Screwing Social Security. Lying about tax cuts and deficits.

[gulliver]

Since we are talking about where to get money for Social Security, here is an interesting link to an article entitled "Uncle Sam gets an F in money management."

http://moneycentral.msn.com/content/P105694.asp

I wanted to find out how much Social Security gets in interest from the special bonds it buys from the U.S. with the Social Security surplus. I was not surprised to find that the general fund appears to be screwing Social Security. Here is the relevant quote:

To fund this long-term obligation, the federal government collects Social Security and Medicare taxes now. Does the government invest in long-term bonds or equities so that it matches the maturity of the obligation with that of the investment asset? Of course not. Most of the revenue collected from current taxes is used to pay current benefits. The surplus, and right now there is a surplus, goes into a trust fund for Social Security or Medicare, where it is in invested in "special issue," bonds created for the trust funds and only available to the trust funds. The interest rate, according to the Social Security Administration, on a special issue is the average of the interest rates on all U.S. Treasury notes and bonds of more than four-year maturities.

Can you see the three problems with this? First, since the interest rate on a special issue is an average, it is always lower than the yield on the longest U.S. Treasury bond. So in 2002, when the 30-year Treasury bond was paying 5.43%, the Social Security trust fund was buying special issues with an average yield of 4.87%. Second, since these special issues cannot be sold on the public bond market, the trust funds can't reap any capital gains on the bonds if interest rates fall. Special issues can only be redeemed by the U.S. Treasury at face value. So the trust funds missed, for example, the spectacular appreciation that other bond investors reaped as interest rates on 20-year Treasury bonds fell to 5.43% in 2002 from 13.01% in 1982. And, third, since the U.S. government has discontinued the 20-year and 30-year Treasury bond series, the trust funds are buying special issues with lower yields and implied shorter maturities even as the life span and thus the duration of the obligation owed to U.S. retirees increases.

So here is my question. Why can't we just get Social Security a fair return on its surplus? Loan the surplus to the general fund as usual, but give it a fair, long term interest rate. Then make the bonds available to the open market so that SS can sell them when they become more valuable. And maybe ice the cake by giving the SS bonds first claim on debt repayment in the supposedly unlikely event that the government has to decide who to pay first.

If the SS bonds could be sold to the public, then SS would not be by itself as a chump creditor on these bonds when the time comes to redeem them. That would make SS less a target for future Bush-like political shenanigans it seems to me.

Another good thing to do would be to make the bonds part of the reported deficit. Currently, the government borrows the SS surplus but doesn't count it in the annual deficit.

http://zfacts.com/p/519.html

Then deficits (for a reason I can't grasp with my limited mind) are not translated automatically into "effective tax increases" when reported to the public. If every single dollar borrowed (every bond issued) were given a repayment date, then it seems to me it would be easy to report the sum total of the "mega tax increase" being "planned" for a given future date when we use deficit spending.

Indeed, each borrowed dollar should be accompanied by a future "sunrise" provision for a tax increase necessary to repay that dollar. Then we can repeal the tax increase if the Republicans Laffer curve con device works. Since the Republicans are so sure that the Laffer curve will work, they should have no problem with this strategy.

[PoiBoy]

1. Here's a good article on the subject... that illustrates..

how we got to this point in the fraud perpetrated upon us by all our politicians...

http://www.buzzflash.com/hartmann/05/07/har05007.html

<snip>
And where will that cash - now nearly two trillion dollars - come from over the next decades as Boomers begin to retire?

Technically (and legally) it's simple - the Social Security Trust Fund will give back its IOUs to the Treasury Department and in exchange for them get cash to pay the Boomers' retirement checks. Practically, though, it'll be a crisis of biblical proportions. In order for the Treasury to come up with that kind of cash will require either massive tax increases or increased massive borrowing - at a time when we're already borrowing so heavily that China is propping up our economy with weekly loans.

