I recently read a column that made the point that in 2018 or so the choices will be to cut benefits, raise taxes or borrow the money to pay the SS bonds; exactly the same options available if there had been no 1983 SS tax hike and the subsequent years of SS tax overpayment. Middle class screwed again.

TH,

your source is obviously ill-informed. The government has been borrowing money from SS for the last 25 years that it otherwise would have borrowed from the private sector. SS has less money to lend, beginning this year. So, next year the government will have to borrow more from the private sector (or raise taxes or cut spending).

The reduction in funds available from SS to lend is a problem beginning next month. Of course, it is a trivial issue, since no one has even mentioned it that I have seen. So, this is just scare tactic stuff to try to undermine support for SS. It is not serious policy analysis.

Challenge them publicly to debate the issue on their opinion page.

Now that everyone agrees the US gov. should make good on the "implicit" guarantee of the Fannie and Freddie bonds, will anyone suggest that the US gov. should make good on the "explicit" promise to repay the bonds it sold to Soc. Sec.? Of course not. The F&F bonds are held by rich people and SWF's or foreign CB's; the benefits of the Soc. Sec. held bonds would flow to the US middle class.

I am glad this appears on the same page as the tagline "Liberal Intelligence". At the time that the system's tax revenues are no longer adequate to meet benefit payments, Social Security will have to start calling in its loans (bonds). This, of course, is money that our government does not have, and so the obligations will have to be mitigated by benefit reductions, paid for out of general revenue or a Social Security tax increase, or all of the above. This effect will avalanche as additional Baby Boomers retire. All Federal Government revenue/outlay equations will be affected. The above view would be meaningful only if Social Security existed in a bubble, which of course it does not. You clearly know this, as in the response to the first comment, yet you seem to ignore it in your initial analysis. Leaving aside dishonesty on your part to advance an agenda, I can only conclude that you think it's not a 'sudden' problem since the pain will begin as soon as the SS fund can't loan as much money as it has in the past. Perhaps true, but this doesn't render snapshot future views invalid. This is still economic disaster. Liberal intelligence, indeed. By the way, your first sentence is grammatically mangled.

Couldn't agree with you more, Dean. But this sensible stance -- that the whole Social Security brouhaha is fed by scare tactics and shoddy thinking -- needs to be much more visible. That's the political point. It's not getting heard.

We need people writing clear, accessible, introductory op-eds about this issue in the major newspapers. This truth needs to reach a broader audience more regularly. It can't be largely confined to an audience of those who seek out commentary on other economists and economic issues. It can't remain on blogs and just in the right think tank and advocacy venues. It needs to be complemented by op-eds that reach people who haven't heard these arguments before.

It seems to me that the inevitable shift of borrowing from future SS recipients to the market will tend to have the secondary effect of raising interest rates. In effect the government currently borrows by force (the SS tax) at the rate set by the rest of the market. Some demand (the bonds that SS recipients would have bought if their money had not been taken in taxes) is also withdrawn, but on the whole this seems like a good deal for the government at the expense of SS taxpayers. Did Greenspan and Co. have this in mind when they set up the current Trust Fund structure?

I say inevitable shift because it is unlikely that future SS recipients (i.e. boomers) will allow the government to default on SS bonds, or that taxes will be raised. Remember, Reagan's Plan A was to cut benefits but there was such an outcry he had to give it up, which then resulted in Plan B, the present structure.

Ethan's point is excellent! Gordon Freeman is doubtless a great guy, but it seems that HE has a political agenda.

Given that your blog is so high profile, I've got to think that WaPo is just plain corrupt. They've had to have seen your comments. They have to know you are correct. The only sensible conclusion I can come to is that they are being paid by interested parties to produce this propaganda. How else can this material be characterized?

Quite frankly, I don't trust any american paper, I read the Financial Times. Not sure they are better, but I can't stand their competitors.

So if their is nothing to worry about, who does the government go to to collect on those $5 trillion dollars in bonds. Calling them bonds is acting like money was actually saved in someway. That money was spent, even though now we have many more workers vs retired persons than we will have in the future.

I don't know if I would go with the lets pretend there isn't a problem and let the next generation deal with it plan. At some point they will say to scrap the system, that the people who want to live off of it have blown all the money already, which they have. Unless you believe that a savings mechanism works that actually doesn't do any savings. Hey I should open my own retirement account, issue myself IOUs on that money and then spend it on myself right now. I can just cash those IOUs in when I need to, I know I am good for it.

