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For the past two years, SS has not taken in enough revenue through payroll taxes to cover benefit payouts. Please pause here for a second. For 73 years, SS ran a surplus. It took in more money than it paid out. Think about that. 73 years is a long time. For the past 2 years, it has run a deficeit (due to the recession, temporary demographic shift and Obama's misguided payroll tax cut.)
Anyhow, at the moment, and for awhile, SS is going to need to redeem some of the $2.5 trillion in US treasury bonds it holds to cover benefit payouts.
As quick has correctly pointed out, the US government needs to borrow when these bonds are redeemed. The US government is on the hook for $2.5 trillion worth spread over the course of 26 years. The Bush tax cuts take about $1 trillion a decade out of our revenue intake, to give you some idea to compare. (Please realize I'm not making a partisan statement here .. I'm just pointing out how the US budget works.)
Basically, what's going on here is that some politicians are trying to convince you to forfeit your money to pay for the debt. Are you willing to do that? When words like "ponzi scheme", "slush fund" "IOU" and "raid" are being used they are not accurate and the people using them know that.
They are simply trying to balance the budget by stealing whatever payroll contributions you've made to SS. Are you willing to let them do that? I'm not.
Just for clarity the tax cuts under Bush resulted in an increase in revenues, 2006, 2007 and 2008 were the 3 biggest years in history for federal income tax revenue
The main difference between a Ponzi scheme and SS, is SS is mandatory. other then that they are basically the same.
it is a trust fund as written i the law that createdit. certainly it is a specail one in that it cre4ats trustee;that is the only one who it can be invested in;a trusteee who detewrmines the interest rate often below noraml interest rates. But like nayhting their is still moeny invested its a fund. But its becomeing more a ponzi skeem as one is paid put of thecontributions of another as the fund does not meet ralirty of investing. if that were true then i the 90s; the fund would have grown quickly on increased interest while less so since.it appears more and more that it was created as a can lose skeem for more mney for government to borrow and spend.But this is the new trust fund called SS that voters bought and their representative put into law and we have to live with what the trustees reproted i that a set return is not gaurnateed at all. I wander if people see governamnt i thsi insatnce as the same as tose who promoted bad mortage loans?Its really the same except it more accdepted in politcians it seems.If this were wall street or private compoan y the madden crowd would be ready to ahng them.
I usually agree with you and your posts are worth reading but, as others have said, if you don't spell check your work most will not bother to read them. It is too hard to figure out what you are trying to say.
Thank you for taking the time to comment, dave. I can see from your reply that you're another one who understands what's going on here. Even though you and I probably disagree on solutions, we both at least know the score.
You're right, and Bush was right, if the money in the SS trust fund was invested in the market it would have had a great return in the 90s -- much better than its low (but again, very, very safe) current return.
If politicians were arguing that the SS trust fund should be invested in the market or something, I wouldn't be as worried as I am now. Right now, some of them are trying to convince Americans that it doesn't exist. Judging by the results of this poll, I can see it's working on some. It saddens me to see so many of my fellow Americans being suckers.
I feel like we're being softened up for the kill. Don't treat me like a fool and tell me that a $2.5 trillion dollar trust fund that I have a stake in is not there or was stolen years ago. Not true. Peddle that s*** to someone else. I'm not a sucker.
Tell me that the fund can be managed better? Pitch some sort of investment scheme that will get a better rate of return? I might be interested. I think the US government is no shape to borrown $2.5 trillion from foreign investors right now though -- which is what it would have to do if we wanted to invest the trust fund in the stock market.
I read recently, that a person retiring today at 62 would have gotten a rate of return of around 25% if their money was in the market. that even includes the downturn of the past few years.
Plus it is theirs and can be passed on to their heirs.
If there was a 2.5 trillion dollar fund that pays SS checks then why did the Dems say the government might not be able to pay SS benefits to the elderly if we did not raise the debt ceiling?
There is a real reason, which will become self-evident in just a minute.
Quote:
Originally Posted by WestCobb
For the past two years, SS has not taken in enough revenue through payroll taxes to cover benefit payouts. Please pause here for a second. For 73 years, SS ran a surplus. It took in more money than it paid out. Think about that. 73 years is a long time. For the past 2 years, it has run a deficeit (due to the recession, temporary demographic shift and Obama's misguided payroll tax cut.)
Anyhow, at the moment, and for awhile, SS is going to need to redeem some of the $2.5 trillion in US treasury bonds it holds to cover benefit payouts.
