Reply #43: I absolutely never said that the bonds shouldn't be repaid; just the opposite, in fact

[Jim Lane]

You've vehemently attacked a view that I never stated and don't hold.

Short response: I agree with you that the surplus, represented by the bonds, was accumulated for the purpose of funding Social Security benefits during the period of (roughly) 2019 through 2040. Therefore, the bonds should indeed be repaid when the repayment is necessary to meet that purpose. The beneficiaries, however, are better off if, while maintaining full benefit payments, the system draws down on the bonds as little as possible, because that way the bonds will last longer.

Longer version, spelling it out: Right now, the system's annual revenues exceed annual expenses. As long as we're in that situation, the surplus will accumulate. It's only when expenses exceed revenues that there's any need for the Social Security Administration to begin presenting any of the bonds in the Trust Fund and demanding payment on them.

You ask, "How long do you suggest we wait to demand *repayment* of the extra money we paid in for 30 years....?" I would have thought that my answer was obvious. We should wait to demand repayment until the system is running a current operating deficit, at which point the repayment is necessary to maintain the promised benefits.

The greater the system's current operating deficit, the more of the bonds will be presented for payment. The more that are presented and paid, the lower the Trust Fund will go.

On one set of pessimistic projections (which has been challenged), the Trust Fund will be exhausted at a time when the system's expenses still exceed revenues. That's the "crisis" and "bankruptcy" that Bush was trying to hype. Bush's misrepresentations aside, it's clearly in the interest of the beneficiaries that the Trust Fund not be exhausted.

Therefore, if we can improve the system's yearly revenue-and-expense balance now, thereby reducing the drawdown on the bonds, we can defer and perhaps eliminate the problem of Trust Fund exhaustion. Raising or eliminating the cap would produce just such an improvement in the system's balance. A 2001 Social Security advisory board report stated:

Making all earnings covered by Social Security subject to the payroll tax beginning in 2002, but retaining the current law limit for benefit computations (in effect removing the link between earnings and benefits at higher earnings levels), would eliminate the deficit. If benefits were to be paid on the additional earnings, 88 percent of the deficit would be eliminated.

(See the report ; this passage is on page 23.)

That's why I wrote of the removal of the cap as "lessening the need to demand payment on the Trust Fund bonds." It would indeed have that effect, and that would be a good thing.