Austin writes..."Hey I should open my own retirement account, issue myself IOUs on that money and then spend it on myself right now. I can just cash those IOUs in when I need to, I know I am good for it."

I am afraid that cashing those IOUs without the power to tax in order to raise the funds might be a bit of a problem.

So it isn't a problem because the government has the power to tax. So the next generation just has to grab their ankles and pay the higher tax rates to pay the benefits of those people that had their tax dollars go to programs to help them rather than to save the money. You don't think this will be problematic? If you overtax your workers they can decide to scrap the program, or in some instances they can just leave the country. It has happened in Europe. If you abuse those that are footing the bill too badly then they can always leave or change the system.

People who talk about the need to raise taxes, slash programs, or borrow money after SS shortfall in 2017 never ever seem to put a dollar figure on it. Well this is what it looks like per the Trustees, first column is current dollars the second is inflation adjusted 2008 constant dollars, figures in billions

Year:::::Current:::::Constant
2017:::$24:::::::::::$19
2020:::$107:::::::::$77
2025:::$275:::::::::$172
2030:::$471:::::::::$257
2035:::$656:::::::::$313
2040:::$808:::::::::$335
2045:::$0::::::::::::$0

Considering we just came up with $158 billion stimulus package that not only didn't cause the sky to fall, didn't even cause the market's eyes to blink these are not scary numbers at least not before about 2027. And of course if we adobt CBO numbers shortfall gets pushed back to 2019 and the dollar amounts needed to meet the gap between income and cost shrink down and extend out.

There is a reason the crisismongers never put dollar figures on their doomsday scenarios at shortfall and depletion. Once you do you see that all their rhetoric is just powered by bluster. The world will not come to an end if we have to find $172 billion in spending cuts/tax increases/borrowing in 2025. And the bias is for that figure to be even smaller.

So no Austin I don't think this will be problematic. Not if you use real numbers.

Dean,

Perhaps there is some reason for concern. The market for bonds, I suppose, is better when the debtor is not overloaded with debt. This concept, credit worthiness, plagues the housing market today.

The bonds held by, or for, the Social Security Administration may be presented for redemption beginning in 2018. If the situation then is as now, the Treasury would have to sell bonds to third parties to raise the necessary funds for redemption.

If the Federal government continues to run up deficits and increase the amount of bond indebtedness as it has during the past 8 years, the Treasury might find selling additional bonds difficult, or perhaps impossible because foreign investor may not be willing to buy bonds to support the redemption.

I suppose the Treasury could then print enough money to cover the redemption.

Hasn't that been the goal of the GOP all along? Beat Social Security by destroying the credit worthiness of the Federal government.

Saying that SS is the problem is like borrowing tons of money from your brother and then when he begins collecting in order to pay his obligations, you tell him he is going bankrupt. It's crazy talk.

When your younger relatives start nattering on about how boomer retirements will bankrupt the Social Security system, remind them that Social Security is a good part of what will keep us out of their back bedrooms. And it will keep them out of the back bedrooms of their younger relatives too.

Why doesn't anyone confront Alan Greenspan and ask if the SS trust fund is for real, or if it's just part of the overall budget slush fund, i.e., make him admit he pulled a fast one on the middle class back in 1983.

We have had a HUGE misinformation campaign about SS for some time now. There must be something that the people behind it expect to gain?

Does Wall St see $$$$ from commissions on SSTF investments?

Mr. Baker-

I have been a fan of your housing commentary, but your comments on SS are at best disingenuous and more likely a falsehood.

You state:

"Of course 2018 is completely irrelevant to the finances of the program. At that point the program is projected to have accumulated more than $5 trillion in government bonds. But the Post wants to scare readers to advance their Social Security agenda so they trot out 2018 as though it is a date that anyone needs to worry about."

2018 is the year when SS becomes cash flow negative.

http://www.ssa.gov/OACT/TRSUM/index.html

In case you are not familiar with basic accounting, we will have less cash flow coming in than going out. Which means the deficit increases, or taxes or benefits change.

There is no $5 trillion of government bonds backing SS. The government, in this case, would owe money on its bonds to itself. Ridiculous.

I have respected your views in the past but cannot believe you would lower yourself to such intellectual dishonesty.

