Is there an actual SS trust fund? Or is it a "placeholder" in the books?

[TalkingDog]

Is there money, or is there ain't?

http://blogs.forbes.com/merrillmatthews/2011/07/13/what-happened-to-the-2-6-trillion-social-security-trust-fund/

Jack Lew, explained all this last February in USA Today:

“Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. … Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

Notice that Lew said nothing about raising the debt ceiling, which was already looming, and it shouldn’t matter anyway because Social Security is “entirely self-financing” and off budget. What could be clearer?

Unconvinced, syndicated columnist Charles Krauthammer wrote a subsequent column questioning Lew’s assertions. “This claim is a breathtaking fraud. The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction. … In other words, the Social Security trust fund contains—nothing.”

Social Security status-quo defenders have assured us for the past 25 years that Social Security is fully funded—for the next 25 years, or 2036. So if there are real assets in the Social Security Trust Fund—$2.6 trillion allegedly—then how could failure to reach a debt-ceiling agreement possibly threaten seniors’ Social Security checks?

[Javaman]

1. there was a trust fund until

it was systematically raided by one politician after another.

What was once a locked box is now a shoe box full of IOU's.

[girl gone mad]

15. Which is perfectly acceptable.

The government keeping lock box full of money would make about as much sense as someone who lives on the beach keeping jars full of sand.

[Incitatus]

2. I believe it is all stored in US treasury securities

So if there was a default, that would be a problem.

[banned from Kos]

Krauthammer is a Fox News liar - link to SSA's own trust fund data

http://www.ssa.gov/oact/progdata/fyOps.html


In the lower right hand corner they report $2.86 trillion in US Treasuries at the end of 2010.

[DeschutesRiver]

18. Yep. There is a SS trust fund - fact. The funds are held in US treasuries - fact.

Those treasuries are redeemable - fact. That is the way bonds work - someone sells a bond to raise money to spend; the other party buys the bond as an investment. Government bonds, corporate bonds, special issue treasury bonds for SS purchases - they aren't fictions. When a bond is issued and purchased, what do people think that the entity selling the bond is doing with the proceeds other than spending it for a purpose? That is the whole point. How does one get "fiction" or "fraud" out of the bond market process?

I have some US treasury bonds with Treasury Direct - when I need to, I redeem a bond and they send me the money. My account isn't a fiction or an accounting "trick". I used to be in a bond fund at Vanguard for my retirement - it wasn't a fiction merely because the fund bought treasury bonds from the government, who then spent the money that was given to them in return for the bond.

Krauthammer knows this. I know this. I was uncomfortable when I heard Obama say that it takes a professional politician to understand such things, because no lay person pays attention or understands Treasury Auctions. My 80+ year old working class dad has followed Treasury auctions in order to buy t-bills, for gawds sake.

[PoliticAverse]

3. The 'Social Security Trust' fund(s)...

consist of about $2.6 Trillion in 'Special Issue Securities'.

http://www.ssa.gov/oact/progdata/specialissues.html

These securities can be redeemed at any time the program needs additional cash
for payments by presenting them to the US Treasury. When they are redeemed the
US Treasury must come up with the necessary cash. As the government operates
at a deficit any redemption means the Treasury must borrow more money by selling
additional Bonds, Notes or Bills.

See also:

http://www.ssa.gov/oact/progdata/fundFAQ.html

[econoclast]

4. SS Trust Fund - Yes. No. And kind'a

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 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. 

Since SS is required by law (and has been since the 1930's) to invest any surplus in US Treasuries, this means that if the deficit is 500 billion dollars and SS has a 100 billion surplus, that does NOT reduce the deficit to 400 billion dollars, but then the government sells 100 billion in US Treasuries to SSTF and only has to borrow 400 billion INTHE MARKET. 

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 stoped 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 deficit is 100 billion dollars. But suppose SS has to pay out 20 billion in benefits in excess of what they collected on taxes. Where do they get the money? They redeem 20 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 100 billion but they have to go to the market to raise 120 billion dollars. 100 to finance that year's budget deficit and 20 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 2.4 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 2.4 trillion dollars in the market. That is an additional 2.4 trillion on top of what they need to borrow to cover the annual budget deficits.

