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s2dbaker
s2dbaker
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July 15th, 2011 at 8:21:20 PM permalink
Quote: Wizard

By the way, I think this crisis illustrates that the so-called Social Security trust funds do not exist. Otherwise we could borrow from them for at least a short-term solution.

This is sad because I think the Wizard is a smart person. The Social Security trust fund does indeed exist. It is currently invested in US Treasury Securities. In other words, the United States Government has already borrowed the money from the Social Security Trust Fund and the SSTF is holding the Bonds as an interest bearing investment. Since the Constitution of the United States states that the debts and obligations of the US shall not be questioned, there is absolutely no reason to believe that those bonds will not be repaid. The SSTF can sell those bonds on the open market and get the money it needs to pay its obligations to seniors. The problem is that if the debt ceiling is not raised, then those bonds that will come due will be in default making their value significantly less than in normal situations. So Mr. Wizard, if you were just stating things that way as a shortcut then I apologize for splitting hairs but to say that the "So Called" SSTF doesn't exist is simply untrue. It's currently invested in the safest security the world has ever known.
Someday, joor goin' to see the name of Googie Gomez in lights and joor goin' to say to joorself, "Was that her?" and then joor goin' to answer to joorself, "That was her!" But you know somethin' mister? I was always her yuss nobody knows it! - Googie Gomez
timberjim
timberjim
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July 15th, 2011 at 8:45:45 PM permalink
Quote: s2dbaker

This is sad because I think the Wizard is a smart person. The Social Security trust fund does indeed exist. It is currently invested in US Treasury Securities. In other words, the United States Government has already borrowed the money from the Social Security Trust Fund and the SSTF is holding the Bonds as an interest bearing investment. Since the Constitution of the United States states that the debts and obligations of the US shall not be questioned, there is absolutely no reason to believe that those bonds will not be repaid. The SSTF can sell those bonds on the open market and get the money it needs to pay its obligations to seniors. The problem is that if the debt ceiling is not raised, then those bonds that will come due will be in default making their value significantly less than in normal situations. So Mr. Wizard, if you were just stating things that way as a shortcut then I apologize for splitting hairs but to say that the "So Called" SSTF doesn't exist is simply untrue. It's currently invested in the safest security the world has ever known.



Can you please refer me to documentation to back this up? I believe that the Feds spent the money as soon as it was collected. I would be very interested in reading how this money has been invested.
s2dbaker
s2dbaker
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July 15th, 2011 at 9:00:53 PM permalink
Quote: timberjim

Can you please refer me to documentation to back this up? I believe that the Feds spent the money as soon as it was collected. I would be very interested in reading how this money has been invested.

Go to town! The SSA site posts all of that information for public consumption:
Social Security Investment Portfolio
Someday, joor goin' to see the name of Googie Gomez in lights and joor goin' to say to joorself, "Was that her?" and then joor goin' to answer to joorself, "That was her!" But you know somethin' mister? I was always her yuss nobody knows it! - Googie Gomez
Calder
Calder
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July 15th, 2011 at 9:06:46 PM permalink
I hesitate jump in, given that The Wizard used to work for the SSA.

I thought current collections pay for current obligations. The first of the Baby Boomers are just hitting retirement, and there are not enough current payers to support them going forward. Thus the problem.

thecesspit: I don't contend that raising taxes was easy, just that it's politically easier to than cutting services. There is some resistance to tax increases in the Senate from those senators up for re-election in 2012. Of course, they haven't passed a budget since the last election, either.
s2dbaker
s2dbaker
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July 15th, 2011 at 9:14:26 PM permalink
Quote: Calder

I thought current collections pay for current obligations. The first of the Baby Boomers are just hitting retirement, and there are not enough current payers to support them going forward. Thus the problem.

Ronald Reagan raised our taxes in anticipation of the shortfall to come. We have been paying too much into the trust fund for thirty years building up the huge surplus that we currently have. This pile of money is going to bleed off as more Boomers start collecting from it. This imbalance will return to normal once the Boomers thin out. The current estimate is that the huge pile of money will be brought to its normal level in about 30 or so years. After that, Social Security will still have enough income to pay off anticipated benefits at over 80% with absolutely no changes whatsoever.
Someday, joor goin' to see the name of Googie Gomez in lights and joor goin' to say to joorself, "Was that her?" and then joor goin' to answer to joorself, "That was her!" But you know somethin' mister? I was always her yuss nobody knows it! - Googie Gomez
Calder
Calder
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July 15th, 2011 at 9:27:25 PM permalink
So the whole Social Security kerfuffle is a bunch of nothing? All is well? What a relief!
s2dbaker
s2dbaker
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July 15th, 2011 at 9:36:17 PM permalink
Quote: Calder

So the whole Social Security kerfuffle is a bunch of nothing? All is well? What a relief!

Pretty much with the notable exception that if the debt ceiling isn't raised, the securities that the Social Security Trust Fund holds will fall in value. The lower the value of the SSTF, the less surplus for the Boomers. So if the debt ceiling isn't raised, it will cost us a lot of money in the long run to cover the completely avoidable shortfall.

