(H/Ts – Ed Morrissey and Owen)
The Associated Press finally noticed that the cash Social Security is taking in won’t cover its current obligations:
For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.
Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.
Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
I give the writer, Stephen Ohlemacher, credit for remembering that even the net interest paid on the bonds is, if it needs to be paid out in cash, something the Treasury Department doesn’t have so much as a penny to pay out. A few points of order:
- Those 12-month primary (or cash, if you prefer) deficits actually began in the February 2009-January 2010 period, when Social Security ran a $114 million primary deficit. An estimation using numbers from the Febraury 2010 Monthly Treasury Statement, which shows a $7.59 billion “gross” deficit (including the interest paid out on securities cashed in February) and a $7.71 billion primary deficit, bumps that 12-month primary deficit to $6.47 billion (between March 2009 and February 2010).
- That nearly-$29 billion cash deficit for FY2010, or $34 billion if one prefers to go with the Office of Budget and Management numbers, tells only half the story. The FY2010 budget counted on $21 billion in primary surpluses from the Social Security “Trust Funds” to spend on other items in the budget, which makes the total amount of unplanned borrowing on the open Treasury market $50 billion-$55 billion.
- Also from the OMB, for at least FY2010, the Old-Age and Survivors Insurance Fund is expected to run a primary deficit. It would join the Disability Fund, which began running primary deficits in 2005 and running gross deficits (i.e. shrinking its “Trust Fund” and entering the final stage of collapse) in 2009.
A quick note about the February 2010 numbers – while they are not the final numbers from Social Security’s Office of the Chief Actuary, they are rather reliable. They also represent, outside of the anomalous month of August 1990, when almost all of September 1990’s benefits were shown as paid out in August, the second-largest primary deficit (behind December 2009’s $11.307 billion primary deficit) and the largest gross deficit since monthly records have been kept in January 1987.
Even if we had taken Al Gore’s suggestion and put it the “Trust Funds” into a “lockbox”, it would, at best, only delay the inevitable. Between March 2001 and February 2010, the funds accumulated $869 billion in interest, and the primary growth was $607 billion, which together masked $1,475 billion in deficit spending over the last 9 years. Given the current problem is converting the “Trust Funds” to cash, and the problems both parties have had in saying no to spending, I don’t see how that “lockbox” would have helped any.
Revisions/extensions (3:19 pm 3/15/2010) – I really need to pay more attention to my feed reader over the weekend – Owen had it up yesterday.
R&E part 2 (7:00 pm 3/15/2010) – First, thanks to Ed for linking to me. Sorry about the problems that you may have experienced in loading this site; StatCounter had some issues.
Since Glenn Reynolds wanted to know what happened to the “lockbox”, I decided to take a somewhat-quick back-of-the-spreadsheet look at what would have happened had a “lockbox” been in existence the last 9 years. Do note that it would not have affected the primary deficits in the least, but it would have put at least some actual money into the “Trust Funds” for the future.
[…] Update: Steve Eggleston has more background. […]
Sounds like we need to get a list of anyone who voted for being able to move the excess SS funds into the general fund. Not even sure when that happened. But if any of those jokers are still in office, they ought to have stiff primary/general election challenges.
¡Viva la fiesta de té
That happened in the mid-1960s to pay for the Vietnam War, so the list of targets is rather short. In the Senate, only Robert Byrd and Daniel Inouye were around to vote for it. On the House side, add John Dingle and John Conyers.
As much as I know, they’ll be replaced eventually. If they voted for it, I’d rather see them out sooner, rather then later.
Let’s have those four shot. That’ll be a good start.
They’ll die of old age sooner or later. I’ll go with them departing Congress at the earliest opportunity.
That’s John DINGELL.
And Social Security revenues have ALWAYS been thrown into the general fund, no matter what they call the accounting method. It was always that way, by design and for lack of suitable alternatives.
From _The Cost and Financing of Social Security_, by Lewis Meriam and Karl Schlotterbeck (Brookings Institution, 1950), p. 155:
“The establishment of the Trust Fund has given an aura of soundness and solvency to the OASI [Old-Age and Survivors Insurance] system. Many believe that this reserve fund ‘earns’ income in the same sense as do private insurance reserves; that, if need be, all claims could be met by liquidation of the reserves; and that an individual, with his final payment of OASI taxes, will have paid in full for his retirement benefits.
“The operation of the OASI Trust Fund is NOT [emphasis in original] similar in character to that of a private insurance company. Private insurance reserves (…) are usually invested in projects that directly participate in or promote the production of goods and services. These investments are procreative in character and thus ‘earn’ income. Furthermore, they are assets of the insurance company reserve, but they are liabilities of OTHER [emphasis in original] enterprises. The OASI Trust Fund is invested in federal government securities. Since the money is used by the government in meeting its regular expenditure requirements, no real reserve is created. The obligations of the government (liabilities) deposited in a trust account do not represent assets; they merely record future obligations which can be fulfilled only through the levy of future taxes upon the economy in general. The Trust Fund is thus a fiction — serving only to confuse.
