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See also Official Government quotes in section non122.
See also section non135 on government official and media misinformation about the status of Social Security, particurlarly the half - truths about the social security trust fund.
Some Excerpts from the Testimony of CBO Director Dan Crippen before the Senate Budget Committee February 23, 1999 The President's Social Security Framework
[Begin Crippen Testimony: ]
[p. 2] ... For example, the changes in Social Security benefits that the President mentioned in his State of the Union address ...
Those changes, if made without offsetting reductions in benefits, would result in expenditures from the Social Security trust funds that are greater than current law —- that is, greater than the baseline CBO presented to you last month. The same is true of the proposal to add a pharmaceutical benefit to Medicare. A recently announced regulatory change in the Disability Insurance program will also add costs. The Administration has not indicated how the additional obligations would be financed.
... After you have thought about it for a while, you may well conclude, as the President has, that you should change the accounting for this and other trust funds. The connection between taxes and benefits is unique to those programs. Perhaps more important, "accounting" up to now has allowed the impression that there are assets in those trust funds —- assets that can be subsequently sold to help defray the cost of benefits. But that accounting ignores what has happened in the rest of budget. On net, we have debt, not assets.
[p. 6] ... First, would breaking the link between payroll taxes and benefits eliminate an important mechanism of program discipline? In the past, the projected depletion of trust fund balances has often provided the impetus for taking painful steps to increase taxes or scale back scheduled benefits. The imminent exhaustion of the Social Security trust funds spurred action in 1983, and shortfalls in the Hospital Insurance Trust Fund served a similar function in 1997. Although such deadlines may be artificial from an economic point of view, they can have real consequences. The President essentially substitutes general fund solutions for programmatic solutions. I understand that the Comptroller General will have more to say about that.
[p. 7] ... Third, is accumulating balances in the Social Security trust funds a potentially effective way of encouraging more saving by the government? Put another way, will these changes in accounting prevent the funds from being used for other purposes? Whether this approach would work for long is open to question. The recent past in the United States and the experience in other countries is not promising in this regard.
Last, is the direct purchase of equities by the federal government appropriate?
However valid the reasons may have been to establish the accounting conventions the federal government currently uses for trust funds, those conventions confuse almost everyone: the Congress, the media, government officials, and most of all, the public.
I believe the main source of that confusion is the fact that the federal government's trust funds are not trust funds in the traditional sense; that is, they do not set aside current income for future use. Excess income over outgo for any given trust fund is invested, in a certain sense, in special Treasury securities, which are as safe and secure as all other Treasury debt. But the Treasury securities held by federal trust funds are nothing more than the government's IOUs to itself. Look at it this way: if the government had truly invested trust fund net income for future use, the Treasury would currently be holding hundreds of billions of dollars of real assets that could be liquidated in the future to pay for future obligations. But the Treasury does not hold any net assets; in fact, all that remains from the so-called investment of trust fund surpluses is net debt to the public of $3.7 trillion.
(131)[p. 8] Although there is no money in the Treasury to pay for future obligations, the obligations to people eligible for Social Security benefits are real. And most important, those obligations are a direct result of federal law, not a consequence of whatever may or may not be credited to the trust funds. In particular, 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.
This fact is explicitly recognized in the President's budget for fiscal year 2000 in the same words used in previous budgets. To quote page 337 of the Analytical Perspectives volume: "The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government's ability to pay benefits." The fact that trust fund balances are unrelated to the government's obligation or ability to pay benefits needs to be recognized before any proposals to address the Social Security and Medicare trust funds can be analyzed. In other words, look first to the impact of proposals on increasing national saving and raising real growth and then to the impact on paying down the debt held by the public.
[p. 9] Let me apply those principles to the Social Security trust funds. In their most recent report, the Social Security trustees estimate that the trust funds will not be exhausted until 2032. However, the report also includes the fact that starting in 2013, Social Security taxes will not be sufficient to meet obligations. If the Social Security trust funds were trust funds in the traditional sense, their assets could be sold to cover the shortfall. However, as stated above, the surpluses in the trust funds have been loaned to the federal government, and although special bonds have been issued to indemnify the funds, the bonds are nothing more than the federal government's IOUs to itself. Starting in 2013, the program's expenditures will exceed payroll taxes, and the government will eventually have to go further in debt, raise taxes, cut spending, or infuse more general revenues to be able to send out Social Security checks. We must look beyond the balances in the trust funds to be able to properly evaluate any proposal.