As quick has correctly pointed out, the US government needs to borrow when these bonds are redeemed. The US government is on the hook for $2.5 trillion worth spread over the course of 26 years. The Bush tax cuts take about $1 trillion a decade out of our revenue intake, to give you some idea to compare. (Please realize I'm not making a partisan statement here .. I'm just pointing out how the US budget works.)
Basically, what's going on here is that some politicians are trying to convince you to forfeit your money to pay for the debt. Are you willing to do that? When words like "ponzi scheme", "slush fund" "IOU" and "raid" are being used they are not accurate and the people using them know that.
They are simply trying to balance the budget by stealing whatever payroll contributions you've made to SS. Are you willing to let them do that? I'm not.
You are now tied for 1st Place for City-Data's Least Competent Economist Award with EinsteinsGhost and Newonecoming.
Quote:
Originally Posted by wjtwet
So you can not or refuse to answer a core question. Seems you do not want or care about the truth
I'll be happy to answer the question for you, using the US Treasury Department's own words.
Yes, there really is approximately $2.5 TRILLION in special bonds for the Social Security Trust Fund. This is what the US Treasury Department has to say on the matter:
Quote:
The cash receipts collected from the public for the OASI and DI Trust Funds are invested in interest bearing securities backed by the full faith and credit of the Federal Government’s generally U.S. par-value Treasury special securities. Treasury special securities are issued directly by the Treasury Secretary to the OASI and DI Trust Funds and are non-negotiable and non-transferable in the secondary' market. Par-value Treasury special securities are issued with a stated rate of interest applied to its par amount and are purchased and redeemed at par plus accrued interest at or before maturity. Therefore, there are no premiums or discounts associated with the redemption of these securities.
SSA's investments in Special-Issue U.S. Treasury Securities are $2,367,135 and $2,182,091 million as of September 30, 2008 and 2007. respectively. The interest rates on these investments range from 3.5% to 7.25% and the accrued interest is paid on June 30. December 31, and at maturity or redemption. Investments held for the OASI and DI Trust Funds mature at various dates ranging from the present to the year 2023. Accrued interest receivable on the OASI and DI Trust Fund Investments with the U.S. Treasury is an Intra-governmental Interest Receivable. Net, reported on the Consolidated Balance Sheets. Interest receivable amounts are $29,112 and $27,727 million as of September 30, 2008 and 2007.
Treasury special securities are an asset to the OASI and DI Trust Funds and a liability to the U.S. Treasury. Because the OASI and DI Trust Funds and the U.S. Treasury are both pan of the Government, these assets and liabilities offset each other for consolidation purposes in the U.S. Government-wide financial statements. For this reason, they do not represent a net asset or a net liability in the U.S. Government-wide financial statements.
The U.S. Treasury does not set aside financial assets to cover its liabilities associated with the OASI and DI Trust Funds. The cash received from the OASI and DI Trust Funds for investing in these securities is used by the U.S. Treasury for general Government purposes. Treasury special securities provide the OASI and DI Trust Funds with authority to draw upon the U.S. Treasury to make future benefit payments or other expenditures. When the OASI and DI Trust Funds require redemption of these securities to make expenditures. the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures This is the same way that the Government finances all other expenditures.
The Social Security Trust Fund does not exist as cash. It is not a special bank account that the government can dip into and pull money from to throw at things. The Social Security Trust Fund is a special security issued by the government.
Therein lies the problem. It's not cash, it's a security, specifically a special interest bearing bond, and in order to be of any value.....
....it has to be converted from a security to cash.
How will the government convert those special securities into cash?
The US Treasury Department told you that in this statement right here (and this is the whole key to understanding the issues related to the Social Security Trust Fund):
Quote:
When the OASI and DI Trust Funds require redemption of these securities to make expenditures. the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures This is the same way that the Government finances all other expenditures.
We can break that down into its component parts:
1] accumulated cash balances
2] raising taxes or other receipts
3] borrowing from the public
4] repaying less debt
5] curtailing other expenditures
Those are the 5 options the government has to convert the Social Security Trust Fund from special securities to cash, in order to give to beneficiaries.
I'll provide examples for each in layman's terms.
1] accumulated cash balances: In plain English that means "budget surplus." The government has a budget surplus of $400 Billion, so it simply shuffles some numbers on a balance sheet. The amount of special securities in the Social Security Trust Fund is reduced by $400 Billion and the $400 Billion in cash is then paid out to beneficiaries.
