’s what you can’t do: you can’t have it both ways. You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government — but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke."

SS isn't broke but even with 100% full repayment of the trust fund there will be a gap starting in 2041 ot 2052 and lasting roughly 2 decades. That is why SS needs "fixing" and likely just some simple fixes. While 2041 or 2052 may seem a long time away the reality is it will happen without change and not reforming the system is telling someone who will retire in 2053 that they can figure something out when the plan is out of money in 4 decades.

[mmonk]

21. True as long as payroll tax intake and interest payments do not

cover years of shortfall, eventually that will happen. But it is ahead of future shortfalls in payroll taxes and that premise of becoming broke on those dates is predicated on the idea they never will ever draw even again where the purchases of additional treasuries to a point can't stem it. Seems to me you wait closer and get some sort of idea for any direction to take, especially since insolvency has been predicted ever since it's inception by many who didn't like it. One thing the government shouldn't do is to revamp and cut it in the middle of prolonged recession or depression when revenue is down, but rather shift to producing jobs.

[Statistical]

22. I agree there is no rush however just pointing out that eventually something does need to happen.

There is no reason that we can't wait till say 2020 though. You don't want to wait too long because you start losing the compounding effect of time the longer you wait.

As an example Say you are going to be $100,000 short in your retirement fund. If you caught this 30 years before retirement you would only need to save an extra $75 a month to make up the shortfall (at 8% annual gain). If you waited until 20 years prior you would need to save an extra $180 a month. If you waited until 10 year prior you would need to save $600 a month. The earlier you start the smaller the "pain".

As far as part predictions of insolvency they did come "true". If the last SS reform hadn't passed (the one creating SS surplus) then SS would be insolvent much sooner. 2016 (not 2010 as I originally though) is the first year where SS will turn cashflow negative. SS won't be bankrupt in 2016 because of the trust fund. That fund acts as a cushion and allows the program to live off the principle and interest for the next 20-30 years.

The goal was for the cushion to outlive the boomers (at which point SS becomes naturally cashflow positive again). The only problem is they slightly (by roughly 18 years) mis-calculated the amount of increased revenue. Had SS been raised another half % (0.5%) back in 1980s it would be solvent infinitely. The trust found would be larger than any future projected negative cashflow and would have absorbs that until about 2060 when due to changing demographics SS becomes cashflow positive again.

The miscalculation came about due to lower than expected real wage growth and slightly higher than expected life expectancy.

[mmonk]

24. I think as long as we keep moving our tax base of workers

overseas, it will continue towards red instead of black. We seem to be undercutting it producing more imbalance.

[Hannah Bell]

26. it's ridiculous to pretend we need to reduce benefits/raise taxes now for a

problem projected to occur 30 years in the future.

the government can't "save" in that sense. & in fact, this idea of saving is what put it in jeopardy in the first place.

they're trying to "reform" it to death, incrementally.

[Warren Stupidity]

27. no shit. And more than half the people here fall for this scam every time.

There's a huge surplus that might run out in 30 years!

OH NOES CUT DA BENEFITS RAISE DA AGE INCREASE DA PAYROLL TAX!

Every damn time. There is no crisis. They keep pushing this bullshit to see if it is safe to wreck SS now.

[truebrit71]

44. Yup.

..

[Statistical]

16. The trust fund does exists.

Does it exists like a giant Scrouge McDuck money vault filled with gold coins you can swim in? No that would be stupid.

However it exists in the term of debt notes held by SS trust issued by the federal govt. The federal govt WILL repay those. To not do so would cause the complete collapse of not only our economic system but the dollar as world's currency also.

Foreign markets won't view SS no-repayment as an isolated thing. The bond as backed by the full faith and credit of US treasury. A failure to repay will be considered a default. Overnight US credit rating would go from AAA (a rating shared only by a dozen countries) to less than South Africa. This in turn will cause yields on existing debt to spike into the double digit range and cost the US taxpayer trillions in carrying cost.

The problem is the fund will be exausted by 2041 or 2052 (depending on which report you look at(. It will then go negative for roughly 18 years before reaching a "pay-go" status.

That 18 years is the problem. That is an unfunded liability. We know IT WILL HAPPEN. It won't happen tomorrow, or next year, or next decade but it absolutely 100% WILL HAPPEN. Some changes to SS (like raising the cap, requiring all employees to participate, and taxing SS income for high net worth individuals) are required to reduce the gap to 0. Without it eventually SS will be insolvent.

[Romulox]

36. There is no logical connection whatever between IOUs in the "trust fund" and T-Bills offered to the

public. None.

A default on the former would not affect the marketability of the latter, because they are not interchangeable in any way.

Foreign markets won't view SS no-repayment as an isolated thing.

Nonsense. They'd see it as a shift in US domestic policy, and nothing more. These alleged "treasury bonds" are not available for trade.