[p. 12] ...Social Security currently receives hardly any general revenues; income taxes on Social Security benefits represent less than 2 percent of the program's income.
...[Regarding transferring 2.8 T$ of the surplus to the SSTF to extend its solvency to 2055, he criticizes it as using general revenues for Social Security -- breaking with the tradition of using only payroll taxes for SS, and thus the link between what people earn and pay in, and what they get. ]
Although the Administration describes the proposed general revenue payments as a use of the budget surplus, those payments would not alter the total surplus as traditionally measured. In fact, they would not affect the surplus no matter how large or small they were. General revenue payments are purely intragovernmental—a transaction between one government account and another. The general revenue payments to Social Security would move the government's on-budget accounts from surplus into deficit over the 2000-2004 period, but they and the payments to Medicare would not affect federal transactions with the public and would therefore have no effect on the economy.
[p. 13] The Administration's proposal further confuses the situation by treating the general revenue payments as a reduction in the total budget surplus, although not as a net outlay to the public. That approach can be viewed as an attempt to protect the surplus by making it seem to disappear, but it is not consistent with the principles of federal budgeting that were set forth by the President's Commission on Budget Concepts and that have been followed for the past 30 years.
That approach has, however, been proposed before. In the context of the fiscal year 1991 budget, President Bush asked for a similar change for a similar reason—to "save" the "surplus" of a trust fund. The Congress did not approve the request; the change to budget accounting was criticized by Members of both parties at that time.
Some observers have worried that the proposed general revenue payments, plus interest, would substantially increase gross federal debt and debt subject to statutory limit (see Table 4). That concern, however, is misplaced. The increase in the amount of debt held by the Social Security trust funds would be merely a bookkeeping transaction and would not represent an increase in the net liabilities of the federal government. The government's liability for Social Security and Medicare is the obligation to pay future benefits, and, as stated above, those benefits -— and therefore the government's liability -— would be unaffected by the proposed payments of general revenues and unaffected by any "balance" in the trust fund.
[p. 14] As a third element of its framework, the Administration proposes that one-fifth of the general revenues credited to Social Security be used to purchase corporate equities or other private financial instruments. Like the proposed general revenue contributions, this element of the Administration's framework is designed to increase the balances in the Social Security trust funds, but it, too, would have little economic effect. For each dollar to be invested in equities, the federal government would have to borrow an additional dollar from the public. After the transaction, the private sector would hold fewer equities and more debt, but total national wealth and national saving would not be appreciably affected. Moreover, the technical problems cited by Chairman Greenspan might turn the President's economically neutral proposal into one that could harm the economy. [End Crippen Testimony]
"The trust fund consists, increasingly, of IOUs sent over by Congress, which keeps spending the money. "
-David Brinkley, ABC News
"Right now we are using Social Security trust funds to pay for other spending in the federal budget... there is no such fund per se. "
-Senate Minority Leader Tom Daschle
"The Social Security trust fund is simply IOUs from the U.S. Treasury... [Social Security] would be fine if the government would stop borrowing the money.
-House Speaker Newt Gingrich
"For now, [Social Security] taxes are far greater than payments. But when the income and payment lines cross... there will be no pot of savings on which to draw. Rather, there will be a pile of IOUs from the Treasury... The surplus in the trust fund is only a paper one. "
-Erik Eckholm, The New York Times, August 30, 1992
"The great unresolved government scandal of our time is the abuse of the Social Security taxes -- plus the misuse of that money over the years-by the Congress and the President.
-Martin L. Gross, Author, "The Government Racket"
"The truth is that the Social Security trust fund has already been stripped bare. There is no trust and no fund."