Will the US government ever have a budget surplus in your life-time? No, not ever. The economic conditions are such that the US government will run a budget deficit each and every year for the next 20-30 years. If things go as planned according to the wishes of either Obama or Congress, you will run a budget deficit of $1 TRILLION for at least the next 10 years. It may be possible at some future point that the government can run a balanced budget (with much trauma to the economy) but you will never see a budget surplus again.
This option is not available to the US government.
2] raising taxes or other receipts: The plain English is obvious here. One way to convert the special securities into cash is to raise the personal income tax, raise the Social Security tax, raise the Social Security tax cap, or any combination of those things.
"Other receipts" means raising the Capital Gains tax, raising the Estate tax, raising duties, taxes and tariffs on imports or exports, raising the fine schedule for criminal or civil penalties, or raising the cost of other fees and permits. For example, it currently costs $250 to file a complaint or action in a federal court. The government could raise that to $500, then reduce the amount of money in the budget of the Justice Department and use that to convert the special securities to cash.
Raising taxes is an option available to the government at any time, however it is not advisable now. The last three times the government raised taxes during a period of economic instability resulted in the Great Depression, the Carter Recession, and the Bush (the Elder) Recession. If the Republicans seem gun-shy about raising taxes, well, the reason should be obvious, since Republican tax increases where overwhelmingly responsible for the Great Depression and the Bush Recession.
I think what's important here is the level of taxation necessary. Raising taxes is necessary if the goal is to keep Social Security solvent on a day-to-day operating basis. However, the level of taxation necessary to pay out benefits through 2050 is an impossible level of taxation. There's no way any taxpayers at any income level could bear that burden.
3] borrowing from the public: That would mean issuing bonds, notes or bills and auctioning them off to the public-at-large. That would have no bearing on your National Debt. Issuing $2.5 TRILLION in bonds would result in a decrease of the non-public part of the National Debt by $2.5 TRILLION, and it would simultaneously increase the public part of the National Debt by $2.5 TRILLION. The National Debt would remain unchanged.
While this is an option, it is not a very viable option. Your debt-ceiling issues are not over yet. The $1.5 TRILLION budget deficit from the 2011 Budget has to be sold as public securities. Those entities that normally purchase securities are not necessarily in a position to do so now, and some have already signaled that they will not. If you are unable to sell all $1.5 TRILLION, then there will be serious ramifications for your economy. In March/April 2012, $1.7 TRILLION from the 2010 Budget will come due and you will have to re-sell those. Watch around the first week of October when Treasury starts auctioning off the 2011 Budget. If they aren't selling like hot-cakes, you have some serious problems heading your way.
As your National Debt increases over the next 20 years and starts exceeding your GDP by leaps and bounds, your credit rating will be reduced. Each time it is reduced, you are effectively slitting your own throat. Many entities such as US banks, foreign banks, domestic and foreign corporations, domestic and foreign trusts, domestic and foreign philanthropic organizations and such are precluded by laws, rules and regulations from purchasing any securities that are not rated at a certain level.
4] repaying less debt: That means defaulting on interest or debt obligations. It's unlikely the government would do that intentionally. If the government refused to pay $29 Billion in interest one month in order to pay $29 Billion in Social Security benefits, that would have disastrous consequences on the ability to sell future public securities.
5] curtailing other expenditures: That would be a post-budget budget cut. I was working at the Potter Stewart Federal Court House in 2001 as a contractor. A full-time position came open, but I couldn't be hired because all federal budgets except the DOD had been ordered frozen because of the war in Afghanistan. In the 3rd Quarter, the budgets for all federal departments, agencies and offices were cut in order to shift money to the DOD to pay for the war in Afghanistan, and my contractor position was eliminated. So it goes.
From this point forward, that's how the Social Security day-to-day operations will be funded.
The 2011 Budget is currently frozen for many government offices and agencies. A few weeks ago when I was at the VA hospital, I was told there was a hiring freeze that had been in effect since July 1. I suspect the budget for the Department of Veteran's Affairs, has been frozen as well, as have other departments and offices. They will have to divert money to pay for the wars in Libya and Afghanistan, and to cover short-falls in Social Security benefits.
If and when they get around to approving the 2012 Budget, it will immediately be frozen, and then offices and agencies will have their budgets cut in order to pay for the short-falls in Social Security that Obama has exasperated with his short-sighted Social Security tax reduction.
When I was at the Potter Stewart Court House, the court rooms, law library, offices for the judges and their staffs, and the exterior were being renovated. The budget freeze did not affect that, except to the extent that no new contracts were awarded. However, the budget cuts did have an effect, as all work stopped, except that which had already been paid.
Idle workers don't contribute to the economy.
