[Homestead] The sad story
don.bowen at earthlink.net
Wed Oct 26 19:16:42 EDT 2005
At 10/26/2005, you wrote:
>They are "special bonds." Special in that they are not counted against the
>debt. It is done to cook the books and to make the debt appear smaller.
It looks like my understanding is incomplete and out of date. Look at
http://www.ssa.gov/history/BudgetTreatment.html for a history.
http://www.etherzone.com/2005/henr090605.shtml is another view.
As mentioned, it is the difference between deficit and debt. Debt is the
total of what we owe. Deficit is the difference between income and
outgo. For political purposes the money flowing in from SS Surpluses is
income and not shown on the deficit but since that money is used to
purchase special government bonds it shows up on the debt. With the
decline of incomes and jobs in the US Social Security receipts have
declined, increasing the deficit. There is concern that since the
government is borrowing from itself it could very easily just cancel that debt.
How about the following from:
I've explained this so many times over the last two decades that I
should've written an FAQ. SS in a simplified nutshell.
The deficit is calculated as income minus spending. SS payroll tax revenues
(including surpluses) are government revenue. SS payouts are government
spending. So SS payroll tax revenue surpluses reduce the deficit. Simple so
Now the fun part. Follow the bouncing ball! The government records those
surplus SS revenues as assets (cash in hand) against overall government
spending, and reduces the deficit by spending the cash. The money is
supposed to go to SS benefits. But SS doesn't need it yet. To note the
taking of that money from SS, the government issues bonds to SS. These
bonds are counted as an "asset" to SS, and a "liability" to the Treasury.
It all balances! Except for one little detail....
The internal trust fund "asset" is offset by an internal matching
liability, which means it's a wash as far as real money goes. BUT...they
spent the money. So they're counting it TWICE as an "asset" (cash for
deficit AND bonds in SS) but only booking ONE liability (the Treasury
entry). The other liability (the future revenue required to pay the bonds
and maintain promised SS spending/benefit levels) doesn't show up on the
books. Money for nothing--until SS revenue dips below benefits payable.
Then the pyramid starts to crumble.
At the point that SS payroll tax income dips below benefits due, SS has to
fill their revenue hole by redeeming the trust fund notes. Which means they
have to get the money to do so from the Treasury. But the Treasury hasn't
stuffed those bucks in a mattress. The Treasury gets ALL its money from us
via taxation, or from borrowing.
The current estimate of the size of the "hole" at current benefit levels is
$4 trillion (Net Present Value). But that's not the whole tab, because
we'll also have to pay back that stack o' tabs in the "trust funds." That's
currently $1.7T NPV. And that too will increase by another $700B over the
next decade, requiring another $700B payback from us taxpayers. Total tab,
today, is $6.4T NPV.
That's the figure to use for reference when assessing reforms. If the
"reform" reduces the NPV liability by more than the cost of the reform,
we're making progress. If it doesn't, we're not accomplishing anything.
ALL reforms that can bring the system into balance will REQUIRE some
combination of revenue increases, borrowing, or benefit reductions. And
probably all three. There are no other options. And the tab grows every
year, so the sooner we act, the less painful the reform. ANyone telling you
anything different is either ignorant or lying.
Don Bowen Awl Knotted Up
My travel journal
My present location is the star on the map in the link below
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