-Sen. Ernest "Fritz" Hollings
JAL comment: From another web page, I found this comment: "On January 29, 1998 Senator Hollings made a speech titled: 'Stop Looting The Social Security Trust Fund'. It can be found in the Congressional Record on the internet."
"[The] trust fund is a fraud... Social Security surpluses now are spent immediately on other federal programs."
-USA Today
"The Social Security trust fund... is a fiction."
-Charles Krauthammer, Columnist, The Washington Post
The following quotes were found on http://unitedseniors.org/sstfquotes.htm in 1997. Unfortunately, sstfquotes.htm no longer exists. It is apparently superceded by http://www.unitedseniors.org/OTI SSTF.htm.
The $107 billion [federal deficit] figure does not include the nearly $100 billion that was borrowed from Social Security, Medicare, federal employee pensions and other federal trust funds. Yes, that money was generated by tax revenue in 1996. But it was supposed to be saved for the future. Instead, elected officials borrowed it and left an IOU. Thus the deficit for this year was really more than $200 billion.
-Jack Anderson, The State Journal-Register (Springfield, IL), December 18, 1996
20/20, 1992:
KAREN MEREDITH, AMERICAN ASSOCIATION OF BOOMERS: The trust funds are empty. There is not a single penny. The government has not a single penny of reserves anywhere—none, zero, zip.
STOSSEL: That's a startling statement, but it's true.
... [anyone] who knows anything about the American budget knows that that is fraudulent. We have a highway trust fund, and yet every day those trust funds are counted toward deficit reduction, and in a very real sense they're spent on other things. We have a Social Security trust fund, and yet that trust fund buys government debt, frees up resources that the government every day spends on something else. We have an airport trust fund. Exactly the same thing happens.
- Senator Phil Gramm, 1993
Generally, it is liberals who defend the present Social Security system, emphasizing that the Social Security trust fund (SSTF) will be solvent for at least 30 - 40 more years. And that furthermore the trust fund assets are U.S. Treasury securities which are backed by the full faith and credit of the U.S. government. They seldom point out the liability side of the trust fund -- that the trust fund is a liability to the federal government and thus is counted as part of the national debt. And that it will require general tax revenues to redeem the trust fund bonds.
However, there are some liberals who have broken ranks with the rosy view of the majority of liberal commentators regarding the nature of the trust fund. The below quotes -- from William Greider, Barlette & Steele, Robert Eisner, and Ravi Batra -- make clear that the SSTF bonds are not assets that the federal government can use to pay for Social Security benefits. (They are assets to Social Security but liabilities to the federal goverment and so on net, no asset to the federal government at all).
A fifth commentator, Maya MacGuineas doesn't write about the trust fund specifically, but writes about the drain on future taxpayers beginning in about 2015 when the Social Security cash flow first turns negative.
From The 4/02/2001 issue of The Nation
http://www.thenation.com/doc.mhtml?i=20010402&s=greider
[Begin Greider Quote:] The awkward fact neither party brings up is that federal financing has depended crucially on collecting more money than it needs from working people since 1983, when both parties collaborated in a great crime of bait and switch. After Reagan cut taxes for the wealthy and business in 1981, he turned around two years later and raised Social Security payroll taxes dramatically on workers (earnings above $76,000 are exempted from Social Security taxes). Ever since, workers have been paying in extra money toward their future retirement -- trillions more than needed now by Social Security -- and the government simply borrows the surplus revenue to spend on other things: upper-income tax cuts or paying off Treasury bonds or reducing the fiscal damage from deficits in the operating budget.Taxing one class of citizens -- the broad ranks of working people -- so government can devote the money to other people and purposes is not only wrong but profoundly deceptive, bait and switch on a grand scale. Government still owes workers the money, of course, and someday will have to find the borrowed trillions somewhere, either by raising taxes or borrowing the money or possibly by cutting Social Security benefits. When FICA taxes were raised in 1983, Reagan at first objected and reminded aides that he was opposed to raising taxes -- of any kind. David Stockman reassured him. If the rising payroll-tax burden was imposed on young working people, they would eventually revolt and Social Security would self-destruct of its own weight. The Gipper liked that and gave his OK. The same objective, now called privatization, shows up again this year on George W. Bush's agenda. He proposes to "save" Social Security by destroying it. [End Greider Quote]
Barlette and Steele have written a number of books and articles on growing inequality, how the rules of the game are rigged to favor the wealthy, corporate welfare, and the scandalous campaign finance system.
