The Joint Economic Committee's Republican Staff has released a new staff commentary entitled "Social Security Surpluses: Fiscal Fact or Accounting Fiction?" Check it out here.
Wednesday, June 15, 2011
JEC: “Social Security Surpluses: Fiscal Fact or Accounting Fiction?”
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"Social Security has its own “trust fund;”3 Social Security receipts and outlays are labeled “off-budget;”4 and the Social Security Administration is an “Independent Agency.”5 Despite all of these special features, Social Security is still a government program. When Social Security has a cash-flow surplus, Social Security taxes are available to pay for other programs. When Social Security has a cash-flow deficit, the government must collect other non-Social Security taxes or borrow from the public to pay for Social Security benefits."
Unified budget is not allowed by United States Code. Congress uses the term unified budget, but when budgets are passed they are not unified.
Social Security spent more each year than it collected between 1957 and many year till 1965. It did so again between 1970 and 1983 when the SS-OASI trust fund was exhausted. Did the National Debt increase when these treasury notes were redeemed, NO? All that happened was the special notes held by SS-OASI were sold to someone else. The exact same thing as refinancing a mortgage. All that changed was that another entity holds the debt.
Congress likes to separate government debt into two categories: that held by the public (Trust funds) and that held by private (all other entities). I have never understood this differentiation. It is debt. Now we could repeal Social Security and Medicare and reduce the national debt from $13.4 Trillion to under $11 Trillion and no longer be concerned about raising the debt limit.
“There has been a temptation throughout the program's history for some people to
suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual
sense. That is to say, if a person makes FICA contributions over a number of years,
Congress cannot, according to this reasoning, change the rules in such a way that
deprives a contributor of a promised future benefit. Under this reasoning, benefits
under Social Security could probably only be increased, never decreased, if the Act
could be amended at all. Congress clearly had no such limitation in mind when
crafting the law. Section 1104 of the 1935 Act, entitled "RESERVATION OF
POWER," specifically said: "The right to alter, amend, or repeal any provision of this
Act is hereby reserved to the Congress." Even so, some have thought that this
reservation was in some way unconstitutional. This is the issue finally settled by
Flemming v. Nestor.”
http://www.ssa.gov/history/nestor.html
The letter does need to be critized, because it is full of flaws. Ironically enough, I find more problems with the critique than the letter itself.
It is overwritten. "When Social Security has a cash-flow deficit, the government must collect other non-Social Security taxes or borrow from the public to pay for Social Security benefits."
It is something close to 20 words just to say that the Treasury will repay the money it borrowed. Social Security isn't the cause of the deficit here. It is the willingness of past Congresses to spend more than it made. The Trust Fund was just the conduit. This isn't terribly different than letting my wife run-up our credit card and then screaming at the bank at the end of the month.
The authors also apply a different meaning to deficit than the authors of the letter did.
The letter is filled with flawed thinking, and it is troubling that you found the one set of people who can't extract it.
Andrew,
"These deficits, which began in 2009, could add trillions to the federal debt held by the public and hundreds of billions in annual interest costs"
Would you agree that the gist of the disagreement here is 'held by the public'. The Social Security Trust Fund is not the public. It is an intergovernmental agency. So as we liquidate the Trust Fund, we will have to borrow from "the public", and we will see higher interest costs as a result.
I am not sure whether there is a meaningful difference between debt held by 'the public' and debt held by 'intra-governmental agencies'. What is difference?
See page 5 -
"Debt held by the public is different from debt held by the Social Security trust fund. Borrowing from the public involves an actual financial transaction in which investors exchange money for U.S. government debt securities. Servicing this debt affects the government’s cash-flow through the payment of interest to the public. On the other hand, only 25 percent of the debt held by Social Security reflects taxes collected from the public. Moreover, servicing this debt does not affect the government’s cash-flow. Interest accrues to the trust fund in the form of additional securities. No money is collected from the public."
"servicing this debt does not affect the government’s cash-flow. Interest accrues to the trust fund in the form of additional securities. No money is collected from the public."
But the interest credited to the trust fund is included in the national debt, thus decreasing its ability to borrow.
In addition these Trust funds own special issues that are payable on demand when presented to the US Treasury.
The simple fact is we are so hosed.
Thanks to previous generations who failed to elect responsible people, we now have a massive problem that in reality the only solution is to bite the bullet. Do we hurt the generations who paid little into SS-OASI or do we continue to kick the can down the road and tell our children it is a "contract between generations" with a straight face?
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