I clearly did not make the point of the column I read. The columnist's point was that all the extra payroll taxes paid over the last 25 years were a rip-off for the middle class as those funds were spent leaving us with the 3 choices of tax, cut or borrow, the same 3 we would have had if we had only collected enough payroll taxes to pay current benefits. I have argued that because the SS bonds will be sold in some form to pay benefits, we should reduce the payroll tax to equal current benefits or invest the excess is something other than US bonds.

Just to clarify, under the law, the SS trust fund holds U.S. government bonds. These bonds are automatically paid off when they come due just like any other government bond.

People may not like the mechanism of SS financing, but that is the law and you will have to arrange to get Congress to change it insofar as you have a problem with it.

Unless the law is changed 2018 has absolutely zero significance for SS. As far as the likelihood of the law being changed, I don't know of any members of Congress who currently advocate default on the bonds held by the trust fund. If anyone does know of such people, I will certainly do what I can to help disseminate their views widely.

Nonsense. A law requiring the government to pay off a bond written to itself isn't worth the paper it is printed on. Bonds were only issued to SS so that it didn't look like government was raiding SS coffers to pay for other things when that is exactly what they were doing. Crediting SS with a bond and then spending the money isn't savings and doesn't mean that money is there to pay for SS. The money for the bonds still has to come from government. The fact that there is a surplus or deficit in the SS fund just indicates the money that has been spent on SS compared to what was collected since none was saved. There isn't a third party that has borrowed the money and will be paying it back. Even if they just print more money to pay for it then the devaluation of the currency is just hiding the cost of what they did.

Are there any comments about the day the trust fund runs out? I thought the CBO previously predicted 2046 and SSTB predicted 2041.

If CBO has pushed the date it runs out by 3 years, doesn't that take some sail out of the argument that the sky is falling tomorrow.

Here is their 2006 numbers which said 2046. So with 2 years passing, the new updated estimates have gained us 3 years for when it is calculated to be short money.

I think that should be a bigger story and a pretty effective counter to the Social Security Bogeyman.

To all the commentors here who seem concerned that because Social Security is a part of the government, this somehow changes the status of the bonds, can you tell us what exactly in your view would change if we had Warren Buffet running Social Security, collecting premiums exactly equal to the current taxes, and investing them in US Treasury bonds?

Austin, how else is Soc Security to save money if not by lending to the US Govt? Buying German bonds instead? So the German govt. can "raid the coffers" and spend the money which they issued bonds on?

Should the Soc. Sec. fund have bought gold and buried it?
Is that the only way to save money without having it "raided" by the borrower who issues the bond? Would lending it to the German government satisfy your requirement for a "third party"? Bonds are always spent or invested (raided) as soon as they are issued why else would the issuer pay interest on them??

'The government can't lend money to its self" is your argument. You seem to be saying that the US government cant be trusted to pay back bonds if its own citizens own the bonds, but it WILL pay to other entities who hold them..

Mr. Baker-

Please refer to Austin's excellent commentary.

There is no surplus, the politicians spend it every year.

That is a fact. Please provide some sort of credible backup for your argument.

Because there isn't one.

To the folks who don't like the law, that's too bad for you. I recommend you lobby some members of Congress to change it. But, like the laws against stealing and murder, it has legal force.

The bonds held by SS are as real as the dollar bills you have in your pocket. If you don't consider those real, please share them with someone who does.

It is true that there is no surplus in the general fund of the US government - it owes a total of over $9 trillion, a fraction of which is owed to the SS Trust Fund. It is the Trust Fund, not the government as a whole, that has a surplus. The Trust Fund is projected to reach a balance of zero around 2045, which will put it back where it was for the first 50 years of its existence (was in bankrupt then?). By 2045 the total government debt (general fund), projected at current deficit rates, should be over $30 trillion. Which of these, the Trust Fund with a balance of zero, or the General Fund, with a negative balance of several tens of trillions, would better be described as bankrupt? The debt of the General Fund has nothing directly to do with Social Security.

Maybe Gordon Freeman, Austin and Todd are stockbrokers, big stockholders or others who would directly profit from SS "reform". If not they should reflect that it is they who have paid into the Trust Fund, it is they to whom the money is owed, and it is they who would lose out if benefits are cut. If they are still working, it is they who would pay if SS tax rates are raised. And there is no reason to change Social Security - as Dean has pointed out repeatedly, the problems with the National Debt are elsewhere.

Rather than implying there is no problem at all, you could at least acknowledge that the lack of Social Security funds flowing into the general budget will present an additional shortfall. That shortfall in the general budget will have to be addressed with either reduced services, increases taxes, or increased borrowing.