The below is from "The Great American Tax Dodge" published in 2000.
[Begin Barlett & Steele Quote:] One might ask what difference [tax] fraud makes in an era when record tax collections are pouring into the U.S. Treasury and members of Congress and the president are debating how to spend the surplus. Putting aside the gross inequities created by people who cheat and the fact that taxes could be reduced if fraud were eliminated, the truth is there is no budget surplus. The $124 billion "surplus" for 1999 hyped by President Clinton was, in fact, an $88 billion deficit in the government's general fund.Current and future "surpluses" are attributable to excess Social Security and disability insurance tax collections, along with excess collections in other trust funds. The Social Security tax dollars collected in excess of Social Security benefits paid out are merely spent for other government purposes -- like congressional salaries, foreign aid, and radioactive waste management. Then the trust fund is stuffed with IOUs. Ultimately, you will redeem them with higher taxes. Or else Social Security benefits will be trimmed and the retirement age raised. Or all three.
In the 1990s, Presidents Bush and Clinton diverted nearly one-third of a trillion dollars in Social Security and disability insurance taxes to run the U.S. government. These taxes are paid overwhelmingly by working people in the middle and at the bottom of the economic pile. From 2000 through 2005, the U.S. government budget calls for another half-trillion in Social Security tax dollars to be siphoned off for other purposes. [End Barlett & Steele Quote]
In the "Great American Deception", published 1996, Ravi Batra writes (p.225) --
[Begin Ravi Batra Quote:] "Some may suggest that my tax plan will jeopardize the Social Security system by eliminating the trust fund. First, the trust fund is empty now. It has little cash, just billions of dollars of IOUs from the federal government, which is itself in hock by $5 trillion." [End Ravi Batra Quote]
Maya MacGuineas outlines a liberal case for the partial privatization of social security in The Washington Monthly April 2001 issue. ( http://www.newamerica.net/articles/MacGuineas/mmTWM4_01.htm ). Here are some quotes regarding the current system
Second, when Social Security began, it was a tremendously good deal for earlier participants. People got out far more than they paid in. But the returns participants receive on what they pay into Social Security have declined precipitously and are now expected to be roughly one to two percent; for many, they will actually be negative. Increasing what is paid into the program or decreasing what is paid out, will only exacerbate the problems of the discouragingly low returns-increasing the generational inequities and tensions that already exist....
According to our best estimates, because of the upcoming retirement of the baby boomers and growing life expectancies, the dedicated payroll tax used to fund the intergenerational transfer system will no longer provide enough money to cover promised benefits starting in 2015. By 2037, the program will be running annual deficits of $300 billion in today's dollars; it will take an infusion of $4 trillion to pay full benefits between now and when today's 30 year-olds retire. And the problems will grow rapidly thereafter.
...
we could increase the payroll tax that funds the system to cover compromised benefits. That would take an unpalatable 50-percent increase over time, and that's not counting the portion of the tax used to pay for Medicare.
Robert Eisner writes in "The Great Deficits Scare" that the Social Security Trust Fund is an accounting device whose assets are Treasury obligations, that must be paid off by the Treasury. Thus we have one Treasury account owing another Treasury account.
For much more on Robert Eisner's view on Social Security, see fb-51.html#non133
JAL comment: Even the liberal Robert Eisner, writing in the Great Deficit Scares, says that the SSTF (the OASDI trust funds) is a meaningless accounting exercise, and might as well be done away with, in favor of explicit pay - as - you - go financing of SS benefits. When he says that "the problem with the OASDI trust funds, if there is one, is utterly trivial", he means that it can be easily "fixed" by accounting gimmicks, such as crediting the SSTF with a higher interest rate or with some share of income taxes. Here is some of what he has to say beginning on p. 44:
[Begin Eisner quotes:] The problem with the OASDI trust funds, if there is one, is utterly trivial. Many people talk as if these "funds" contained piles of $100 bills, which workers replenish with their contributions. At the risk of causing more worry, I must point out that there is no "money" in the trust funds; their assets are Treasury obligations, as good as money but essentially computer entries, printed out each month. ...
