Austerity problem or something else?
- Thread starter TimtheEnchanter
- Start date
Why is that the choice? Piezoe, what is it that you do not understand about the fact that the cash in from revenue for SS taxes is lower thant the cash out for benefits since 2010? This is negative cash flow regardless of how much interest is credited in an account. The interest is not presently payable so it is not cash flow, it is accounted as a future liability as a 'special government obligation'; it is not cash that can be sprent presently. Where do you think the negative cash flow deficit is made up from? You do understand that all this talk about the SS Trust fund is just an accounting issue....all the SS revenue is deposited into the general account....Treasury really has only one master accout. All the SS revenue, the tariff revenue, the income tax revenue, goes into one depository master account...and then credits are accounted to sub accounts and debits are subtracted from sub accounts. All the deposits and all the disbursement come out of the general master account and at the end of each day, the Treasury adds an accounting note that 'special obligations' have accrued as credits to the SS Trust fund account or 'special obligations' have be debited from the SS Trust account as cash has been added to pay benefits.
When cash is added to the SS Trust fund account and 'special obligations' are written down...where do you think the cash comes from?
When cash is added to the SS Trust fund account and 'special obligations' are written down...where do you think the cash comes from?
Here is a recent report on the Trust prepared for the Senate. I suppose that is why it is written in plain English.
http://aging.senate.gov/crs/ss3.pdf
The meat of the report is found on Pg. 14 as follows:
"...The Social Security trustees project that the Social Security trust fund would remain solvent throughout the 75-year projection period, for example, if
⢠the combined employer and employee payroll tax rate were increased during the
period in a manner equivalent to an immediate increase of 1.84 percentage points
(from 12.4% to 14.24%);(26)
⢠benefits scheduled under current law were reduced during the period in a manner
equivalent to an immediate benefit reduction of 12%; or
⢠general revenue transfers equivalent to $5.4 trillion (in present value terms) were
made to the Social Security trust fund during the period.
These potential revenue and benefit changes illustrate the magnitude of changes needed for the Social Security trust fund to remain solvent throughout the 75-year projection period. The Social
Security trustees point out that some combination of these approaches could be used and that larger changes would be needed to maintain trust fund solvency beyond the 75-year period. (27)
footnotes
24 Under the intermediate assumptions of the 2010 Annual Report, the Social Security trustees project that program
costs will exceed total income (tax revenues plus interest income) beginning in 2025. At that point, the trust fund balance will begin to be drawn down to help pay benefits and administrative expenses. The trustees project that the assets (government securities) held by the trust fund will be depleted in 2037. Following projected trust fund
exhaustion, the program would continue to operate with annual tax revenues.
25 Program costs and income are evaluated as a percentage of taxable payroll because Social Security payroll taxes are
the primary source of funding for the program. The projected 75-year actuarial deficit (1.92% of taxable payroll)
represents $5.4 trillion in present value terms.
26 The Social Security trustees note that the projected increase in the payroll tax rate needed for the trust fund to remain
solvent throughout the 75-year projection period (1.84 percentage points) differs from the projected 75-year actuarial
deficit (1.92% of taxable payroll) for two reasons. The 2010 Annual Report states on page 4: âFirst, the necessary tax
rate is that required to maintain solvency throughout the period, but not to result in any trust fund reserve at the end of
the period. Second, the necessary tax rate is increased based on the expectation that any change in tax rates will affect
the proportion of employee compensation that is paid in wages.â
27 The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust Funds, Washington, DC, August 5, 2010, p. 4."
I would hope everyone that pays into Social Security will read the full report, though I know that's not going to happen and that Wall Street , and ET too!, mis-information will continue to dominate the internet.
One thing I found out by reading this report is that money owed to the Trust does add to the National Debt and therefore affects the debt ceiling that Congress continually raises.
BTW, I personally favor an immediate increase in S.S. payroll taxes slightly in excess of what the Trustees have recommended (~1 cent employee/~1 cent employer) as the best means of maintaining social security soundness going forward.
None of the proposed adjustments deal with the real threat to Social Security, and that of course is the credit worthiness of the United States.. That can only be dealt with by bringing spending in the discretionary budget in line with revenues.
http://aging.senate.gov/crs/ss3.pdf
The meat of the report is found on Pg. 14 as follows:
"...The Social Security trustees project that the Social Security trust fund would remain solvent throughout the 75-year projection period, for example, if
⢠the combined employer and employee payroll tax rate were increased during the
period in a manner equivalent to an immediate increase of 1.84 percentage points
(from 12.4% to 14.24%);(26)
⢠benefits scheduled under current law were reduced during the period in a manner
equivalent to an immediate benefit reduction of 12%; or
⢠general revenue transfers equivalent to $5.4 trillion (in present value terms) were
made to the Social Security trust fund during the period.
These potential revenue and benefit changes illustrate the magnitude of changes needed for the Social Security trust fund to remain solvent throughout the 75-year projection period. The Social
Security trustees point out that some combination of these approaches could be used and that larger changes would be needed to maintain trust fund solvency beyond the 75-year period. (27)
footnotes
24 Under the intermediate assumptions of the 2010 Annual Report, the Social Security trustees project that program
costs will exceed total income (tax revenues plus interest income) beginning in 2025. At that point, the trust fund balance will begin to be drawn down to help pay benefits and administrative expenses. The trustees project that the assets (government securities) held by the trust fund will be depleted in 2037. Following projected trust fund
exhaustion, the program would continue to operate with annual tax revenues.