Thus, Bush talks about a "crisis" in Social Security with some accuracy. But he doesn't dare tell us what the real "crisis" is, or how Reagan and Greenspan set it up, because when it becomes widely known that the real crisis is that Reagan set the course to steal Boomers' Social Security savings, it will destroy the reputation of both supply-side economics and the Republican Party for generations to come.
<end>

[slipslidingaway]

4. Many people are not aware of the fraud that has been committed

on the working people in this country and the generation who saw their SS taxes doubled for most of their careers. Thanks for posting this article.


"Coincidentally, the actuaries at the Social Security Administration were beginning to get worried about the Baby Boomer generation, who would begin retiring in big numbers in fifty years or so. They were a "rabbit going through the python" bulge that would require a few trillion more dollars than Social Security could easily collect during the same 20 year or so period of their retirement. We needed, the actuaries said, to tax more heavily those very persons who would eventually retire, so instead of using current workers' money to pay for the Boomer's Social Security payments in 2020, the Boomers themselves would have pre-paid for their own retirement.

Reagan got Daniel Patrick Moynihan and Alan Greenspan together to form a commission on Social Security reform, along with a few other politicians and economists, and they recommend a near-doubling of the Social Security tax on the then-working Boomers. That tax created - for the first time in history - a giant savings account that Social Security could use to pay for the Boomers' retirement.

This was a huge change. Prior to this, Social Security had always paid for today's retirees with income from today's workers (it still is today). The Boomers were the first generation that would pay Social Security taxes both to fund current retirees and save up enough money to pay for their own retirement...

Greenspan manipulated the stock market so his buddies could get rich, then warned them just in time to get out before it blew up. He's kept together tax cuts and pay increases for the CEO class by pumping cheap money into the economy so the Middle Class will go ever deeper into debt, setting up a housing bubble that could crash in a way that would make 1929 look like a mild bump in the economic road. And he's helped engineer and support international "free" trade policies that have disemboweled America's manufacturing and information technology sectors, with the happy result for Republicans that the once-politically-active and heavily unionized middle class is being replaced by a politically impotent mass of the working poor, too busy to worry about politics or challenge corporate news..."

[slipslidingaway]

2. Great points!.....

especially and not limited to...

"So here is my question. Why can't we just get Social Security a fair return on its surplus? Loan the surplus to the general fund as usual, but give it a fair, long term interest rate. Then make the bonds available to the open market so that SS can sell them when they become more valuable. And maybe ice the cake by giving the SS bonds first claim on debt repayment in the supposedly unlikely event that the government has to decide who to pay first.

If the SS bonds could be sold to the public, then SS would not be by itself as a chump creditor on these bonds when the time comes to redeem them. That would make SS less a target for future Bush-like political shenanigans it seems to me.

Another good thing to do would be to make the bonds part of the reported deficit. Currently, the government borrows the SS surplus but doesn't count it in the annual deficit."

[creeksneakers2]

3. I don't understand

If SS sold their bonds to the public, where would SS keep the proceeds for the next 40 years?

[gulliver]

6. Good question!

I was just going by what the author of the link I found said. I am presuming (perhaps wrongly) that his comments are well founded, but I have to admit I don't know where SS would invest the proceeds apart from buying longer term bonds. That would seem to defeat the purpose of tying redemption dates to beneficiary retirement dates.

[slipslidingaway]

5. Social Security Trust Fund Data Updated May 15, 2007

http://www.ssa.gov/OACT/ProgData/funds.html

When Clinton left office the Trust Funds had assets of approximately One Trillion dollars (the surplus claimed by Clinton only existed because funds had been borrowed from the SS Trust Fund) now the Trust Fund has assets over Two Trillion dollars.


Fiscal Year Trust Fund Operations
Updated November 8, 2007

http://www.ssa.gov/OACT/ProgData/fyOps.html

Old-Age, Survivors, and Disability Insurance Trust Funds, Fiscal Years 1977-2007



Amount at end of year

2007 2,180,619