Since Social Security checks come from the Treasury in any event, there is no real reason to go through the accounting procedure of building up the computer balances and then drawing them down. The funds could be abolished and the Treasury ordered to go on paying the benefits prescribed by law, borrowing to finance these expenditures if necessary, just as it does now to finance the U.S. military or anything else. Payroll taxes, like other taxes, go into the general Treasury pot that finacnes expenditures, and dropping a separate account for them would make no difference. To the argument that retiress would be less secure without the funds, it should be emphasized again that the integrity of commitments to the elderly depends ultimately on the political will to meet them and the nation's real economic ability to do so. Neither of these should be in doubt. ...
As to the alleged future insolvency of the funds ... what most alarmists fail to mention is the observiation, in the trustees' report, that an increase in taxes of a mere 2.23 percent of taxable payroll would ... keep the funds fully solvent through the year 2070. [In the 3/99 report, the number is 2.07 percent of taxable payroll to keep the funds fully solvent through the year 2075].
Besides, there are many feasible solutions that require no increase in taxes ... [one solution is] to credit the trust funds with the income taxes paid on the nondeductible Social Security contributions. [He then indicates that would be enough to close half of the 2.23 percent gap].
... [another solution is] Crediting the funds with the returns on their asset balances three percentage points more than under current law -- about 9.3% instead of a projected 6.3% -- would eaily make up the rest of the gap. This entails no change in taxes paid or government borrowing. It is indeed only an accounting manuver, but the presumed problem with the trust funds is only an accounting problem to begin with and therefore appropriately solved by changing the paperwork.
The Treasury is already contributing out of general revenues to Medicare -- $65 billion in 1996 to Medicare's Part B, the Supplementary Medical Insurance (SMI) program.
[See also section non201 where in fact an accounting manuver has recently been used (beginning in 1997 or 1998) to extend the solvency of the HI trust fund -- to help stave off insolvency of Part A's HI trust fund, Congress and Clinton agreed to shift home health care services from Part A to Part B, adding new costs ($12.7 billion in 1998) to Part B while making Part A look better.]
Allocating other revenues to OASDI, the retirement and disability funds, thus would not establish a new precedent. Crediting to the Social Security trust funds that part of income taxes levied on payroll contributions is entirely reasonable and would make no difference whatsoever to government financing, the taxpayer, or the economy. The Treasury, after all, would be collecting these taxes as before and spending the revenue as before. Instead of the taxes going into a general funds account, however, they would be credited to the OASDI account. And those worried about the funds' solvency might breathe easier.
Crediting the fund balances with higher returns is also amply justified. It would bring them closer in level to the market equity return that advocates of privatizing some or all of the Social Security system promise. Payroll contributions to the funds have saved the Treasury from public borrowing that would have substituted for private investment. Private investors whose funds would otherwise have purchased Treasury securities thus put their money into the higher - yield stock market. It is only appropriate that Social Security participants, who cannot invest their involuntary "contributions," have their funds credited with the higher returns to private investors that these contributions have made possible. Again, this additional credit to the funds would make no difference of any real magnitude; as the "debt" of one part of the government to another, it would not even add to the relevant figure for the federal debt, which is the federal debt held by the public, currently $3.8 trillion.
I shall suggest another account change that would take care of the trust funds. Instead of restricting the funds' revenues to payroll taxes, one might also credit the funds with some of taxpayers' individual and corporate income taxes. About 1.5 percent of taxable individual and corporate income would be equivalent to the 2.23 percent increase in payroll taxes the fund trustees have calculated.