[Statistical]

72. Of course there is.

They are both bonds issued by the treasury backed by full faith and credit of the US government. Constitutional law prohibits the US govt from defaulting on its obligations.

The global markets would see any such Unconstitutional default as an indicating that the US govt is no longer even subject to its own rules and has an unwillingness to repay its legally contracted debts.

The bonds issued to SSA can't be defaulted for two reasons
a) it is Unconstitutional to do so.
b) it would result in the complete collapse of our economic system and the utter devaluing of the US dollar.

[MajorChode]

38. ...

[sinkingfeeling]

23. Social Security has never been 'pay-as-you-go'! What rot!

[MajorChode]

32. Social Security has always been pay-as-you-go

It was pay-as-you-go when the first person received their retirement benefits in 1940, and it's still pay-as-you-go today. The only difference is a "trust" fund was established in 1983 which increased FICA to create a surplus, however FICA payments from working Americans are indirectly funding the disbursements to retirees.

[NashVegas]

25. Hey I Know! Let's REFORM Social Security!

Yippee!

[closeupready]

28. selfdelete

selfdelete

[SoCalDem]

29. Actually, it may have been Johnson who took SS from being "protected"

and put into the general fund.. Of course Reagan saw the opportunity and dove in with both feet:(

[Romulox]

35. Baby Boomers intend to borrow the money they need to retire and stick their grandchildren.

That's why there can't be any rationality about this subject. "The government will pay it back!" indeed. :eyes:

[girl gone mad]

61. That's illogical.

The notion of intergenerational theft via debt is bunk. Since George Washington’s administration, national budget deficits and growing public debt have been the norm, except for a few very brief periods. Yet the US has prospered. In sovereign currency nations, the deficit constitutes the foundation of private financial wealth. Debt owed by the government yields net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another. The government deficit is our savings and government bonds are a source of income. Take away the debt and that income vanishes, which will lead to a deep recession in an era where the private sector continues to be a net saver.

The true burden to future generations rests in handing them a society with high unemployment and a productive capacity well below our efficient potential, because the society they inherit is what will ultimately determinate their wealth and how easily they can meet their own needs and desires. This is the intergenerational theft you should be upset about.

[Lydia Leftcoast]

37. Oh man, another DUer who has swallowed right wing talking points WHOLE

Is it something in the new Windows operating system that turns DUers into mouthpieces for right-wing propaganda?

[closeupready]

39. He's been singing the same song for years now.

On this one issue. On other issues, he's liberal.

[MajorChode]

43. News flash: SS reform in 1981 was Raygun's idea

http://www.ssa.gov/history/greenspn.html

Cheers!

[librechik]

41. this is only "true" if you believe the US will default on its debts.

Which A, won't happen, and B, is some kind of crime, especially if you are a Federal official.

Lift the fucking cap. That will finance SS til perpetuity.

[truebrit71]

42. SS is the world's biggest Ponzi scheme...

...there is no personal account sitting somewhere gaining interest just waiting for the one day when we get to start making withdrawals..It's all bullshit..there's nothing there...my taxes TODAY go to pay someone else's benefit, TODAY...it ain't being put aside for me in any real sense of the word at all..

It's robbing Peter to pay Paul..

[girl gone mad]

67. Why would the issuer of a fiat currency store up that currency?

Like I said above, that makes as much sense as me keeping a file full of alphabet letters to cut and paste into messages when I am free to type unlimited amounts of letters at any time.

The defining feature of a Ponzi scheme is the collapse when the Ponzi runs out of money from new marks. A sovereign currency regime cannot run out of fiat money.

[lib2DaBone]

45. SS is not broken.. the lock on the box to keep politicians out.. is broken.

Ask Alan Simpson.. he says they "spent the money on Stuff." You know.. just stuff... it's gone. Billions. You know..it's just that ahhh.. shit happens? A billion here.. a billion there.

Then they put IOU's back in the box instead of cash and now they are in trouble. It's Dire Emergency I tell ya!

Privatize the profits and Socialize the cost. Now that's how you do Republican fuzzy math.

[TexasObserver]

47. No, it isn't. That's a right wing meme for the past 50 years.

Maybe longer, but I can vouch for the past 50 years. There has never been a time the past 50 years the GOP wasn't pushing that meme, because they've hated Social Security and plotted to hurt it since it was created.

[MajorChode]

48. The SS "trust" fund as we know it today didn't exist until 1983

It was also a "right wing" idea conceived by Raygun and his henchmen.

[TexasObserver]

55. I'm talking about the right wing meme you repeated in your OP.

Social Security is not in trouble.

When you repeat this kind of right wing meme and treat it as if it was true, you help them in their efforts to hurt Social Security.