25 Program costs and income are evaluated as a percentage of taxable payroll because Social Security payroll taxes are
the primary source of funding for the program. The projected 75-year actuarial deficit (1.92% of taxable payroll)
represents $5.4 trillion in present value terms.
26 The Social Security trustees note that the projected increase in the payroll tax rate needed for the trust fund to remain
solvent throughout the 75-year projection period (1.84 percentage points) differs from the projected 75-year actuarial
deficit (1.92% of taxable payroll) for two reasons. The 2010 Annual Report states on page 4: âFirst, the necessary tax
rate is that required to maintain solvency throughout the period, but not to result in any trust fund reserve at the end of
the period. Second, the necessary tax rate is increased based on the expectation that any change in tax rates will affect
the proportion of employee compensation that is paid in wages.â
27 The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust Funds, Washington, DC, August 5, 2010, p. 4."
I would hope everyone that pays into Social Security will read the full report, though I know that's not going to happen and that Wall Street , and ET too!, mis-information will continue to dominate the internet.
One thing I found out by reading this report is that money owed to the Trust does add to the National Debt and therefore affects the debt ceiling that Congress continually raises.
BTW, I personally favor an immediate increase in S.S. payroll taxes slightly in excess of what the Trustees have recommended (~1 cent employee/~1 cent employer) as the best means of maintaining social security soundness going forward.
None of the proposed adjustments deal with the real threat to Social Security, and that of course is the credit worthiness of the United States.. That can only be dealt with by bringing spending in the discretionary budget in line with revenues.
Good to see you noticed that SS is in the national debt; I trust you can also find the interesting fact that by adusting the terms of the special obligations the Treasury is able to manipulate the debt ceiling.
You have to uderstand that the credit of interest as 'special government obligation' does solve the negative cash flow situation when current SS revenues are less than SS benefit expenses. The SS discussion of its ability to fund deficits accounts the 'accrued special government obligations' and the rolled over interest on those obligations...which are paid by issuing more obligations...this is accounting notation that does not fund current cash flow needs...those cash needs come out the General Account which is significantly funded by deficit borrowing in the private market. When cash is added to the SS account to meet negative cash flow the 'special obligation' account is debited and the same time it is credited by the accrual of interest. I understand it's confusing, but this is the difference between cash flow accounting and balance sheet accounting.
I Agree that he biggest problem with SS is the "credit worthiness with the U.S.," but after all these words back and forth it is exasperating that you come to this conclusion in a way that ignores that U.S. Creditworthiness was the basis of our argument the whole time; that the SS 'special government obligations' were not independent 'securities' that are true assets, but were instead a promise by the U.S. Treasuries to borrow money to fund cash flow deficits when they occur.
Since the promise is to borrow money in the public market then of course the main issue on performance, other than political will to keep the promise, is the 'credit worthiness of the U.S'....that of course is the problem. What exaserbates this problem is that the need to increase borrowing dramatically occurs at the same time that we face already accumulated excess debt and it is not clear how we will keep our credit worthiness to increase debt to fund SS going forward and continue to run operating deficits based on government operations.
If the SS Trust fund had been invested in real assets, as the Japanese Postal Savings is, as the various sovereign wealth funds are, as a normal life insurance or pension fund is designed, then there would be less of a stress on the U.S. Credit worthiness at this time. What we have done in the way we operate SS is we have traded lower bond issue in the past for increased bond issue in the future...to the extent that the supply of new bond issues influences interest rates (which is an excuse the SS uses to defend the idea that it takes intergovernmental IOU's instead of marketable assets) we have reduced interest rates in the past in exchange for increasing interest rates in the future. Certainly other issues play into the interest rate equation but suppy does matter.
You have to uderstand that the credit of interest as 'special government obligation' does solve the negative cash flow situation when current SS revenues are less than SS benefit expenses. The SS discussion of its ability to fund deficits accounts the 'accrued special government obligations' and the rolled over interest on those obligations...which are paid by issuing more obligations...this is accounting notation that does not fund current cash flow needs...those cash needs come out the General Account which is significantly funded by deficit borrowing in the private market. When cash is added to the SS account to meet negative cash flow the 'special obligation' account is debited and the same time it is credited by the accrual of interest. I understand it's confusing, but this is the difference between cash flow accounting and balance sheet accounting.
I Agree that he biggest problem with SS is the "credit worthiness with the U.S.," but after all these words back and forth it is exasperating that you come to this conclusion in a way that ignores that U.S. Creditworthiness was the basis of our argument the whole time; that the SS 'special government obligations' were not independent 'securities' that are true assets, but were instead a promise by the U.S. Treasuries to borrow money to fund cash flow deficits when they occur.
Since the promise is to borrow money in the public market then of course the main issue on performance, other than political will to keep the promise, is the 'credit worthiness of the U.S'....that of course is the problem. What exaserbates this problem is that the need to increase borrowing dramatically occurs at the same time that we face already accumulated excess debt and it is not clear how we will keep our credit worthiness to increase debt to fund SS going forward and continue to run operating deficits based on government operations.
If the SS Trust fund had been invested in real assets, as the Japanese Postal Savings is, as the various sovereign wealth funds are, as a normal life insurance or pension fund is designed, then there would be less of a stress on the U.S. Credit worthiness at this time. What we have done in the way we operate SS is we have traded lower bond issue in the past for increased bond issue in the future...to the extent that the supply of new bond issues influences interest rates (which is an excuse the SS uses to defend the idea that it takes intergovernmental IOU's instead of marketable assets) we have reduced interest rates in the past in exchange for increasing interest rates in the future. Certainly other issues play into the interest rate equation but suppy does matter.