Social Security Trust Fund
by Kerby Anderson, Point of View: Although politicians talk about the Social Security "trust fund," the reality is that it is neither. There was no "trust" and there is really is no "fund." Each Congress has spent the surpluses that were supposed to be set aside for when the baby boom generation began to retire.Economist Kevin Hassett has found something else. The surpluses that once fed this imaginary trust fund are now gone. Due to the current recession, the fund is now negative. Payroll receipts are down because fewer people are working. Essentially, the trust fund has gone into the red about ten years ahead of schedule. The latest government numbers confirm this. This year, it is estimated that Social Security will take in $654 billion in payroll taxes and pay out $662 billion in benefits and expenses. That is a shortfall of $8 billion.
The response from the Social Security Administration is that even though there is a shortfall, Social Security is not running a deficit. It turns out that the interest the government owes itself for borrowing (and spending) the surpluses will provide an additional revenue stream. So even though there is a shortfall, Social Security isn't running a deficit . . . yet.
While all of this is true, some members of Congress are starting to object to this accounting sleight-of-hand. And all this does is postpone the inevitable. By the next decade, the bulk of baby boomers will have begun their retirements. The only way to have been able to fund the millions of boomer retirees, would be to have a real trust fund not a fictitious one. Each year Congress spent the money in the trust fund. And now a recession has removed any last pretense of there being money for future retirees.
I don't think most Americans really care whether the Social Security trust fund is technically broke. They just want to know if their Social Security will be there for them. The reality is that each year, more retirees will be drawing on funds that aren't there. For some reason, no one in the administration will tell you the truth. I just did. I'm Kerby Anderson, and that's my point of view.
Tags: congress, Kerby Anderson, Point of View, social security, trust fund To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. Thanks!
Posted by Bill Smith at 2:51 PM - Post Link
1 Comments:
Part of the reason why it seems that Treasuries held by the Social Security Trust Fund have value is that normally when Treasuries are held they have value to whoever holds them even if the Treasury has spent the proceeds from issuing them. However, when the Treasury holds Treasuries it is holding its own debt. In order to spend the value of the Treasuries to pay Social Security recipients, it must sell its own debt which is borrowing. Because of this, the only way in which it could have avoided needing to borrow in order to spend the value of the Treasuries in the trust fund would be to have not already spent the proceeds from the Treasuries.
If the Treasury were to withdraw Treasuries from the account, it would have to sell them for cash to give to Social Security recipients. When it is the Fed that sells Treasuries, it is not borrowing. Instead it is sterilization since the Treasury does not get additional funds to spend. However if the Treasury were to sell previously issued Treasuries, it would be the same as if they were issuing new Treasuries since they would be removing the ability to spend from the rest of the economy to transfer to Social Security recipients. No saved wealth would be made available. Selling Treasuries is the same as what would need to be done if there were no savings from previous years in the trust fund. It is different than if the Treasury issued the Treasuries and they were then bought and resold later since in such a case the reselling would be offset by the buying. If the Treasuries in the trust fund were resold, it would be using one Treasury to borrow twice since they would never have been bought.
In 2018 when the trust fund will need to borrow it will be in the same situation as if someone were spending more in a year than he was earning that year and needed to borrow because of this. However, he would only need to borrow if he didn’t have savings from previous years, which indicates that the trust fund really doesn’t have savings from previous years. The only way in which it can be said that the trust fund has savings from previous years is in the same way that someone could say that he had a savings account if it was a savings account where if he wanted to withdraw $100.00 the bank would say that he had to pay them $100.00. Without any savings, he would have to borrow the $100.00 to give to the bank to get his $100.00. He certainly wouldn’t be able to use such savings account as collateral for a loan!
If government borrowing is increased to replace the increased amount of government borrowing that goes to Social Security, it will harm the economy by increasing interest rates. To the extent that the additional borrowing causes the dollar to fall, interest rates will rise even more. In addition, as the employed percent of the population becomes smaller, GDP will decline in proportion to spending. This will cause the dollar to fall even more. As inflation increases because of these factors, Social Security obligations will increase to the extent that they are indexed to inflation.
The lack of funding of Social Security will become more apparent in 2011 when baby boomers start to retire. Since the government has depended on having more paid into the trust fund each year than is paid out and is using the net inflow of funds for financing spending, even though there will still be a surplus until 2018 the government will have to increase borrowing before then to maintain the same level of spending.
Post a Comment
<< Home