Brenton Smith, writing for FedSmith.com, hits on a point that others have missed in the question of how Social Security affects the overall budget deficit:
Social Security is not self-supporting as [Oregon Sen. Jeff Merkley] claims. It receives by law (Public Law 98-21) annual general fund transfers, mainly the revenue from the taxation of Social Security benefits. This revenue appears on-budget, and is dollar for dollar deficit spending. Over the past three years, Social Security has by law created more than $75 billion of “On Budget” deficit – according to the Trustees.
As I’ve written for Real Clear Markets, I think the Social Security/budget deficit issue is broader than this: when we consider the “unified budget deficit,” which is by far the most common figure used regarding the federal budget, a decline in Social Security’s funding health has basically a dollar-for-dollar impact on the deficit. So if, say, Social Security for some reason collected $10 billion less this year than anticipated then the unified budget deficit will rise by $10 billion. The intergovernmental transfers to and from the trust funds matter for Social Security’s solvency, but on a budget-wide basis those cancel each other out.
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2 comments:
"This revenue appears on-budget, and is dollar for dollar deficit spending."
Deciding that because it is on-budget it is deficit spending is a perspective, not a fact. I think it is a silly perspective given that the on-budget revenue from taxation of SS matches the on-budget outgo, resulting in a net SS contribution associated with taxation of benefits equal to zero.
It is also a matter of perspective rather than a matter of fact as to whether to consider the unified budget deficit when assessing the impact of SS on the deficit. You would not employ that perspective to answer whether China contributes to the deficit, so why should you employ that perspective for SS?
The reasons to do something about SS have nothing to do with an impact on the federal budget, but on its own projected budget.
The unified budget is junk, period! It would be like combining my siblings budgets and mine into one. My budget has no effect on my brothers and sisters.
Social Security has dedicated tax revues which by law may only be used to fund Social Security's two program respectively. The Social Security trust funds (plural) may also only be used for their dedicated programs.
Any surplus or negative cash flow of Social Security does not affect the National Debt one penny. If you care to look at the national debt, you will see that the national debt has increased year over year since 1958. 1957 was the last year the General Budget had a surplus.
The unified budget allows politicians during SS surplus years to show lower Unified Budget deficits, but it has not make a penny difference on the General Budget.
Social Security cannot borrow money period! The General Budget has borrowed money on the open market. When SS has a surplus the US Treasury issues SS a special Treasury note redeemable on demand at the current bid rate on US Treasuries. The only think the SS surplus does is reduce the bid price and that is minute.
The single largest affect the Unified Budget does is it has allowed the General Budget Deficit to go higher than had it always been referred to as the General Budget and Social Security Budget.
Too many people are ignorant and do not understand the difference. It leads to mass confusion and dumb arguments such as:
Social Security was used for defensed spending and that Clinton had a surplus.
As for the taxation of SS benefits being transferred to the Social Security budget, that was by law in 1983 when the tax, base and retirement age were increased.
The correct way would have been for Social Security to with hold taxes and then have the beneficiary file for a refund.
However, the simpliest way was to have the IRS collect the tax, keep track of the amount of increase in tax from all taxpayers and transfer it to Social Security.
In fact, is there really any difference in how it is collected? The money withheld from a paycheck for federal income tax, social security tax and medicare taxes all goes to the Treasury Department. From here once a quarter the social security and medicare taxes are credited to Social Security. Is this really any different from crediting the tax paid on social security benefits back to Social Security?
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