In today's Washington Post, business columnist Allan Sloan argues that the Social Security trust fund "has no financial value." Here's the money paragraph:
Say that Social Security calls the Treasury sometime in 2017 and says it needs to cash in $20 billion of securities to cover benefit checks. The only way for the Treasury to get that money is for the rest of the government to spend $20 billion less than it otherwise would (fat chance!), collect more in taxes (ditto), or borrow $20 billion more (which is what would happen). The spend-less, collect-more, and borrow-more options are exactly what they would be if there were no trust fund. Thus, the trust fund doesn't make it any easier for the government to cover Social Security's cash shortfalls than if there were no trust fund.I've used words to these effect many times, and I believe Sloan's conclusion is substantively correct. But the underlying argument is a lot more complex.
The trust fund isn't of no value because the rest of the government must raise taxes or cut other programs to repay it. That would be the case with any government bond, which leads to absurd conclusions.
The problem with the trust fund that is distinct from ordinary government bonds is that a) when the government borrows from Social Security this borrowing isn't usually counted as part of the budget deficits; and b) debts owed to Social Security aren't usually counted as part of the government's debt.
What do I mean by "usually"? In most cases, the budget deficit numbers you read about are for the "unified budget," that is, the budget including Social Security. If Social Security runs a surplus of, say, $100 billion, this reduces the unified budget deficit by that mount. Likewise, the government debt figure you most commonly read about is the "publicly held debt," that is, debt held by individual investors, Wall Street, foreign central banks, etc. Borrowing from Social Security -- "intragovernmental debt" -- usually isn't included in this amount.
So why does this matter? When borrowing from Social Security isn't counted as "real" borrowing, Congress will tend to borrow more. That is, Social Security surpluses allow the rest of the government to tax less or spend more than it otherwise would have. In this case, the government's total asset position isn't improved, nor is national saving increased. The whole story is outlined in much greater detail here.
So Allan Sloan's conclusion is basically correct, but the way he explains it opens himself to legitimate criticism.
Update: See Dean Baker's post on the same subject here.
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Dean Baker also has a post up on Sloan at his 'Beat the Press' blog. http://www.prospect.org/csnc/blogs/beat_the_press
Needless to say he has a little different take on this. I left a note there pointing here. This topic really could use some higher end dialogue and it is kind of exciting to have both you and Dean with comment enabled blogs.
"Likewise, the government debt figure you most commonly read about is the "publicly held debt," that is, debt held by individual investors, Wall Street, foreign central banks, etc. Borrowing from Social Security -- "intragovernmental debt" -- usually isn't included in this amount."
Well I don't know about that. A Google search on 'United States Government Debt Totals' brought up a 'U.S. National Debt Clock' and it cites a total of $9.4 trillion which does include both Debt held by the Public and Intragovernmental Debt. And the Treasury seems to be following that same practice on their main debt page. http://www.treasurydirect.gov/govt/charts/charts_debt.htm
At a lower level Wiki leads with the $9.4 billion figure. A Google search on '$9 trillion debt' pulled up 110,000 results with three of the top five results being from Reuters, CBS and ABC. This matches with my impressions that generally the figure that is bounced around in the media is the combined public debt including that held by Social Security and the Hospital Insurance Trust Funds.
"a) when the government borrows from Social Security this borrowing isn't usually counted as part of the budget deficits;"
Well this is only half true. When people talk about borrowing the Social Security surplus the figure they usually use is 'around $200 billion'. And this is the figure used in Unified Deficit calculations. Yet of this roughly $200 billion for 2007 less than half actually comes from an excess of tax receipts over cost Table IV.A3.-Operations of the Combined OASI and DI Trust Funds, Calendar Years 2002-16, for 2007 the estimate for excess collections was $87 billion, the balance of the $189 billion was the $102 billion in interest.
And in a finding that was somewhat surprising to me that $102 billion is in fact financed and shows up on the overall balance sheet. For example Treasury shows a total amount of interest paid in 2007 to be $430 billion http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
which works out to 4.77% on the total combined $9.007 trillion in debt outstanding at the end of FY 2007. It would seem that the practice is to borrow from the public the amount of interest owed to the Trust Funds from, which amount is included in Debt Held by the Public and as an expenditure in the Budget, but then the whole amount is simply borrowed back.