Yes, the Social Security program *itself* is fine, but it is disingenuous to suggest that the 2018 date presents no new strain upon government finances.

I think it is a good thing that the Social Security trust fund will begin to decline in 2018 (or so, it's only a projection). After all, do we really want to fund the government with a flat tax that is capped about $100,000? It would be great if we could go back to funding the federal government with a progressive income tax, instead of taking a disproportionate share of the average American's income under the guise of Social Security and then using it to operate the government. At some point it will be necessary to balance benefits and SS taxes, but running down the SS trust fund isn't a disaster. Failing to run it down would be a tax fraud on the American people.

"That shortfall in the general budget will have to be addressed with either reduced services, increases taxes, or increased borrowing."

Insofar as the importance of the Debt is not reduced by inflation or overall economic growth (which Dean and others have discussed at some length), this is a matter which was fairly precisely foreseeable for some time - the demographics of the baby boom are now a closed book.

If you voted for politicians, such as George Bush, who ignored the predictable consequences of SS tax revenue changes (not to mention other factors), then it is you who are responsible for any problems arising from the National Debt.

And again, the shortfall in the budget has nothing directly to do with SS. Those who were too dumb to see that the extra SS tax revenues from the boomers would come to an end have only themselves to blame.

"2049, when John McCain will be 113 years old."

Correction: 2011, when John McCain will be 113 years old."

Dean (or Bruce Webb(,

So, does anybody know if this year the size of the SS surplus actually is declining as forecast or not?

I am surprised that Bruce W. did not point out to all the people just buying into 2018 as the date of the fund going into deficit that under the low cost projection, which reality has done better than in a majority of years in the past decade, the fund never goes into deficit, not in 2018, not in 2032, not in 2048, just continues to lend money to the rest of the government forever, although by a declining amount for a few decades that then turns around and rises again, accumulating those bonds that ninnies like Todd and Austin and Gordon Freeman somehow think are worthless. Does it bother you guys at all that the entire rest of the government runs a deficit, but people get hysterical because the one part running a surplus might stop doing so?

And indeed Dean is right. From a certain perspective, this, or maybe next, year is when there is a real change. For the past quarter century, the Social Security System has lent ever-increasing amounts of money to the rest of the government. That is now about to change, and while the amount of that lending is pretty high, in the neighborhood of $200 billion per year, it will soon begin to decline, although if the low cost projection is correct, it will remain above zero forever. Nevertheless, this decline in lending from the SS surplus will in some sense put pressure on the rest of the budget, which will not be able to count on this ever-rising lending by the SS system and its rising revenues from fica outracing the rising outlays of the system. Former Sen. George Allen(R-VA) actually had the nerve to call this the "moment of crisis" for the system. This was hilarious, but Dean is right that in principle this is when there is a real change, with 2018 not amounting to a hill of beans even if the system does start to run a deficit.

bailey and others,

Many of us for a long time have sent letters and columns to WaPo trying to counter their deeply entrenched views. They will publish nothing, although I think Dean might have gotten a letter in once. They are set in concrete on this, despite all the questions that have been raised. It is a "bipartisan consensus" according to them, especially handy given all the Wall Street interests that support it.

Mr. Baker-

I have a credit card - it has a credit limit and funding balance equal to the US deficit.

Mastercard has just offered me a new card, which will allow me to transfer my SS balance.

Do I owe more, less or the same?

I will not comment again unless I hear a reasoned response from you. I am not claiming I am right - obviously I think I am - but you have not put up a single piece of credible info to refute my comments.

Barkley, Dean doesn't seem to put a lot of stock in Low Cost so I tend not to bring it up here. He explained why to me once, but it kind of sailed over my head. It may have had something to do with his prescience on the housing bubble and the effect its bursting will have on the overall economy and so Social Security. In all honesty the case for Low Cost was a lot more solid prior to Q4 2005 when the air kind of went out of the productivity baloon.

As to the balances they are not difficult to find, the Treasury Reports month end balances of both OAS and DI to the penny with the reports typically lagging by a month. I put up a post at AB using the June Report Monthly Trust Fund Reports to get the mid-year picture. Short version OAS at midyear showed a balance increase of 59.7% of the annual projection under IC while DI showed a whopping 263%. Of course these are pure cash numbers and not seasonally adjusted, I have no idea whether teen earnings in the summer or holiday earnings make the tax collections in the second half of the year stronger than the first half. So it is hard to judge the OAS component.