Keep in mind that the spending authority was already approved either by this or prior congresses' budgets and singed into law by this or prior Presidents. Not raising the debt ceiling is like vetoing all of the legislation that's already been passed. I don't even know why they bother with a debt ceiling.
Someday, joor goin' to see the name of Googie Gomez in lights and joor goin' to say to joorself, "Was that her?" and then joor goin' to answer to joorself, "That was her!" But you know somethin' mister? I was always her yuss nobody knows it! - Googie Gomez
ItsCalledSoccer
ItsCalledSoccer
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July 15th, 2011 at 9:53:32 PM permalink
Quote: s2dbaker

Ronald Reagan raised our taxes in anticipation of the shortfall to come. We have been paying too much into the trust fund for thirty years building up the huge surplus that we currently have. This pile of money is going to bleed off as more Boomers start collecting from it. This imbalance will return to normal once the Boomers thin out. The current estimate is that the huge pile of money will be brought to its normal level in about 30 or so years. After that, Social Security will still have enough income to pay off anticipated benefits at over 80% with absolutely no changes whatsoever.



I'm not sure what bizarro America you're describing here, but there are several things here that aren't reflective of reality.

First, that Reagan raised taxes. He signed one of the largest tax rate cuts in history. The folks who spin this little tale generally mean that Reagan took steps to see increased revenue to the government. That is true ... and reduced tax rates were one of those steps. To believe that higher tax rates = more tax revenue is a fundamental and critical mistake.

Among the things that Reagan did to increase revenue included removing lots of loopholes and reducing tax breaks. This meant that people's tax burden went up over what it was before the loopholes were removed, but it's not a tax increase. The difference can be viewed as semantic, except that thinking so fails to remember the decrease in tax rates, which resulted in an overall lowering of tax burden. It's like complaining that you have to leave a tip when your meal is comped.

The tax "reforms" in 86 eliminated the "paper loss" that real estate investors were taking, which wasn't real as the loss was due to non-cash expenses (depreciation, etc.). It was followed by an extended period of low real estate values and the RTC, but it was not "realized" gains.

If you call "closing loopholes" = "tax increase," then okay. I would almost agree, as there's nothing illegal or sneaky about "loopholes" anyway ... it's just people who do the work to avoid taxes, which is perfectly legal. If the tax code is tricky in that sense, then I would think you would be in favor of "closing loopholes" as it simplifies things.

As for the social security rate increases, that was actually an increase. And he did introduce taxation of SS benefits to those above a certain income level. So ... you got something there. But asking self-employed people to pay the whole amount rather than the half if they're employed by someone else is not an increase; it's the employer paying the employer's portion.

But your thinking is right-side up on the SS trust, which turned its own purpose upside-down. There's no surplus. There's no pile of money. Any "surplus" in the SS "account" is spent by Congress, leaving only IOUs. This "worked" so long as inflows exceeded outflows, which has been mostly the case. When outflows exceed inflows because of boomers retiring, the SS trust is going to look to collect on the IOUs from over the years, but Congress won't be able to pay them. It doesn't matter when this happens. Congress has grown to "expect" the use of that surplus, so not only will the IOUs not be collect-able, Congress will still be trying to spend inflows even though there's no excess.

Ideally, these accounts should be separate, and that was the thinking behind Gore's infamous "lock box" comedy joke. But they're not. They're commingled. The deficit number you hear encompasses Congress's overspending AFTER using the excess from the SS fund ... see p. 97 of your 2010 1040 instruction book. The number would be even higher (ceteris paribus) if the SS fund were truly kept separate.
ItsCalledSoccer
ItsCalledSoccer
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July 15th, 2011 at 9:58:02 PM permalink
Quote: s2dbaker

Pretty much with the notable exception that if the debt ceiling isn't raised, the securities that the Social Security Trust Fund holds will fall in value. The lower the value of the SSTF, the less surplus for the Boomers. So if the debt ceiling isn't raised, it will cost us a lot of money in the long run to cover the completely avoidable shortfall.

Keep in mind that the spending authority was already approved either by this or prior congresses' budgets and singed into law by this or prior Presidents. Not raising the debt ceiling is like vetoing all of the legislation that's already been passed. I don't even know why they bother with a debt ceiling.



Bad laws are still bad, even though they're laws. It was once legal to own humans in this nation. Thank goodness that a later congress overturned laws that a previous congress wrote.

Laws that allow overspending are (generally) bad laws. Thank goodness a later congress is (possibly) working to overturn all those previously-passed bad laws.

No one doubts the authority of the previous congresses. They just doubt their wisdom in writing all those overspending laws.
s2dbaker
s2dbaker
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July 15th, 2011 at 10:06:24 PM permalink
Quote: ItsCalledSoccer

As for the social security rate increases, that was actually an increase.

Thanks for acknowledging that Ronald Reagan raised the FICA taxes. Since my comment was limited in scope to the Social Security Trust Fund, I didn't think I needed to state everything that Ronald Reagan did to cause the incredibly huge debt burden that we have today but if you want to do that, may I recommend starting another thread.
Someday, joor goin' to see the name of Googie Gomez in lights and joor goin' to say to joorself, "Was that her?" and then joor goin' to answer to joorself, "That was her!" But you know somethin' mister? I was always her yuss nobody knows it! - Googie Gomez

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