“The explanation of the failure to establish trust fund assets analogous to those provided by private insurance companies is presumably that the sums ultimately involved are so stupendous that available investment securities of productive enterprises would not be adequate for the purpose. The deposit of its own liabilities in a so-called reserve fund thus appeared as a happy solution to the problem.”
Very interesting. Thanks for the historical research showing it’s been a Ponzi scheme further back than generally-admitted.
I read the Meriam and Schlotterbeck book in 1975, when I was a grad student (in astronomy and astrophysics) at the University of Chicago. The question that occurred to me back then was “Where does the money deducted from paychecks for Social Security actually go?” I figured out the answer for myself and then had it validated by finding the Meriam and Schlotterbeck book in the UofC library.
So I’ve been sitting on that knowledge and, especially, that particular quote since 1975, trotting it out (usually to little effect) when someone talks about how “Congress stole the money from the trust fund.” The global point is that Social Security has been lousy public policy since its inception.
(It was also dishonestly sold as “insurance” during the mid-1930s to get it enacted by Congress. See the late John Attarian’s 2003 book _Social Security: False Consciousness and Crisis_ or check out his ~half-dozen pertinent articles at the Lew Rockwell website.)
Perhaps the “trust fund” monies **could** have actually been invested in the private, wealth-producing economy, but the net financial flows have, until recently, been so large that you can just imagine what a political football the necessary investment choices would have been.
Of course, money is fungible, and if Congress had been devoting resources — whether nominally coming from the Social Security inflows or not — to capital investments (e.g. public infrastructure, applied research [perhaps … that can be a political football, too!], …) instead of, mostly, current consumption, the country would now be facing less of an abyss.
To call Social Security a “Ponzi scheme” is, ultimately, to recognize that its problems (and Medicare’s problems) are rooted primarily in demographics. In short, promises were made that can’t possibly be fulfilled. (I haven’t studied Paul Ryan’s “Roadmap” plan in sufficient detail yet, but I have the impression that some parts of it are escapist. However, I’m delighted by his seriousness and focus, so much a contrast to most of his colleagues — and most citizens.)
You have omitted the Blame Bush angle. Why?
Simple – the majority of Social Security’s 10-year run of not having so much as a combined monthly primary deficit happened during Bush’s terms in office.
Beyond that, the last tinkerings of the Social Security taxes were:
– The FICA/SECA tax rate went up to 12.4% (the FICA split evenly between employee and employer) in 1990 as part of the 1986 rewrite of tax law, itself an implementation of the 1983 “forever” fix.
– The rate of the taxation of benefits last went up in 1993, as part of Bill Clinton’s biggest-up-until-PlaceboCare/Cap-and-Tax tax hike.
– The split between the two halves of Social Security was last adjusted for 2000 (the DI portion went up to 1.8% of total FICA/SECA from 1.7%, again with FICA split evenly between employee and employer, and the OASI portion going down to 10.6% from 10.7%).
Other than Bush, Steve Forbes, and Paul Ryan, nobody offered any serious reform to Social Security in the last decade.
Every federal trust fund is part of the national debt, liabilities not assets, because all contain nothing other than IOUs from one part of the government to another. Any increase in FICA taxes above the annual deficits would just be used for current spending, increasing the size of the debt. I am not aware that any mechanism for how a “lock box” would behaved has been advanced. The only way this could worked is if the excess was allocated to individual accounts invested in marketable assets.
I have heard people praise Social Security and Medicare as examples of socialist programs that work. They have good benefits but, the fact that each is going bankrupt, demonstrates that they do not work. I may buy a Rolls and realize that it is a wonderful car but that would mean little after a visit from the repro-man.
[…] Associated Press praised the AlGore “lockbox” in its story discussed earlier, and Glenn Reynolds and Andy McCarthy ask where the “lockbox” was, so I figure […]
Point noted on what the “Trust Funds” represent. The only difference between them and publicly-held debt is ownership for a few years.
Sending the excess to individuals for investment might have worked, but somehow I doubt that’s what Al Gore had in mind for the money.
That’s what happens when a white woman marries a black man! Oh, I’m a racist bigot! Oooh! Actually, just a misanthrope tellin it like it is after years of observing the human race..
Actually, you are a racist. It’s what happens when big-S Socialists get in power, be they white, black, yellow, green, purple, polka-dotted, gray, blue, or whatever color.
[…] Morrissey and I have been noting since September (with the first alarm bells rung in May), and what the Associated Press noticed ten days ago. I’ll go with Ed’s take on the catch-up: We’ve been writing about this for the last […]
[…] surpluses (from 2006-2008) to cash deficits. Benefits paid and administrative costs have been have been outpacing taxes collected. The Congressional Budget Office says that there will be Social Security deficits during […]
[…] surpluses (from 2006-2008) to cash deficits. Benefits paid and administrative costs have been have been outpacing taxes collected. The Congressional Budget Office says that there will be Social Security deficits during the […]