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[A] Quotes from Official Government Documents, section non122
[A1] The Social Security Trustees March 1999 report saying that where the general fund is going to get the revenues to redeem the trust fund IOUs is "not within the scope of this report" -- section non123.[A2] OMB (Office Of Management and Budget) "Analytical Perspectives of The President's Fiscal Year 1999 Budget", February 1, 1999, quote regarding the trust fund assets being of no economic significance, in section non124
[A3] CRS (Congressional Research Service), May 5, 1998 Report quote regarding the trust fund assets being of no economic significance, in section non125
[A4] CBO (Congressional Budget Office), "The Economic and Budget Outlook: Fiscal Years 2000-2009", quote regarding the trust fund assets being of no economic significance, January 1999 in section non126
[A5] GAO (Government Accounting Office) Report, quote regarding that bonds must be redeemed by borrowing from the public, raising taxes, or cutting spending, April 1998, in section non127
[A6] SMI (Medicare Part B) March 1999 Trustees Report regarding the SMI Program's Growth Rate Being Unsustainable, in section non128
[A7] 2001 Trustees Summary - Excerpt Expressing Concern About The Drain On General Revenues Required To Redeem The Trust Fund Bonds , in section non256
[B] Quotes From Government Officials, Politicians, Media, and Others, in section non129
[B1] CBO Director Dan Crippen Senate Testimony, February 23, 1999, in section non130. Subsection non131 of his testimony has his obligation nor ability quote: "the size of the balances in the Social Security trust funds -— be it $2 trillion, $10 trillion, or zero —- does not affect the obligations that the federal government has to the program's beneficiaries. Nor does it affect the government's ability to pay those benefits"[B2] Some quotes found on the United Seniors Organization's web site, in section non132
[B3] Many Liberals / Progressives / Leftists Also Agree That The Social Security Trust Fund Is Not An Intergenerational Savings Plan, in section non257
[B4] Quotes From Robert Eisner, Fiscal Liberal And Author Of The Great Deficit Scares in section non133
[B5] Quotes From Dorcas Hardy, Former Commissioner of Social Security in section non134
[C] Misinformation, in section non135.
=========== END Table Of Contents of Quotes ============
This page contains quotes by official government documents, media, politicians, and others about the integrity of the federal budget process. It consists of quotes by the Congressional Budget Office (CBO), the Congressional Research Service (CRS), the Office of Management and Budget (OMB), and a former Social Security Administration commissioner, among others in the government and media, about the social security trust funds (and other U.S. government trust funds). The quotes say that the trust funds have no real assets in them except for some IOUs. The IOUs in effect state that the Treasury general fund owes money to the trust funds -- to pay back what the general fund has borrowed from the trust funds in the past.
And where will the Treasury general fund get the money to pay back the trust funds? There is only one place it can get the money from -- the general taxpayer. Either by raising taxes, or cutting other federal spending, or by selling bonds to the public (which then becomes in effect an obligation of the general taxpayer to pay the bondholder principal and interest).
Even the Social Security Trustees allude to this problem in the March 1999 Social Security Trustees Report by saying that the problem of where the general fund is going to get the revenues to redeem the trust fund IOUs is "not within the scope of this report" (non122).
Have you heard that the Social Security surpluses are being saved in a Social Security Trust Fund (SSTF) so as to provide a reservoir of savings to fund the boomers' retirement? Well, you have been mislead intentionally or unintentionally by media reports that state this (non135). The quotes on this web page make it clear that nothing is being saved -- there are no assets in the Social Security Trust Fund (SSTF) that are not also general fund liabilities. And that is the most important message of this web site.
How big are the SSTF "assets"? They totaled $762 Billion at the end of calendar year 1998. They are expected to grow to a multi - trillion - dollar amount before being drawn down and exhausted by the boomers' retirement. Between 2014 and 2035, according to the SS Trustees' Intermediate projections, $7.8 Trillion of SSTF bonds (actually Special Issue Treasury Obligations) will be redeemed in order to pay SS beneficiaries. That means that the Treasury general fund -- and thus the government -- and thus the general taxpayer -- must somehow come up with the $7.8 Trillion to redeem these bonds. This is what you are not being told by the media or by government officials, at least not clearly.
[JAL comment: ] It is projected that the Social Security Trust Fund (SSTF) will need to redeem $7.8 Trillion in special issue Treasury obligations between 2014 and 2034. The general fund will have to come up with the money to redeem these bonds. Where the general fund will get the money, and the impact on the general taxpayer, is not a matter discussed by the Trustees report. Here is the only thing that the March 1999 Social Security Trustees report says about this issue.
[Begin Trustees' Report Quote, page 26 {42}:] Trust fund assets are generally invested in special Treasury securities so that the excess of cash receipts over expenditures is borrowed from the trust funds by the general fund of the Treasury and used to help meet various Federal outlays, or to reduce the amount of publicly-held Federal debt. These securities are backed by the full faith and credit of the U.S. Government, the same as other public-debt obligations of the U.S. Government. The assets of the trust funds can be redeemed for cash at any time if required to meet program expenditures. The redemption of a Treasury security held by a trust fund requires that the Treasury transfer cash -— obtained from another revenue source, such as income taxes or borrowing from the public -— to the trust fund. Thus, the investment operations of the trust funds result in various cash flows between the trust funds and the general fund of the Treasury.
