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Wed Dec 12, 2012, 09:51 PM

Fact-checkers Sputter And Flop Attempting To Explain How Social Security Works, Affects Deficit

A gaggle of fact-checkers recently attempted to bring clarity to the question of whether Social Security adds to the deficit. Much as they did during the campaign, the fact-checkers have instead confused what is in fact quite a simple issue.

Social Security, by law, does not add to the deficit. It is not a driver of long-term debt. We’ve been over this. The reason no one can get it right is because here in this season of the fiscal cliff, no one is getting anything right. It’s a full-on headless chicken panic. Everyone needs to calm down, about a lot of things, but especially about Social Security, which does not even have to come up during the “fiscal cliff talks” because it’s totally irrelevant to the situation and will only complicate everything needlessly.

Sweet nutty, here comes the Associated Press, relying on a familiar line of reasoning, arguing that the program does in fact add to the deficit because the government "spent that money on other programs, reducing the amount it had to borrow from the public, including foreign investors...In return, the Treasury Department issued special bonds to Social Security. The bonds are now valued at $2.7 trillion. They are accounted for in two Social Security trust funds, one for the retirement program and one for the disability program. The bonds pay interest like other Treasury notes and are backed by the full faith and credit of the U.S. government."




(snip)
"Social Security is not part of the budget. So that $14.3 trillion debt that we are at, the limit that you are going to have to raise -- or at least have to vote on whether to raise in a few months -- if you cut Social Security, that $14.3 trillion does not change. It does not put any room into the debt limit."

http://www.huffingtonpost.com/2012/12/12/social-security-fact-checkers-fiscal-cliff_n_2286462.html

more at link

14 replies, 1200 views

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Response to cal04 (Original post)

Wed Dec 12, 2012, 09:55 PM

1. "Social Security, by law, does not add to the deficit." - someone missed the payroll tax cut

that by law replaced the missing revenue from the general fund (thus adding to the deficit).

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Response to PoliticAverse (Reply #1)

Wed Dec 12, 2012, 10:12 PM

2. That is why I am *totally* against the payroll tax holiday.

All Obama/Congress had to do was to add a tax decrease to the middleclass instead of this
crappy payroll tax holiday.

So, in my mind, sorry, the payroll tax holiday 'payback' does not add to the debt of Social Security.

We need to stress that the total FICA payroll tax MUST be restored.

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Response to TheProgressive (Reply #2)

Wed Dec 12, 2012, 10:17 PM

5. Apparently Obama is pushing to extend the holiday...

From the DU thread here: http://www.democraticunderground.com/10021969595

• Offsetting the deficit reductions measures, there would be $528 billion in additional spending to extend the tax credit for student expenses, the Earned Income Credit, extension of unemployment benefits, extension of the payroll tax reduction, and other breaks targeted to middle and lower income earners.

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Response to PoliticAverse (Reply #5)

Wed Dec 12, 2012, 10:25 PM

6. We need to inform Obama to stop the Payroll tax...

Obama's payroll tax helps to destroy Social Security. Although, the funds are paid into
SS to make up for the payroll tax holiday, it is an approximation and more importantly,
it gives the connotation that removing the payroll tax is a 'tax hike'.

Call/email President Obama and inform him to end the FICA holiday.

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Response to PoliticAverse (Reply #1)

Wed Dec 12, 2012, 10:16 PM

4. It doesn't replace that missing revenue from the general fund,

 

it replaces it from the trust funds. That's the whole point: the trust funds are growing faster than the outlays, even with the payroll tax cut. And even if they weren't, they'd have to be exhausted before the general fund would actually have to start funding SS. And that's a long, long, LONG way off by the most conservative estimates, which are usually laughably off base.

The reality is that SS has off-the-books revenue streams that just about guarantee that the trust fund will keep ballooning indefinitely, for example, undocumented immigrants who use stolen or fictitious SS #s. Yes, their employers pay their SS taxes, but the employees have no chance of ever collecting benefits. Is the SS admin aware of this? Hmm. Is water wet? But those anomalies aren't reflected in the official forecasts.

Executive summary: the AP fact checkers are confused because they want to be. It's a con.