[MajorChode]

65. At current legislated benefit levels...

We almost certainly reach a point where OASI income will not be able to meet obligations. The date at which this will happen is debatable, but no reasonably intelligent and informed person I know denies this is going to happen. This is not right wing meme. If you think this is so, you should better educate yourself. Our current DEMOCRAT president has commissioned a deficit reform committee and filled it with those who seek to cut entitlements. This is not right wing meme. If you think this is so, you should better educate yourself. This is all I have to say on the matter. I've tried to be reasonable with you, but if you simply want to go down the road of ad hominem bullshit attacks without while offering exactly zero in the way of substantive arguments, I'm not going to play.

Have a nice day.

[Statistical]

68. "OASI income"

"OASI income" is current year FICA revenue plus interest and principle repayment from SS trust bonds. We are nowhere near that level yet.

In 2016 obligations will exceed FICA taxes alone (which is only part of OASI revenue).
In 2024 obligations will exceed FICA taxes + interest on SS trust bonds. At this point SS trust will need to begin liquidating as small portion of the roughly $2.5 trillion in bonds it holds each year.

In 2037 (or 2052 if you trust CBO more) the liquidation of bonds will be complete and SS will be unable to continue current benefit obligations.

[MajorChode]

77. That's great if you want to count interest on the "trust" fund

But it ignores that one of the three options must be initiated once obligations exceed OASI revenue. It also ignores that if benefits are cut, we never get to that point, which is the current option being explored.

What Krugman and quite a few other economists have been saying for many years is that the best way to "fix" social security is just to shore up the federal budget. It was always just that simple. The reality is SS was never "fixed" to begin with and now we must deal with the boomer problem in a period of epidemic unemployment, massive deficits, and two lingering wars, so this so-called "trust" fund never helped us one iota. It only allowed Republicans to increase spending and decrease taxes on the rich at the expense of the poor and middle class.

[Statistical]

81. Which has nothing to do with the security or solvency of Social Security.

What part of the BONDS MUST BE REPAID do you not get. The bonds will be repaid. The bonds must be repaid.

There is condition in the bond on if they are needed. If you cut social security benefits it will simply mean the trust fund has more money in it and will last longer (or forever) that still doesn't change the fact that the $2.5 trillion MUST AND WILL BE REPAID and to do that will require raising income taxes.

Cutting benefits to Social Security can in no way ever reducing income taxes. That obligation to repay the bonds exists no matter what. That is how a bond works. The entity holding the bond (SSA) will receive repayment. The entity issuing the bond will repay (general fund). There are no conditions on "well looks like SS doesn't need it so we can pretend the bond doesn't exist".

No each bond has a fixed maturity, and interest rate. As each maturity is met the govt MUST PAY THE BOND. Not paying the bond is called a default which is Unconstitutional.

Thus all cutting benefits would do is mean there is a surplus of cash in the trust fund. It can't in any away EVER avoid income taxes rising or prevent general fund spending from declining.

[MajorChode]

83. ...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=8744461&mesg_id=8749696

[Statistical]

57. The trust fund always existed from day one.

What was done in 1983 was intentionally increase SS revenue without increasing expenses (FICA taxes rose but payments remained the same) to build up the trust fund to the current amount of ~ $2.5 trillion.

The very first year SS collected FICA taxes and paid benefits there was a trust fund. In 1937 more payroll taxes were collected then were paid in benefits.

Had the trust fund not been established SS would have continued collecting and making payments ever year until 2016 at which point the revenue collected would be less than obligations owed for that year.

What would have happened? Not sure but it would have been a crisis. Establishing the trust fund creates an obligation for the US govt to repay the amount borrowed plus interest and thus extends solvency of SS without any outside funding source (which would require Congressional action) until 2040s.

[Hannah Bell]

92. the trust fund existed long before 1983. from the foundation of the program.

[earth mom]

53. Social Security is NOT broken. That's a LIE. The bastards in charge are working overtime

to break it so they can rob us all blind and we all end up living under bridges eating cat food!!!

Social Security is NOT broken. That is a bald faced LIE!

We must all fight to stop those fuckers in charge from controlling the dialogue and saying that Social Security is broken!!! :grr:

[WillyT]

71. Bullshit...

:evilfrown:

[fascisthunter]

79. no... that is a lie

I'm done here

[sabrina 1]

87. Nice try. So this is the going to be the new tactic? Get people

riled about Reagan?

This is one of the most ridiculous posts I've seen on SS so far.

Not only is SS NOT broken, it is good for decades to come. You are completely ignorant on the topic.

Unrec'd for spreading rightwing talking points about SS, under the cover of 'blame it on Reagan, that ought to get Liberals mad enough to support privatizing it'. Fail, and badly.

[MajorChode]

90. All I can say is wow

A "rightwing talking point" is "blame it on Reagan".

And you have the nerve to call someone else's post ridiculous?

Brilliant!

[sabrina 1]

91. The talking point is to say that SS is broken. It is not.