SS tax receipts (box 4 on the W2) are used immediately by SS to pay current benefits. A surplus exists if SS collects more in current taxes than it pays out in current benefits.
SS is "off budget". The budget deficit does NOT include SS in any way. ( except perhaps the interest paid to the SSTF on their holdings of US Treasury securities ... I have to check that out ).
But ...... It impacts something much more important.
If the budget deficit is 500 billion dollars and SS has a 100 billion surplus, that does NOT reduce the deficit to 400 billion dollars. What it DOES do is reduce the amount of the 500 billion deficit that the government has to borrow IN THE MARKET.
The budget deficit may be 500 billion, but they only have to raise 400billion in the market. The rest comes from selling 100 billion to the SSTF. This is how it was designed. Really. You can go to the SS website and search for the official historian. They have one. There you can see for yourself that it has been like this sinse the 30's
Nobody "raided" anything. The program is working as designed by FDR
FYI. For a period starting in the LBJ administration and ending in the Reagan administration SS WAS "on budget" and SS surpluses WERE put "on the budget" and any SS surplus did reduce the reported budget deficit. They called it the "unified budget". (There is a school of thought that thinks LBJ did this to hide the true cost of the Vietnam war.) But that stopped in the 1980's and SS was again put "off budget".
What about when SS itself has a deficit? IE SS takes in less in taxes than it pays out in benefits. I think this is the first year that will happen. Then, the process works in reverse.
Suppose the government budget deficit is 300 billion dollars. But suppose further that SS has to pay out 80 billion in benefits in excess of what they collected in taxes. Where do they get the money? They redeem 80 billion of their treasuries. Ok. Where does the treasury get the money from if the government already has a deficit. They borrow it in the market. So, the budget deficit is 300 billion but they have to go to the market to raise 380 billion dollars in the market..... 300 to finance that year's budget deficit and 80 to pay off SS
So, SS doesn't impact the budget deficit, but does impact how much the government has to raise in the market.
To turn the 2.6 trillion in assets in the SSTF into the cash needed to make future payments, those assets have to be redeemed. Which means that, since the government seems likely to continue running budget deficits, to get that cash the government will have to borrow an additional 2.6 trillion dollars in the market. That is an additional 2.6 trillion on top of what they need to borrow to cover the annual budget deficits.
Seeing as how we already owe 14, 15 (is it 16 yet?) trillion dollars, the question is this .....is there a limit to how much the US can borrow at reasonable interest rates? Is the well bottomless? And if it is not, What will interest rates have to be to attract enough cash to meet our future borrowing needs?
In a sense, the current crisis atmosphere around the world plays into our hands as it increases demand for Safe assets. And nothing is safer than US treasuries. So the "flight to quality" helps keep rates down and US borrowing costs relatively low. But the crisis atmosphere abroad won't last forever. What happens to demand for US Treasuries when the Euro is "safe" again?
= new reply since forum marked as read