The whole thing is kind of mind-boggling but the end result is that the financing and accounting are honest, those interest dollars are not in fact simply conjured out of nowhere.
In summary I just don't see a lot of support for 'usually isn't counted', these numbers show up in the Unified Deficit, on Treasury's summaries, and if you dig hard enough in the Analytical Perspectives on the Budget.
I'm sure we could trade links, but my strong impression is that in news accounts of government accounting the headlines go to the unified budget deficit and to the publicly held debt. Often after reporting the unified budget deficit they'll note that this nets out surpluses in Social Security, but that's after the fact.
Moreover, to the degree the government targets a balanced budget or an acceptable level of budget deficit, it's almost always done relative to the unified budget. If policymakers target the unified budget balance (either wanting balance itself or a deficit of $XXX billion), an increase in Social Security surpluses will encourage a larger on-budget surplus.
Regarding the national debt, if you think back to when policymakers talked about repaying the debt, the figures cited were always the publicly held debt. If policymakers target a given level of debt (or debt/GDP ratio) then increases in Social Security surpluses will allow for higher spending/lower taxes, since borrowing from Social Security isn't included in that debt measure.
I agree that they zero in on the Unified Deficit for the annual debt but disagree that they use Debt held by the Public as their metric for overall debt. For example I put in a search for 'United States Debt Clock' and each of the first six went right to the $9.4 trillion. I had similar results for a search on 'United States Debt 2007'
And I would suspect this is universally true in reporting on raising the debt limit, as an example there is this from McClatchy.
http://www.mcclatchydc.com/226/story/20068.html
This would seem supported by a search on 'united states debt limit' everything went right to the $7 trillion or $9 trillion (depending on year) with nary a breakout in sight.
And we have this from the Concord Coalition. They headline the total and do the breakdown in the body of the text.
http://www.concordcoalition.org/issues/feddebt/debt-facts.html
On the other hand 'united states debt held by the public' tended to pull up US Treasury sites.
Excuse me for injecting a political note here. When the President's men are talking about tax cuts it is convenient to use current year Unified Budget figures, when they are talking entitlements it is convenient to put them in a context that includes total debt, and so they do.
"Regarding the national debt, if you think back to when policymakers talked about repaying the debt, the figures cited were always the publicly held debt."
Well yes because during the 1996-2000 period the Social Security trust fund balances were relatively small in relation to national debt and were expected to vanish in fairly short order. Paying off that debt was essentially automatic, DI peaks in 2003, OAS in 2013 after that the balances start going towards zero in 2015 and 2031, it wasn't something you needed to plan for, it was something you needed to plan against, why is why the focus naturally fell on the other component of the debt. As a practical matter there is no way of paying down Trust Fund debt while the overall system is in surplus and so no point in talking about it.
May I ask why Sloan is going on about social security, which may or may not go into deficit in 2017, rather than medicare, which is already running a high and rising deficit? Is not out of control medical care costs in a society with pathetic medical care performance the real problem?
Barkley Rosser
Biggs
while substantively correct. dangerously dishonest.
the government can't repay any money it borrows without effectively raising taxes or cutting other spending. social security trust fund is no different from any other debt,
the government, and the tax payers got the benefit of borrowing. now its time to repay. and the good news is that it's not a lot of money. it amounts to a tax raise of one dollar per week per worker per year during a time the average wage is projected to increase ten dollars per week.
of course it would be more honest to repay it out of the progressive income taxes, but even if the workers had to pay it as an increase in the payroll tax no real injustice would have been done.
they will get their money back when they retire.
anonymous above is me Dale Coberly
"Thus, the trust fund doesn't make it any easier for the government to cover Social Security's cash shortfalls than if there were no trust fund."
actually it does.
if there were no trust fund, the government would have no obligation to cover the shortfall. so either the payroll tax would have to be raised or benefits would have to be cut. but since there is a trust fund, it is easier to cover the shortfall.
on the other hand if the government borrowed money from people without giving them a savings bond to hold, it would be easier for the government to avoid repaying them. this seems to be the Sloan theory of government debt.
I think the estimable Mr. Sloan should be asked whether he thinks the federal government should make good on all its "IOUs", which we common folk know as government bonds.
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