It should be stressed that none of these accounting changes affect in any real way the federal deficit or anything else. The deficit is still the excess of total government outlays over revenues. Crediting more of those receipts to a particular account -- or setting up new internal accounts altogether -- just juggles the surpluses and deficits within those accounts. [End Eisner quotes]
JAL comment: He then mentions that in the Trustees' "Low Cost" scenario, there is no SSTF solvency problem. (However, what he doesn't mention is that even in the Low Cost Scenario, SSTF bonds will have to eventually be redeemed (beginning in about 2019), and as always, the general taxpayer will have to provide the real money to redeem the bonds. See section non168 for more on the Low Cost Scenario).
And then he presents arguments about why he thinks some of the Low Cost Scenario economic and demographic assumptions are more realistic than the "Intermediate Cost" scenario. (p. 48). (See also section non234 for discussion of whether the Trustees might be overly pessimistic).
In so many words, what he is saying, is that SSTF solvency can be extended indefinitely merely by stuffing more bonds into it. And that bond - stuffing would be entirely an accounting manuver. There would be no need to sell more bonds to the public, so it would not even add to the debt held by the public. (However it would add to the gross federal debt, which includes the trust funds debt. But the trust funds debt, and thus that part of the gross federal debt, is simply an accounting artifice. The purpose of the trust funds is to keep track of what part of our promises to retirees and other trust funds beneficiaries that we have made more explicit by manufacturing Special Issue Treasury Obligation bonds to cover them). See section non159 for more on the components of gross federal debt.
By the way, "liberal" is not a dirty word in my book. I am a fiscal conservative, but a liberal on many issues, including many economic issues as well as social issues.
JAL comment: Dorcas R. Hardy is a former U.S. Commissioner of Social Security and the co-author of Social Insecurity -- The Crisis in America's Social Security System and How to Plan Now for Your Own Financial Survival (Random House, 1992). Here is what he has to say about it in his work titled Social Security Trust Funds: Myth or Reality?:
[Begin Hardy quotes: ] In 1993, the Old Age and Survivors Insurance, Disability and Hospital Insurance programs (the official terms for Social Security and Medicare) combined will pay out more than $300 billion to over 41,000,000 people --one of every six persons in our nation. Workers are annually paying more taxes than are needed to pay monthly benefits, so the Social Security reserves will grow at nearly $1 billion weekly, amounting to $1 trillion by the turn of the century. A government account with a surplus is a rare occurrence, so why are these facts causing us alarm?
Because there are no real dollars in the Social Security Trust Funds! Social Security payroll taxes are, by law, invested in U.S. Government special issue bonds. Because the federal government is in deficit, the bonds are used to finance current government operations. The Trust Funds are, in effect, merely a growing stack of IOUs that will need to be redeemed in the future in order to meet program obligations. This can be done only by increasing taxes or reducing Social Security benefits, or, most probably, a combination of the two. The sums of money involved are astronomical [see table, p. 10], and unless the Trust Fund's IOUs are redeemed by much higher taxes, the program will be forced to decrease or even default on promised benefits. Many observers fear this will happen.
...The current surpluses create an illusion that all is well with Social Security, at least until after the turn of the century. In 1992, the accumulated Social Security reserves or surpluses reached nearly $400 billion dollars; they are projected to reach $1 trillion by 2000. What few understand is: There are no real surpluses. The money has been spent and will go on being spent every day, on current government expenditures. The Trust Funds are no more than a record of how much has been spent, with a promise to pay it back someday.
..The tax revenues are used to pay current beneficiaries, but more is presently received than paid out. The excess of revenue over expenditures is invested in special-issue U.S. Treasury bonds (as mandated by law). Though the Social Security special-issue bonds pay interest, it is only on paper.
..At no time have there ever been funds set aside to redeem the trust fund bonds. Even the interest "paid" is an accounting artifice. The Treasury does not pay out actual cash but simply records the interest in its accounting; no dollars change hands!
.. The reader should keep foremost in mind that IOUs cannot pay bills. Phantom Social Security Trust Funds cannot pay benefits. Anyone who suggests otherwise should be asked to show you where the reserves are that can pay the ever-higher expected benefits. [End Hardy quotes]
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