This whole thing is like the Aesop's Fable about the fox and the grapes. There's a beautiful tasty cluster of grapes hanging from a vine, but no matter what the fox does, he just can't reach the grapes to get them.
Your Social Security Trust Fund is the same. It's there and you can see it, but you can't touch it without suffering a lot of economic pain and grief.
Mircea, thank you for your post. It sheds some necessary light on the issues and is clearly not just another "ponzi scheme" tirade that only succeeds in displaying the ignorance of the person who is spouting off.
You agree that the government is legally obligated to pay $2.5 trillion to Social Security as it redeems its treasury bonds. You just think that it won't be able to do so without difficulty. Ok, so are you suggesting that we, the Americans who have paid into SS, forgive the debt? I ask this because when I hear politicians say that there is no "trust fund" or that the trust fund was raided years ago, I feel like I'm being set up for a con. We know that's not true. Why are some politicians trying so hard to convince people that the government is not legally obligated to pay $2.5 trillion to SS beneficiaries? It must be because if they can convince them of that, then they can just write that $2.5 trillion off.
I think some people who advocate the abolishment of SS think that the government is going to cut them a check for the money they have paid in. How is the government going to do that? It would have to convert the special issue treasury bonds to regular treasury bonds by borrowing, right? It's obviously not a good idea for the government to take on $2.5 trillion more in debt all at once. Wouldn't it be better to just let SS hold the debt and slowly pay it off to SS over time? Or is the idea here to just make that pesky debt go away by telling the American people that they will no longer have to pay SS taxes if they are willing to walk away from their accumulated assets?
What is the angle? As near as I can tell, the angle is to convince us our house is worthless so it can be bought for a third of its real worth.
So you cant asnwer me either . When you are asked a question you do not wish to asnwer it does not mean the person asking is angry
Should the Debt ceiling have not been raised, Obama could have chosen SS as one of the programs cut. I do not in any way believe President Obama would have done this as it would be tantamount to political suicide.
Do I believe President Obama engaged in dishonesty and fear-mongering?
Yes I do.
Do I believe George Bush engaged in dishonesty and fear-mongering to justify hijacking our 4th and 10th amendment rights via The Patriot Act?
Yes I do.
My point is both parties work to expand government power and authority to the detriment of our society and people.
There IS no trust fund. I hold a trust fund to mean that there is currently 2.5 Trillion dollars sitting in a fund ready and waiting to be used for SS. That IS NOT true. The money everyone has spent over 30,40,50 years towards SS is gone. Let me put it another way, so that our liberal friends here will understand. IF there were a SS trust fund, I take that to mean that IF every single and I mean 100% of all workers stopped working, if absolutely 0 payroll taxes were collected, the government would be able to use that 2.5 Trillion "Trust Fund" to continue paying SS. That is not true.
The money retirees receive from SS is not the money the paid years ago, it is the taxes collected from the workers working right now. That is why there IS NO trust fund. IOUs do not count as a trust fund, they must be paid with current taxes. You are not getting YOUR money back, you are taking taxes that someone else is paying right now and they must receive taxes that someone else will pay later. If no more payroll tax is paid, SS will fall apart, thus NO TRUST FUND! How hard is that to understand?
There IS no trust fund. I hold a trust fund to mean that there is currently 2.5 Trillion dollars sitting in a fund ready and waiting to be used for SS. That IS NOT true. The money everyone has spent over 30,40,50 years towards SS is gone. Let me put it another way, so that our liberal friends here will understand. IF there were a SS trust fund, I take that to mean that IF every single and I mean 100% of all workers stopped working, if absolutely 0 payroll taxes were collected, the government would be able to use that 2.5 Trillion "Trust Fund" to continue paying SS. That is not true.
The money retirees receive from SS is not the money the paid years ago, it is the taxes collected from the workers working right now. That is why there IS NO trust fund. IOUs do not count as a trust fund, they must be paid with current taxes. You are not getting YOUR money back, you are taking taxes that someone else is paying right now and they must receive taxes that someone else will pay later. If no more payroll tax is paid, SS will fall apart, thus NO TRUST FUND! How hard is that to understand?
You are absouletly correct. That is why SS is a ponzi scheme.
A ponzi scehme
A Ponzi scheme is a fraudulentinvestment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme .
SS is nothing but a contract that states if you pay for current SS needs then one day you can get payed.
Some hide their heads in the sand denying that current taxes our being used to pay current benefits and current taxes go into a magic fund that guarantees it will be used for your own benefits.
When you use current taxes to pay SS benefits for today you have by definition a Ponzi scheme.
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