Re: Social Security (was Re: Record deficit expected in 2009

On Fri, 01 Aug 2008 01:11:48 -0700, El Castor <No_One@xxxxxxxx> wrote:

On Fri, 01 Aug 2008 00:11:18 -0400, Grinch <oldnasty@xxxxxxxxxxxxxx>
wrote:

On Thu, 31 Jul 2008 19:01:10 GMT, Rumpelstiltskin
<PleaseDoNotReplyByEmail@xxxxxxxxxxx> wrote:

On Thu, 31 Jul 2008 11:53:56 -0400, Alan Lichtenstein <arl@xxxxxxxxxx>
wrote:

Rumpelstiltskin wrote:

On Wed, 30 Jul 2008 21:37:06 -0400, Alan Lichtenstein <arl@xxxxxxxxxx>
wrote:



You interpret the crossover point between input and output
at 2017 as Social Security being broke in 2017, I suppose,
since there's no other vital reason to mention 2017. I interpret
it as Social Security being broke in 2040, the zero point, not
the crossover point.

Interpret it as you will, that's when SS must start using general
revenue (income tax, a new VAT, whatever) to pay promised benefits --
exactly as if the Trust Fund didn't exist.

E.g. the Trustees say that in 2030 promised benefits are going to cost
about $250 billion (2008 dollars) more than payroll tax collections.

To pay those promised benefits in 2030...
* without any Trust Fund existing would require $250 billion of tax
collection from other sources to remit to SS beneficiaries.
* with the Trust Fund will require $250 billion of tax collection from
other sources (used to redeem TF bonds then) remitted to SS
beneficiaries.

That is the economic difference the Trust Fund makes. $0.


The government has
no more right to welch on its bonds to SS than it has to welch on
its bonds to individual investors.

Agreed.

"Welch on its bonds to SS" is a very strange term.

Social Security participants have zero ownership of the bonds in the
Trust Fund, none whatsoever.

The bonds in the TF are issued by the govenment *to itself*. Since the
US govt own the bonds it can do with them whatever it pleases.

E.g. if Congress, following the will of the voters (as always!)
decides circa 2030 to reduce SS benefits -- perhaps by means testing
the rich like Bill Gate & friends out -- and transfer that spending to
Medicare (or anything else), so SS doesn't need some or all of the
bonds, and it then drops those formerly SS bonds into the Medicare
Trust Fund (which is going to run out of bonds a long time before the
SS TF will) it can do so and it will be perfectly 100% legal.

There will be no "welch" to it, and nothing any individual who doesn't
like it can do about it.

This is an explicit right of the govt and it is clearly spelled out in
Treasury documents relating to the bonds, such as in the _Analytical
Perspectives on the Budget_


Yep. Paying off bonds is even more important than
paying down the debt. If the government doesn't meet
its bond obligations, nobody can trust it with their
money anymore.

Well, that's certainly true of the bond debt owed to the public,
payment on which is guaranteed by the Constitution.

But Social Security is just a government spending program. The govt
can reduce SS benefiits any time, and has done so significantly twice
in the past ('74 and '83)

If it reduces SS benefits in the future so the bonds aren't needed,
then the bonds can sit rolling over automatically forever until the
year 3000, or unto infinity, no problem. Or the govt can use them for
something else, as noted above.

After all, the bonds in the TF are 15-year bonds that roll over
automatically if not needed. Obviously there's no default on any
obligation when they roll over. Those 15-year bonds have been in the
trust fund since 1983, 25 years so far, and not one has been "paid
off" yet.


The
obligation to repay its bonds is absolute. Failure to do so means
the government is bankrupt and indigent, and nobody can have
any faith in it anymore. That would be a catastrophe far bigger
than the one we already have.

Agreed.

Failing to pay the Constitutionally-guaranteed debt owed to the public
would be very bad.

But you've got the threat to the US credit rating backward.

It is the *huge* spending increases required by 2030 to stay even with
Medicare (2/3rds) and Social Security (1/3rd) -- even though both have
trust funds! -- that now endanger the credit rating of the US for the
first time in 200 years.

CBO projects a 50% across-the-board income tax increase on everyone,
people and businesses (or the equivalent) will be needed by 2030 to
fund this spending.

If the spending is made without the tax increases, both Moodys and S&P
project the credit rating of the US govt starts falling in 2017 and US
Treasury Bonds become "junk" by 2027. (They won't be worth a whole
lot to the Trust Fund then!)

http://www.scrivener.net/2007/06/bastiat-never-even-heard-of-social.html

(As consolation, Japan and most of Western Europe are in the same
situation, or worse. France goes off the cliff first.)

As to sovereign credit ratings, Medicare and Social Security are both
legally just social spending programs that the govt can change or cut
as it wishes at any time. This in spite of the fact that they both
are partially funded with "trust funds" -- why does nobody ever
mention the Medicare Trust Fund?