Question, can we borrow an additional 2.4 trillion dollars in the market at reasonable interest rates?

[Ship of Fools]

6. thank you for this!

I do remember the fact that SS funds have been raided time and time again, but your examples helped me understand the rest of the workings of SS so much more. Thanks again.

[econoclast]

9. Thank you for the thank you ... But

If you re-read what I wrote you'll see that SS has never need "raided". It is working as designed and always has been. Surpluses in the SSTF are invested in Treasuries by law. No one "raided" the SSTF for anything.

[Ship of Fools]

14. even the semi-distant past?

i thought i remembered hearing this being the case as a kid ... oh well -- propaganda everywhere, i guess ...

[jtown1123]

5. It exists but it's the same as all other bonds. There is no physical box where it lays.

If you claim it has been stolen or doesn't exist, all that does is legitimize the GOP saying the money isn't real or you are somehow OK'ing theft.

[PoliticAverse]

7. It's actualy in a file cabinet. n/t

[Hassin Bin Sober]

8. It's hermetically sealed inside a mayonnaise jar underneath Funk & Wagnalls' porch.

[JHB]

10. either there is a trust fund and SS is paid for by SS taxes, or...

there is no trust fund, SS is paid through general revenues.

Back in the 80's, SS taxes were doubled in order to create a surplus in SS funds inorder to ensure SS's solvency through the expected shortfalls as the wave of Baby Boomers started to stop paying and start collecting SS. That sounds like a "trust fund" to me.


If anyone tries to tell you those funds were "spent already", the correct word is "stolen". And mostly for tax cuts for the wealthy, and whole wars put on credit cards.

[EC]

11. Because the principle is in T-bills

what I'm afraid of is if we default their worth would go down, even lessening the viable time of future payments.

[PoliticAverse]

12. The value of the Special Issue Securities in the trust fund can't go down.

They don't fluctuate in value like regular T-bills, T-notes and T-bonds.

The special issues can be redeemed at the US Treasury at any time (absent
a default) for full face value.

[EC]

13. Thanks, I did worry about that.. n/t

[JDPriestly]

16. Claiming that the Social Security Trust Fund is broke is

simply a way to convince people that they are better off allowing themselves to be robbed than resisting the robbery.

Reagan promised baby boomers that he would raise the Federal Insurance and Compensation Act (FICA) portion of the amounts taken out of their paychecks so that there would be plenty of money in the treasury for the baby boomers (a population bulge) to retire and they would not have to worry about the fact that the generations following them are too small to pay for their retirement insurance benefits.

Of course, Greenspan, Bush, et al. came into office, started a couple of completely unnecessary wars which they couldn't pay for and on top of that gave tax relief to very wealthy people to stimulate the economy (which was suffering a recession following the dot.com boom of the 1990s.

Now the following people do not want to pay the taxes needed to make good on the promise of the US government and the Reagan administration that the money we put in to buy the Social Security bonds will be repaid.

The unpatriotic cheats are

1) those who profited from the wars including the oil companies that got access to huge oil reserves thanks to American troops in Iraq;

2) the wealthy whose taxes were reduced to an unrealistically low percentage of income;

3) the corporations which have found devious and clever ways to buy tax loopholes that also relieve them of any patriotic obligation to pay a share of the maintenance costs of the highways, military, airports, etc. that they use on a daily basis in their business dealings.

On top of that, in terms of international trade, we are a debtor nation to countries like China which have far less infrastructure to support than we do, a younger population and cheap, cheap labor as well as an unrealistically low exchange rate that permits them to dump their trashy exports into our market.

Think of all the cheap, plastic, Made in China toys that are sold for very little all across America.

Put together, all this means low wages and low tax revenues.

We need to reclaim the Social Security FICA money paid in from those who took it. Simple as that. Does Obama have the courage to at least frame the issues in that way? No. And he won't have as long as he has Timid Timothy Geithner as his top financial adviser.

[mmonk]

17. It's not a flush trust fund but rather the sale of treasuries through collections.