Under the intermediate assumptions, the excess of OASDI (Social Security) tax income over outgo during the next 15 years will result in a substantial net cash flow of these amounts to the general fund as they are borrowed from the trust funds. Thereafter, this cash flow is expected to reverse; as more trust fund securities are redeemed to meet benefit payments and other expenditures, the general fund of the Treasury will be drawn upon to provide the necessary cash. The accumulation and subsequent redemption of substantial trust fund assets has important economic and public policy implications that go well beyond the operation of the OASDI program itself. Discussion of these broader issues is not within the scope of this report. [End Trustees' Report Quote. All emphasis mine]
JAL comment: The below paragraph is from a Concord Coalition discussion of the Social Security Trustee's Report. It is discussing the Trustee's quote above, namely -- "The accumulation and subsequent redemption of substantial trust fund assets has important economic and public policy implications that go well beyond the operation of the OASDI program itself. Discussion of these broader issues is not within the scope of this report." The Concord Coalition then quotes the Office of Management and Budget's "Analytical Perspectives of The President's Fiscal Year 1999 Budget" as indicated:
[from Concord Coaltion: ] While these "broader issues" may go beyond the scope of the Trustees' Report, they are the core of the problem for policy makers who must grapple with the long-term stability of Social Security, the federal budget, and the economy. And among these policy insiders, there is no excuse for a lack of understanding about what awaits. Indeed, the problem is aptly described in the Analytical Perspectives of the President's Fiscal Year 1999 Budget, Feb. 1, 1999, p. 328:
[from Analytic Perspectives: ] Unlike the assets of private pension plans, [the trust fund balances] do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims against the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing other expenditures. The existence of large trust fund balances, therefore, do not by themselves make it easier for the government to pay benefits. [all emphasis mine].
JAL comment: I went looking for the "Analytic Perspectives" document for Fiscal Year 1999, and while I was at it, I found the one for Fiscal Year 2000. Its title is "Analytical Perspectives, Budget of the United States Government, Fiscal Year 2000", by the Office Of Management and Budget, Feb 1, 1999. On p. 337 is this quote:
[begin Analytic Perspectives quotes:] ... trust fund increase by approximately 70 percent by the year 2004, rising to $2.8 trillion. Almost all of these balances are invested in Treasury securities and earn interest. Therefore, they effectively represent the value, in current dollars, of taxes and user fees that have been paid in advance for future benefits and services.
These balances are available to finance future benefit payments and other trust fund expenditures -- but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. 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. [end Analytic Perspectives quotes. All emphasis mine.]
[Begin CRS quote:] Taking the Social Security trust funds "off budget" has not changed how Social Security funds are handled. They are treated the same way today as they were in 1937 when Social Security taxes were first levied -- the tax receipts flow into the U.S. Treasury and benefit payments flow out of the U.S. Treasury. The Treasury Department issues federal securities to the Social Security trust funds to reflect the receipt of these taxes, and redeems securities from the trust funds to reflect Social Security expenditures, but the money itself flows to and from the Treasury.
While the trust funds have an important role in monitoring the finances of the program and maintaining its fiscal discipline, they are basically accounting devices. The federal securities they hold are not assets for the government. When an individual buys a government bond, he or she has established a claim against the government. When the government issues a bond to one of its own accounts, it hasn't purchased anything or established a claim against some other entity or person. It is simply creating a form of IOU from one of its accounts to another. It certainly establishes legal claims against the government for the Social Security system (i.e., it is a legal form of indebtedness of the government and does count as part of the federal debt; see Table 3 on the next page), but the system is part of the government. Those claims are not resources the government has at its disposal to pay for future Social Security claims. Simply put, the trust funds do not reflect an independent store of money for the program or the government, and taking Social Security "off budget" did not change this. [End CRS quote. All emphasis mine]
JAL comment: See also section non135 on government official and media misinformation about the status of Social Security, particularly the half - truths about the social security trust fund.
JAL comment: I find it interesting that the CBO refers to the trust fund assets as "intragovernmental IOUs". As did the CRS above. So it is not only "trust - fund - bashers" who call them "IOUs".
The below is from p. 40 {64}:
[Begin CBO quotes:] Besides selling securities to the public, the Treasury has also issued more than $1.75 trillion in securities to various government accounts, mostly trust funds. The largest balances are in the Social Security trust funds ($730 billion at the end of 1998) and the retirement funds for federal civilian employees ($461 billion). ...
Investments by trust funds and other government accounts are handled within the Treasury, and the purchases and sales (with very rare exceptions) do not flow through the credit markets. Similarly, interest on those securities is simply an intragovernmental transfer: it is paid by one part of the government to another part and does not affect the total deficit or surplus. Thus, participants in financial markets view trust fund holdings (if they think about them at all) as a book-keeping entry -— an intragovernmental IOU. Those holdings are, however, an indicator of federal commitments for future spending.