This continues a recent pattern, the OAS component seems to be just limping past projections over the last few years while DI has been storming past. You would hope this was a hopeful sign, on the other hand there are some worrisome reports in the news that DI claims are way behind.

But taken individually or together the bias seems to be still to the upside of IC if not as close to LC as we saw from 1997 to 2004.

BTW I thought about e-mailing you with this question. How does a 1.06% payroll gap (new CBO projection) translate to unfunded liability over the 75 year window? I know what the improvement from 1.95% in the 2007 Report to 1.7% in the 2008 did: 12% reduction ($4.7 tn to $4.3 tn). But I don't want to assert that the relation is linear but if it is it suggests a one year reduction from $4.7 tn (Trustees 2007) to $3.3 tn (CBO 2008). It would be nice to have some hard numbers to throw at the IOUSA folk, but I think I may be in the ballbark here.

Todd I suspect that Dean has more important things to do than try to educate you on the details of Social Security financing as it relates to Full Faith and Credit of the United States. Me on the other hand have all the time in the world, time which I used to put up a series of 46 main page posts on Social Security at econoblog Angry Bear, an index to which is found in the left sidebar under The Bruce Web. You could do worse than read some of them. Or you could join in the discussion of the post put up just this morning there by PGL Social Security: Having 5 billion in the bank is being broke?.

But frankly you are just embarrassing yourself by calling Dean a liar here, he quite literally wrote the book on this topic back in 1999 (with colleague Mark Weisbrot). Social Security: the Phony Crisis. In short you are punching way above your weight and may instead want to start somewhere a little less prominant, say the comment threads at Angry Bear.

It should concern Obama fans that Biden, his vice presidential candidate, also is known to crisis monger the 2018 date. Here is Biden on Meet the Press in 2005 (gracias to dailyhowler):

BIDEN (2/27/05): Look, in terms of a crisis, let's get something straight here. We're talking about 2018 being the year, which—that's based on projections that are very modest in terms of our growth. If, in fact,those projections are wrong, that number goes out further, number one. So that's the point at which less money is going in than is going out. Right now, we have this massive hemorrhage of more money in than out. We're spending it all.

Bruce,

Regarding your question, it is not too far off from linear, but I am not going to drag through the precise calculation. If you bias a bit on the conservative side from that you should be pretty reasonable.

Regarding you and Dean, well, clearly in the near term we are in a sort of growth recession, if not the outright recession that Dean has predicted for some time that we have somehow not quite actually gotten into, although we sure as hell could at any moment, and could have low growth, even negative growth for several years, with, indeed, the blowing off of the housing bubble (which I also forecast) being the main problem/culprit. Of course those super growth years of the late 90s when every year beat low cost were puffed up by the dotcom bubble, which some of us also forecast would blow and did.

I do not want to put Dean on the spot, who is generally excellent on all this, but I suspect that he wishes not to go out too far on a limb with crazies like you and me because he runs a policy-oriented think tank in Washington, and he needs to be able to talk to the garden variety policy wonks there without them rolling their eyes or having to go through the sorts of elaborate explanations that you and I do from time to time in various places everty time he turns around. So, quite aside from his near term pessimism about productivity growth (not fulfilled so far), he prefers to tie himself to publicly available projections, and does so with those coming out of the CBO, which is run by the Dems in Congress. Those projections are more optimistic than the IC ones from the SSA, but less so than the LC ones, and do see these various dates that so many whoop and holler about appearing. Of course, "Rosser's Law" still holds for the ultimate of those, :-).

Todd,

Uhhhh, I have no idea what your stupid credit card example has to do with any of this. If the transfer involves shutting down your old card, your balance has not changed. So what, please?

An aspect of this that may make the situation clearer is to realize that all this talk about "the government owing itself" (or, alternatively, "we owe it to ourselves") misses a crucial point. Legally and institutionally and practically what matters is that there is no such thing as the "US government." There are independent entities within it that have their own separate and legal existence: offices of the White House, executive agencies, committees of Congres, courts, and so on and so on. Ones of these can owe each other money, and do, and can sue each other, and do sometimes.