Medicare and Social Security participants are not "creditors" of the
US govt in any way, shape or form. They are spending program
recipients. That is all.

If the credit rating of the US was threatened -- that is, its ability
to pay its *creditors*, the owners of its debt, its bonds, was called
into question -- then cutting spending on Medicare and Social Security
would absolutely and with certainty *improve* the credit rating of the
US, and defend it from the threat of a fall.

I have explained exactly the same thing at least 15 or 20 times to
members of this group over the years -- although perhaps not as
eloquently as you. It never sinks in.

When hard facts meet deeply entrenched beliefs it can be a tough
collision -- but the facts usually bounce right off.

Simply put, after 2017
increasingly large sums of money must come from somewhere to pay
Social Security recipients.

Exactly. It is remarkable how many people fail to see that the trust
fund provides *the government* with exactly $0.00 to finance Social
Security.

So ... more taxes.

As the fateful date draws near (and nine
years is pretty near), Congress will be forced to face reality. They
will tweak here and trim there. In the end the trust fund bonds will
not be paid off to any significant degree -- not because Congress or
the Treasury will default, but because Congress will do just as they
have done in the past and will tweak the system, conveniently
eliminating the need to dip into the Fund in any substantial way. It's
inevitable, and no one needs a crystal ball to see it coming. Well
... maybe Alan and Rumpel do.

You are correct, you don't need a crystal ball, all you have to do is
tally up the interests of the voters of the future -- including the
retirees' interests.

One of the great howlers that knee-jerk, unthinking-type defenders of
the status quo consistently make is to say, "so what if taxes have to
go up in the future to pay our benefits, then they will because
**we are the most powerful voting block**."

Someone messaged me recently:
"... it?s hard to believe that politicians will vote to renege on a
debt to what is likely to be the most powerful voting block in
American history..."

But these people never consider the taxes will be going up ON THEM.
Retirees face a 50% income tax increase by 2030 on their fixed incomes
from pensions, IRAs, on their Social Security benefits(!) etc, ... to
pay for their very same Social Security beneits, and Medicare.

Are they going to be happy when that tax bill arrives on them to make
them all poorer?

What will be their voting interests then? Let's just consider the 15%
tax increase for Social Security...

Somebody will propose -- and they will, because they already have ...

"Why don't we just avoid having to raise income taxes to pay off the
SS trust fund bonds by mean-stesting the the richest 15%, Bill Gates
and his friends, out of benefits? After all, if it *so bad* to let
the rich keep their own money by giving them tax cuts, it has to be
*much worse* to raise taxes on the entire middle class to make
transfer payment *to* the rich!"

How will retirees line up on voting for this proposal?

[] The great majority of middle-class seniors say, "Why should we be
made poorer by paying an income tax increase on our fixed incomes from
our pensions, IRAs and Social Security benefits to pay money to Bill
Gates and the rich? Vote **Yes** for means testing!"

[] Bill Gates and the rich say, "Why would we want to pay an income
tax increase on all our huge investment and business income to protect
our piddling Social Security benefits? Vote **Yes** for means
testing!"

Done. By self-interest it is 100 to 0.

And when all the seniors vote to cut benefits like this, do you
imagine corporations and the young are going to vote to raise taxes on
themselves? ;-)

After all those votes come in Congress can put the trust fund bonds on
display in a museum, drop them in the Medicare trust, whatever.

Here's a tally of how various interest groups will have an interest to
vote:

http://www.scrivener.net/2008/07/so-who-will-want-to-reneg-on-social.html

Really, **in the world of 2030** just who is going to want to vote
*for* paying off those bonds?

Name that interest group!
.

Relevant Pages

  • Re: A trip down memory lane ...
    ... destroyed your earlier position that SS bonds were "funny ... being negotiable makes them "funny money". ... you are comparing the funny money in the SS trust fund with the US ... "But when the public expressed doubt that the Social Security system would ...
    (soc.retirement)
  • Re: Value Added Tax
    ... Social Security trust fund are not the "Treasury Bonds" that you and I ... dealers who insisted that Trust Fund Treasuries be non-marketable, ...
    (soc.retirement)
  • Re: Ron Pauls surprisingly lucid solution to the debt ceiling impasse
    ... when the government wants to borrow money it sells bonds. ... wasn't caused by Social Security and Medicare. ... These [Trust Fund] balances are available to finance future benefit ...
    (soc.retirement)
  • Re: OT: Official Why Zarqawi and why now? thread
    ... The current social security scheme does not increase ... When the trust fund is exhausted, ... but the money is replaced with interest bearing bonds with zero risk ... it is invested in interest bearing government bonds. ...
    (rec.gambling.poker)
  • Re: Iraq not ready to stand on own, lawmakers say
    ... there are tons - tons- of money in the SS Trust Fund. ... Trust Fund just lying around to pay for any annual shortfalls between ... Social Security and Medicare benefits. ... dedicated tax revenues will lag a full $151 billion behind ...
    (soc.retirement)