SS May Never Run Out of $$

[Midpack]

The "enormous difference" is roughly the same as the difference between one's mortgage payment and one's mortgage balance.

One is typically many orders of magnitude larger than the other. I'd say that qualifies as "enormous"!

I already agreed that I meant debt and inavertantly wrote deficit. No disagreement, but this is a tangential discussion to my post(s) and the topic. The point was SS is a pay-as-you-go system...

 

[samclem]

The point was SS is a pay-as-you-go system...

According to your own unique definition of pay-as-you-go, which apparently includes the idea of squirelling away a lot of extra payments in the beginning, then using these saved-up credits at a later time (which is precisely how SS has operated). As your definition of pay-as-you-go is (in my experience) different from the commonly understood definition of pay-as-you-go, I'd recommend that you carefully explain your re-definition of the term when you start using it with others.

 

[Midpack]

According to your own unique definition of pay-as-you-go, which apparently includes the idea of squirelling away a lot of extra payments in the beginning, then using these saved-up credits at a later time (which is precisely how SS has operated). As your definition of pay-as-you-go is (in my experience) different from the commonly understood definition of pay-as-you-go, I'd recommend that you carefully explain your re-definition of the term when you start using it with others.

I missed your response to our first exchange on pay-as-you-go. Where is this excess you described?

Midpack,

Well, to be completely accurate, the SS is not strictly pay-as-you-go. If it were, many of us would have thousands of more dollars in our paychecks over our working lives. For decades the system has collected much more than was being payed out (or what would have been due if it was truly pay-as-you-go), and this excess was loaned to the government to pay the shortfall in general revenues. The government will start paying this back to SS as soon as the SS taxes are less than SS payments to beneficiaries. Where will this money come from? Some combination of the usual three places:
- More taxes
- Cuts in the fed budget (could be anywhere, incl social security payments)
- More borrowing
Midpack added: These are all characteristic of pay-as-you-go...

Regardless of what the debt is, it's considerable --- from there, how much seems beside the point. Is there excess cash (not debt/unfunded liabilities) somewhere to fund social security and if so just exactly where? If not, SS (and Medicare and every other gubmint benefit) would appear to be strictly pay-as-you-go. Believe me I'd love to learn that "SS will never run out of $$" after all, what am I missing?

 

[cashflo2u2]

Midpack,

Well, to be completely accurate, the SS is not strictly pay-as-you-go. If it were, many of us would have thousands of more dollars in our paychecks over our working lives. For decades the system has collected much more than was being payed out (or what would have been due if it was truly pay-as-you-go), and this excess was loaned to the government to pay the shortfall in general revenues. The government will start paying this back to SS as soon as the SS taxes are less than SS payments to beneficiaries. Where will this money come from? Some combination of the usual three places:
- More taxes
- Cuts in the fed budget (could be anywhere, incl social security payments)
- More borrowing

That would not be accurate by a long shot. "pay as you go" does not mean paying out the surpluses as an add on to the SS payment checks currently due. That is a ridiculous interpretation of the term. Pay as you go means to pay the obligations as they come due out of the current cash balances on hand, if available.

 

[samclem]

As has been explained by Independent and others, the excess is in the form of government bonds. That is, bonds that the government will pay to the SS system.

So, no, they are not in "cash." They are only a promise to pay. But, to take you reasoning to the extreme, when you put money in the bank, you don't have "cash" either, since you've only got the bank's promise to pay you when you come back in the next day. Heck, even burying piles of money in the backyard wouldn't meet your standards since those greenbacks are only a "promise to pay".

SS is simply not pay-as-you-go. Neither is the US Government budget, since we are racking up liabilities and not "paying as we go." When income = expenditures you'll have a "pay as we go" system.

 

[samclem]

That would not be accurate by a long shot. "pay as you go" does not mean paying out the surpluses as an add on to the SS payment checks currently due. That is a ridiculous interpretation of the term. Pay as you go means to pay the obligations as they come due out of the current cash balances on hand, if available.

You've inserted something I never said (pay out the surpluses as they are collected) and then called it "ridiculous." If we were truly "paying as we go," there would never have been any excess SS taxes. Instead, we would have paid the obligations (e.g. benefits due each month to beneficiaries) with current taxes from those paying in. There would have been no excesses nor deficits. THAT is "paying as you go." Now, I'm not saying that is the best way to have organized Social Security cash flows, I'm just saying that truth-in-labeling would require that only this method could truly be called "pay-as-you-go.

Is this really that hard?

Wow, with so much difference of opinion/misunderstanding of what "paying as you go" means, I'm not surprised that our national savings rate is in the toilet.

 

[Midpack]

Is this really that hard?

Wow, with so much difference of opinion/misunderstanding of what "paying as you go" means, I'm not surprised that our national savings rate is in the toilet.

'Hard' indeed. This is obviously futile so let's just agree to disagree. I'd urge you and Independent to make the Social Security Administration (along with countless other knowledgeable people) aware of your findings. I am sure they will be grateful after all these years of 'misunderstanding.' Look what those silly folks at Social Security seem to think Social Security's Future - FAQs:

Does Social Security have dedicated assets invested for my retirement?