. . . Trust funds have no particular economic significance; they function primarily as accounting mechanisms to track receipts and spending for programs that have specific taxes or other revenues earmarked for their use.
When a trust fund receives payroll taxes or other income that is not currently needed to pay benefits, the excess is loaned to the Treasury. If the rest of the budget is in deficit, the Treasury borrows less from the public than would otherwise be required to finance current operations. If the rest of the budget is in balance or in surplus, the Treasury uses the cash to retire outstanding debt.
The process is reversed when the time comes for a trust fund to draw down its reserves to pay benefits. The Treasury must repay (with interest) what it has borrowed from the trust fund and must raise the cash somewhere else. The government must then either boost taxes, reduce other spending, borrow more from the public, or (if the total budget is in surplus) retire less debt. [End CBO quotes]
[Begin GAO Quote:] "When the trust fund needs to draw down its balance, the Treasury must obtain the necessary money to repay the trust fund by borrowing from the public, unless the Congress and the President take offsetting actions to raise taxes or cut spending." [End GAO Quote]
The full reference is: "Social Security Financing: Implications of Government Stock Investing for the Trust Fund, the Federal Budget, and the Economy," U. S. General Accounting Office Report to the Special Committee on Aging, U. S. Senate, April 1998, pp. 31-32.
SMI (Supplementary Medical Insurance) is the Medicare Part B Program. This quote is from the March 1999 SMI Trustee's Report, p. 34 {41}.
[SMI Trustees: ] Increases in the costs per enrollee during the initial 25-year period are assumed to decline gradually in the last 12 years of that period to the same growth rate as GDP per capita and then to continue at the same rate as GDP per capita in the last 50 years. Therefore, changes in the last 50 years of the period are attributable only to demographic changes in the population. Given the historical experience of SMI costs per enrollee generally increasing faster than GDP per capita, this assumption may be considered optimistic. However, assuming a continuation of the historical trend for another 75 years would result in an SMI program so large as a percent of GDP that it would be implausible given other demands on those resources. Based on these assumptions, [that per enrollee costs decline to the same rate as GDP per capita in the last 50 years], incurred SMI disbursements as a percentage of GDP would increase rapidly from 0.93 percent in 1998 to 2.53 percent in 2035, decrease slightly to 2.46 percent in 2050, and then would increase to 2.65 percent in 2070. [See section non30 for a table of projected Medicare Part A (HI) and Part B (SMI) costs as a percent of GDP and a percent of payroll].
For the first time, the Social Security Trustees have indicated in their Summary their concern about the drain on general revenues required to redeem the Social Security Trust Fund bonds beginning in 2016. (Previously, the Summary contained no indication of this problem. The only indication of this problem was a short remark buried deep in their main report (see section non123 for that quote).
The below is from the Social Security Trustees Summary at http://www.ssa.gov/OACT/TRSUM/trsummary.html. All emphasis is mine.
[SS Trustees Quote:] Then, beginning in 2016, the effect of the payroll-tax-financed trust funds on the U.S. Treasury's cash flow is projected to reverse, and cash payments from the Treasury would be required in order for the funds to have sufficient income to pay the benefits now scheduled to be provided in current law. Initially, those payments will represent interest due on securities the trust funds hold as a result of the cash surpluses generated over the previous two decades; later they will include the principal amounts from redemption of those securities. As a result, the net cash flows from the Treasury to the three trust funds, combined, are projected to grow steadily from $35 billion in 2016 to $579 billion by 2025 (the comparable inflation-adjusted constant dollars are $22 billion and $269 billion, respectively).
Thus, rather than providing net revenue to the Treasury, after 2016 the combined trust funds will require rapidly growing infusions of revenues from the Treasury to pay benefits projected under current law. It is at this point--and not at the later dates when trust fund assets (i.e., the securities being redeemed) are technically exhausted--that Social Security and Medicare will begin to be in direct competition with other Federal programs for the resources of the Treasury, requiring either growing tax increases or debt financing (or some combination of the two) to pay the benefits promised under current law and provide for the continuation of other Federal expenditures.
While there will be no sudden, wrenching effect in any future year on the Federal budget from the operations of the three payroll-tax-financed trust funds, since the year-by-year changes are gradual, the cumulative change in the operations of these funds from 2000 to 2025 on the Federal budget will require serious attention in the years ahead. As Public Trustees, we believe that national discussion of the future financing of Social Security and Medicare should continue. It is important that changes in Social Security and Medicare be initiated sooner rather than later to address the rapidly growing annual deficits these programs are projected to incur beginning with the retirement of the baby-boom population. The need for such change is underlined by the fact that, even if productivity growth were to remain at the extraordinary level of the last 5 years for the next 75 years, a significant long-term actuarial deficit would still exist for the Social Security and Medicare Trust Funds. [End SS Trustees Quote].
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