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Response to allrevvedup (Reply #4)

Wed Dec 12, 2012, 10:27 PM

7. Well actually it replaces it from the trust fund with the amount taken from the trust fund replaced

then from the general fund so the result is the same.

http://www.gpo.gov/fdsys/pkg/PLAW-111publ312/html/PLAW-111publ312.htm

(1) Transfers to federal old-age and survivors insurance
trust fund.--There are hereby appropriated to the Federal Old-
Age and Survivors Trust Fund and the Federal Disability
Insurance Trust Fund established under section 201 of the Social
Security Act (42 U.S.C. 401) amounts equal to the reduction in
revenues to the Treasury by reason of the application of
subsection (a). Amounts appropriated by the preceding sentence
shall be transferred from the general fund at such times and in
such manner as to replicate to the extent possible the transfers
which would have occurred to such Trust Fund had such amendments
not been enacted.

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Response to PoliticAverse (Reply #7)

Wed Dec 12, 2012, 10:31 PM

9. Are you talking about the Treasury bills?

 

Yes, funds borrowed from the trust funds have to be repaid to the trust funds when needed, but it was borrowed in the first place. The funds were collected from workers and are held in trust by the SS admin. There's no net loss to the general fund, just repayment of money owed.

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Response to allrevvedup (Reply #4)

Wed Dec 12, 2012, 10:28 PM

8. I am not sure you are correct on your initial statement.

The accounting shows where the general fund is debited and the trust fund credited...
Is that what you mean?

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Response to TheProgressive (Reply #8)

Wed Dec 12, 2012, 10:33 PM

10. The money belongs to the SS trust fund. It's loaned to the General fund,

 

and when it's needed for SS benefits, the general fund has to repay those loans. But there's no net loss the general fund.

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Response to PoliticAverse (Reply #1)

Thu Dec 13, 2012, 02:39 AM

12. Where does the money Treasury is obligated to repay the Trust Fund

come from? Is there a source other than the General Fund or rolling over non-tradeable Trust Fund bonds into publicly tradeable bonds for cash? Thanks to Dubya, with borrowing to meet general fund obligations already at more than a third, how can you say with a straight face that Social Security does not affect the deficit?

However, I think the usual conclusion people draw from this linkage is wrong. IMO it is unlikely Congress will force Treasury to default on repayment of "full faith and credit" special Trust Fund bonds. No--Congress does not need to induce default--it retains control over the rate at which Treasury must make good on the near-three-trillion in Trust Fund bonds. Benefits may be cut over a long period of time in subtle ways, such as underpaying on inflation adjustment of benefits, Taxing SS benefits at higher rates, or raising retirement ages for people now in their forties and under.

IMO, we need to beware of such so-called "STRENGTHENING" of Social Security--that's the real threat.

IMO evil genius Alan Greenspan invented the scam of the century in the early 80's, by not allowing the trillions in extra FICA he began taxing, ostensibly for the Trust Fund, to be lent to anyone but the US Treasury. Had he allowed the establishment of a Soveriegn Wealth Fund for Social Security--as most every State does for its government workers--we would not have to fear "strengthening". But for Greenspan, such a Soveriegn Wealth Fund would have been "socialism".

Thus Social Security is analogous to a retirement savings account a couple set up in their early 20s, with a hidden "catch" in the contract. Although the couple planned on taking out $3000 a month at retirement, at that time the banker could say, "I'm only going to allow you to withdraw a maximum of $1,000 a month. But just think how fast your money will continue to grow!"

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Response to ProgressiveEconomist (Reply #12)

Thu Dec 13, 2012, 06:56 AM

13. When the trust fund special issue securities are redeemed the money comes from the general fund

(and if the Government is operating as a deficit the result will be to switch the non-tradeable trust fund securities
into public treasury bonds/notes.)

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Response to cal04 (Original post)

Wed Dec 12, 2012, 10:14 PM

3. I love that logic: "Well, we'd rather take your SS & spend it on other stuff ..."

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Response to cal04 (Original post)

Wed Dec 12, 2012, 10:51 PM

11. Not for cutting SS, but the amount of money involved does affect economy.

It might not contribute in an accounting sense, but it has an impact on our economic wellbeing

But, they need to make up for that by increasing taxes on upper end, slashing military spending., investing in future, and other similar stuff.

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Response to cal04 (Original post)

Thu Dec 13, 2012, 08:43 AM

14. The "trust fund" is like me writing an IOU for $2 million to myself,

locking it in a safe-deposit box, and then claiming that financially I'm all set for retirement.

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