Social Security is largely a "pay-as-you-go" system with today's taxpayers paying for the benefits of today's retirees. Money not needed to pay today's benefits is invested in special-issue Treasury bonds.

 

[W2R]

Interesting! I really don't care which of you are "right" (you're both pretty sharp, y'know), but I thought the next question and answer were interesting, too:

Is there really a Social Security trust fund?

Yes. Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security.


So much for all those folks who say there isn't one! I suppose it all comes down to semantics.

 

[Midpack]

Is there really a Social Security trust fund?

Yes. Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security.


So much for all those folks who say there isn't one! I suppose it all comes down to semantics.

Semantics? W2R, ever the peacemaker (a virtue to be sure)...

Social Security Trust Fund - Wikipedia, the free encyclopedia

"On February 2, 2005, President George W. Bush made Social Security a prominent theme of his State of the Union Address. One consequence was increased public attention to the nature of the Social Security Trust Fund. Unlike a typical private pension plan, the Social Security Trust Fund does not hold any marketable assets to secure workers' paid-in contributions. Instead, it holds non-negotiable United States Treasury bonds and U.S. securities backed "by the full faith and credit of the government". The Office of Management and Budget has described the distinction as follows:

These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)"
​

That's why SSA and almost any reliable source characterizes SS as pay-as-you-go. But we're all welcome to spin it as we see fit...

 

[cashflo2u2]

You've inserted something I never said (pay out the surpluses as they are collected) and then called it "ridiculous." If we were truly "paying as we go," there would never have been any excess SS taxes. Instead, we would have paid the obligations (e.g. benefits due each month to beneficiaries) with current taxes from those paying in. There would have been no excesses nor deficits. THAT is "paying as you go." Now, I'm not saying that is the best way to have organized Social Security cash flows, I'm just saying that truth-in-labeling would require that only this method could truly be called "pay-as-you-go.

Is this really that hard?

Wow, with so much difference of opinion/misunderstanding of what "paying as you go" means, I'm not surprised that our national savings rate is in the toilet.

I should not have used the word "ridiculous". Here is the def from wikip:
"Social Insurance

In social insurance, PAYGO refers to an unfunded system in which current contributors to the system pay the expenses for the current recipients. In a pure PAYGO system, no reserves are accumulated and all contributions are paid out in the same period. The opposite of a PAYGO system is a funded system, in which contributions are accumulated and paid out later (together with the interest on it) when eligibility requirements are met.

[edit] U.S. Social Security

An important example of such a PAYGO system in this second sense is Social Security in the U.S. In that system, contributions are paid by the currently employed population in the form of a payroll tax, also called the FICA tax, which stands for the "Federal Insurance Contributions Act", while recipients are mostly individuals of at least 62 years of age. Social Security is not a pure PAYGO system, because it accumulates excess revenue in so-called Trust Funds, officially known as the Old-Age, Survivors, and Disability Insurance Trust Funds (OASDI).

[edit] Explanation

These kind of PAYGO systems can be implemented quickly, because no reserves are necessary to finance the expenses of the first generation of recipients. However, these windfall gains of the first generation have to be financed by following generations. By paying the expenses of generation t, the following generation t+1 relies on future contributions of generation t+2 to cover its expenses. In this fashion, the windfall gains of the first generations are passed along over generations and, hypothetically, the last generation would have to finance its own expenses and that of the preceding generation."

PAYGO - Wikipedia, the free encyclopedia

If that is what you said then you were correct.

 

[samclem]

cashflo2u,
Thanks very much for doing the research and posting that info. I did a quick search, but didn't dig as far as you did.

Interesting how they cite the US SS system as a "funded system" and the "opposite of a PAYGO system," but then call it one type of PAYGO system.

It looks like everyone can be right!

 

[cashflo2u2]

Samclem, what a happy outcome!

 

[Independent]

'Hard' indeed. This is obviously futile so let's just agree to disagree. I'd urge you and Independent to make the Social Security Administration (along with countless other knowledgeable people) aware of your findings. I am sure they will be grateful after all these years of 'misunderstanding.' Look what those silly folks at Social Security seem to think Social Security's Future - FAQs:

bonds.

I've avoided the whole semantic argument about the definition of "paygo".

I think I've said two things on the "trust fund" issue.

The first refers to the "low cost" assumptions in the trustees report. They show that the current benefit schedules can be maintained indefinitely. The original link claims that the low cost assumptions are likely. I disagreed, but added that, if they really did happen:

Second, the "good news" about SS never running out of money is the result of the the interest on the trust fund being so high that it fills the gap between number of workers and number of retirees.
But the interest on the trust fund has to be paid by some sort of federal taxes, probably the individual FIT. (I'm assuming that we're going to run out of the ability to borrow from foreign countries one of these days.)
So, if you don't plan to pay federal income taxes, this really is good news. If you do think you're going to be paying FIT, then it doesn't sound so good.

The other was trying to clarify the fact that the $9.4 trillion of federal debt you quoted actually referred to the "general fund" only, not to the entire federal government:

Yes, the Federal gov't in total has spent more money than it has collected in taxes. But the SS portion has collected more taxes than it has paid in benefits.

Re-reading these statements, they both seem true to me. Neither would come as any surprise to Social Security policymakers.