Wednesday, November 28, 2012

“Repeat after Me: Social Security Adds To The Deficit”

So argues Veronique de Rugy over at National Review Online.

I explored this issue recently for Real Clear Markets. Check out that piece here.


Arne said...

"And on a unified budget basis, when Social Security's financial position worsens the budget deficit grows. "

Congratulations for pointing out exactly where the distinction lies. Given that "benefits will automatically be paid if the trust fund has a positive balance and automatically be cut once the trust funds are insolvent", it is the unified budget which is a less meaningful perspective for answering this question. Otherwise we could also meaningfully ask whether China adds to the deficit.

WilliamLarsen said...

"To fill the gap, the program is drawing from the trust-fund balances (first using
interest, then the principal) to keep payments to retirees going; in concrete
terms, Treasury will have to borrow money to pay back the trust funds. The
federal government doesn’t have the money to pay the trust fund back because it
spent everything on stimulus,wars, education, green jobs, and more typical
government consumption."

Between 1971 and 1983 SS-OASI spent more than it collected each and every year from the payroll tax. Did this add to the deficit or the national debt when these special treasuries were repaid? The answer is no. The national debt is the sum total of all debt owned by countries, public, government, etc. When the special treasuries were redeemed the treasury went on the open market and borrowed money or if you would like a name for it "refinanced" the debt using a different loaner. Instead of Social Security owning the debt, another entity bought this debt. The national debt did not increase nor decrease with the refinance or change in owner ship of this debt. However, the terms of the debt was different.