So, the US national debt is owed by the US Treasury, the entity that issues those federal government securities to cover the excess of its spending over its income (and some other) tax revenues, but not fica tax revenues. The Social Security Administration is a separate entity, and when it buys those securities by giving money to the Treasury so that the Treasury can cover its current bills in excess of its tax receitps (fica revenues going to the SSA), it owns them with the Treasury owing it just as much legally and really as if it were Warren Buffett or you or the Peoples' Bank of China who had provided the money to the Treasury for those securities with which the Treasury paid its bills.

Sorry, to have insulted you earlier, but Bruce Webb is in fact correct. If you can explain why your credit card example explains anything, or say anything sensible other than to declare that what Dean has said is not "credible," (it looks exactly correct to me on these matters), feel free to try to do so. Otherwise, yes, you are probably wise to keep your mouth shut.

Real Obama fans know that his newest proposal is to impose an increase in the payroll gap starting in 2018. Biden is not crisismongering here, he is instead pushing his new boss's stated agenda. (Ah the intertubes: WSJ via a Netherlands blog) Obama Signals 10-Year Delay In Social Security Tax Increase

I don't agree with Obama's current Social Security policy proposal, but I know what it is and nothing Biden said contradicts it and in fact seems to have anticipated it by three years.

Until two weeks ago the Obama camp was talking about starting this cap increase right away. From here it looks like maybe they listened to some sense from Joe.

(Plus if you actually read what he is saying he is suggesting that under less modest projections "that number (2018) goes out further")

This is the opposite of crisismongering.

Sammy wrote, Yes, the Social Security program *itself* is fine, but it is disingenuous to suggest that the 2018 date presents no new strain upon government finances.

That misses the point, which is that 2018 presents no new stress for Social Security's finances.

That the rest of the government is run by floating massive amounts of debt, largely underwritten by other nations, has been obvious for some time now, and 2018 doesn't change the calculus.

Sirs, I find the comments on the site interesting and educational. Respectfully, I do not normally comment on blogs, which is a sign of how much I disagree with Mr. Baker on this topic.

I did check the Angry Bear commentary to see that it was Mr. Baker arguing that SS is in better shape than the stats suggest. I find using Mr. Baker's own arguments as a source against my comments as quite weak. I have only used government info. But maybe I am punching above my weight.

Mr. Baker still doesn't address on the blog my central issue with his original comment that SS is owed money by the US Govt. They are the same entity. That was what I was trying to get at with my credit card comment.

I will leave you with one last thought. From the CBO:

"Today, Social Security’s revenues each year are greater than its outlays, but as the baby-boom generation (people born between 1946 and 1964) continues to age, growth in the number of Social Security beneficiaries will accelerate, and outlays will grow substantially faster than revenues. CBO projects that outlays will first exceed revenues in 2019 and that the Social Security trust funds will be exhausted in 2049.2 If the law remains unchanged, the Social Security Administration (SSA) will then no longer have the legal authority to pay full benefits."

http://www.cbo.gov/ftpdocs/96xx/doc9649/MainText.3.1.shtml#1045449

Todd,

Under the law, SS is not the same entity as the general budget. Again, it's fine if you don't like that fact, but it is the law. It's just the same as my money being different from Bill Gates' money. I'm not happy about that fact, but that is the law.

btw, if you see SS and the government as being indistinguishable, then it makes no more sense to talk about a problem with SS than a problem with the defense department's budget. It is only because it is a distinct program with its own funding stream that it even makes sense to talk about a projected shortfall.

Thanks to donsig for making the point I was unsuccessful at; I prefer no surplus in payroll taxes as this tax is regressive. Truth in budgeting would be preferable.

My other gripe is that in 1983, we boomers were sold a bill of goods that if we would pay extra while we were working, we would not burden our children when we retired. We paid extra and we will still add to their debt burden.

Dean,

I will agree with your comment that I view the SS and general budgets as indistinguishable. The government's own budget explicitly includes SS in its budget calcs, and the government has been spending the surpluses as part of the general budget.

Your Gates comment, however does not make sense. You and Gates are two separate entities. SS and the general budget are both ultimately rolled up to the US government, regardless of what the law says. The bonds issued to the Trust are owed by the US government. So, the US government effectively owes itself.

Whether you want to explicitly break out SS or include it in the general budget, the fact remains that SS taxes will ultimately not be sufficient to pay full benefits and there is no pot of money that the government has set aside to pay for it. So, the government will either have to raise taxes (SS or otherwise), cut other spending, or cut benefits.

"The government's own budget explicitly includes SS in its budget calcs, and the government has been spending the surpluses as part of the general budget."

Actually, this is one thing on which politicians have been scamming the public (and this is a bipartisan activity). That is, they report deficits in terms of the "unified" budget, which treats SS taxes as income, making the deficits appear smaller than they really are. This is not really legal, but what are you gonna do when all the politicians and media allow it? When the government spends money collected as SS taxes, it puts an IOU (bond) in the Trust Fund account - it is not treated the same as general income.

And the National Debt figure of $9 trillion plus *does* count the debt to the Trust Fund - that is, if and when this debt is paid off, the obligation to the SS Trust Fund will be retired. If you want to get the true deficit figures you can just subtract the gross national debt figures, from either CBO or WH budgets, from year to year.

And again, ultimately the debt in the Trust Fund is owed to you, Todd, and others who are by law entitled to future SS benefits.

Todd,

Do not know if you read my remarks or not, but I made the same point. Look, different agencies of the US government actually sue one another from time to time, for example the Environmental Protection Agency has been known to sue the Department of Defense because the latter has violated pollution laws. According to your logic they should not be doing that because they are one and the same entity. They are not.

Same goes for the US Treasury and the Social Security Administration, even if the publicly reported budgets include the borrowings by the Treasury from the SSA as a surplus that reduces the budget deficit.

"in 1983, we boomers were sold a bill of goods ..."

In 1983 we had been spending most of the last 38 years paying down our WW2 debt. It was reasonable to think we would continue paying down our debt. If we change our attitudes we can go back to paying down our debts (including SS).

Yes, I did Barkley. This comment in particular caught my attention:

"Uhhhh, I have no idea what your stupid credit card example has to do with any of this. If the transfer involves shutting down your old card, your balance has not changed."

Perhaps I didn't explain myself well. The whole point was that the balance hasn't changed. Which is exactly the same issue with the US Gov paying back SS on the bonds issued to it.

I look forward to seeing the US Gov suing itself to pay SS benefits.

Not going to happen. Ever. Politicians are known to change laws.

Todd,

you're welcome to see the world anyway you like, but under the law, SS and the general budget are two separate entities. No disrespect, but I care much more about what the law says that your own view of the world.

Again, if there were hundreds of members of Congress about to change the law, I would be concerned, but I don't know of any. And, I doubt that members of Congress will be more anxious to default on the bonds held by SS as the percentage of beneficiaries among the voting age population increases.

Dean,

You have been very accommodating on your site for my views and I appreciate it.

I have presented a lot of evidence backing up my point of view on the issues. My accounting IMHO is correct, and I wish that you would at least acknowledge the situation, which I don't believe to be controversial. I have only heard about the "law", which, I think you will agree, can be changed at any time. I think that you would also agree that there is no trust fund with any actual cash to back up the SS requirements.

Finally, I know that I made some strong comments in the beginning including the words "more likely a falsehood". I think that they were respectful while strongly disagreeing. I stand by those comments. Some of the other comments were not nearly as respectful of my point of view.

I'm off of the soapbox for this thread.

Thanks again Dean for the opportunity to debate.

Todd,

As a practical matter I would not expect one branch of the US government to sue another branch of the US government to make legally mandated social security payments that for some weird reason would not be being made. If we were in such a situation (and we are very, very, very far from such a situation; many other political-economic-financial disasters are much more likely, including many nobody is remotely talking about), then we would be having much, much bigger problems in the economy and the financial markets than anything we are seeing now, or have ever seen, with the possible exception of 1931.

Indeed, of course, well before we would get into such a situation, the Congress would certainly do something, either raise fica taxes or cut the growth (or actual receipt) of benefits, with or without some privatization scheme. These are the only options there are, ultimately, although there is no point whatsoever in doing any of them in the near future, and possibly never. And, if the US Treasury were somehow going to default on its securities, I would lay odds it would do so on those held by foreigners long before it would do so on those held by the SSA, with its political support from gobs of retirees. Who has more political clout: US social security recipients or the Chinese central bank?

Barkley,

In answer to your question about the surplus in 09 compared with 08, it is almost certain to be lower, but primarily for cyclical reasons. Higher inflation should push benefits up by about 2 percent above projected levels, while lower than expected employment growth will lower revenue by around 1 percent, so this will lead to reduction in the surplus on the order of 3 percent of payroll. Assuming that we begin an upturn in 09 or 10, the cyclical factors will turn positive, but they will be going against negative demographics, so subsequent years are likely to look worse tha 2008.

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