Cashing in Government IOUs
[Guest post by DRJ]
This year marks a big change for Social Security:
“The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.
It’s time to start cashing them in.
For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits – billions more each year.
Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes – nearly $29 billion more.
Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs – in the form of Treasury bonds – which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.”
Thus, the Social Security Trust Fund isn’t really a fund at all. Instead, American workers pay income, Medicare and Social Security taxes to the government and the funds are held by the U.S. Treasury.
The proposed health care legislation calls for payments to start long before benefits. This accounting trick makes health care look better than it is:
“So let’s use the definition of “deficits” that most Americans follow in their own budgets: Any time you increase spending — on buying a two-story colonial or taking a vacation at Club Med — and you need to borrow to pay for it, you’re running a deficit. For families, the best way to measure those deficits is the amount it adds to what they owe on their credit cards, car loans or home equity lines.
Now apply the same standards to the health-care bill. If it really reduces deficits, it should lower the federal debt. It does the opposite. How? First, it doesn’t raise nearly enough revenues to pay for itself. Second, it vastly understates future costs.”
It’s similar to a Ponzi scheme that generates money up front while making the overall economic burden worse, leaving many people with lower benefits and higher taxes.
Worse yet, all these funds will undoubtedly be paid into the U.S. Treasury and not into a segregated health care fund. Any bets on whether those funds will still be there 3, 7, or 10 years down the road?
— DRJ
There is some danger that, “unexpectedly”, taxes will have to go up.
Kevin Murphy (3c3db0) — 3/16/2010 @ 5:23 pmBut what I expect the Obamites to do first is take Social Security away from people who’ve provided their own retirement security. Pretty much how they “solved” the problem in Canada and the UK.
Although I confess they may combine that with taxes going up.
Kevin Murphy (3c3db0) — 3/16/2010 @ 5:27 pmAs someone drawing SocSec, I wish to reprise Texas Guinan’s famous greeting:
“Hi-Yah, Suckers!”
Keep making those payments and keep me in the life-style to which I’ve become accustomed.
AD - RtR/OS! (02b3ae) — 3/16/2010 @ 5:30 pm“Similar” to a Ponzi scheme? Uh, no. It is a Ponzi scheme. Like so many government programs, including the Social Security system itself.
Government does things that – when done by private sector are illegal. This is a classic example.
SPQR (26be8b) — 3/16/2010 @ 5:35 pmI don’t anticipate getting a dime from social security. That’s why I have my own retirement plan.
BigFire (3a739a) — 3/16/2010 @ 7:17 pmw*rk until you die, right?
redc1c4 (fb8750) — 3/16/2010 @ 7:42 pmThe government should put Bernie Madoff in charge of it. He kept a lot of empty headed liberal investors going for years.
Have Blue (854a6e) — 3/16/2010 @ 8:14 pmYou could buy $2.5 billion in IOU’s for a few hundred dollars. That’s more than they will be worth if someone doesn’t impeach the idiot in charge.
Scrapiron (941244) — 3/16/2010 @ 8:18 pmI understand the reality that this has been going on for a long time, so long that nobody around now can be assessed the responsibility for it…
and I understand that when President Bush tried to do something about it all that happened was bad news for him…
but is their anything else that represents the fundamental dishonesty of our government and our political system as this?
Anybody with a piggy bank knows you either have money in the piggy bank, or you don’t, and notes that say you owe yourself the money that is not there are worse than notes from your stuffed animals, because at least your stuffed animals aren’t lying.
What are we supposed to do in the course of human events when a government taxes the populace against their will and becomes a law unto itself, “deeming” it is not required to practice the same standard of morality it requires of the governed.
MD in Philly (70a1ba) — 3/16/2010 @ 8:19 pmHe should be captured alive and gently “reminded of how painful his mortality could become.” His intelligence value is worth a lot of time spent capturing rather than killing. Ditto for Zawahiri.
{^_^}
JD (f3a33a) — 3/16/2010 @ 8:32 pmWe are on the verge of being a banana republic … and I don’t mean a clothing retailer.
SPQR (26be8b) — 3/16/2010 @ 8:38 pmUh, JD, I think wrong thread. 🙂
MD in Philly (70a1ba) — 3/16/2010 @ 8:42 pm“But what I expect the Obamites to do first is take Social Security away from people who’ve provided their own retirement security”
So far democrats have resisted GOP attempts to means test social security. The reasoning is rather simple. Once it is means tested, and it becomes welfare for the less well off, it is easier to cut and kill. Instead the solution i figure they will go for is to make the social security contribution more progressive. And maybe minor, but universal changes in benefits levels.
[note: fished from spam filter. –Stashiu]
imdw (f6a9f8) — 3/17/2010 @ 4:09 amMD, maybe JD is talking about Barney Frank?
PCD (1d8b6d) — 3/17/2010 @ 4:59 amPCD, I think not. JD wrote “His intelligence value… ” Those two words can’t be used in the same sentence with Barney Frank.
Corwin (ea9428) — 3/17/2010 @ 5:17 amThat was the other JD, not I.
JD (ff5947) — 3/17/2010 @ 6:00 amSounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs – in the form of Treasury bonds – which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.
It’s like I said the other day–politicians (the Democrats in particular, but the Republicans are guilty of this too) kept kicking this can down the road, presuming that they would be long gone from office and in the grave by the time this became an issue. The mere fact that they took out government bonds to pay for future obligations, thus putting future generations on the hook for even more than the current generation put into the system, shows that they knew this program wasn’t self-sustaining.
Twenty years ago, they said it wouldn’t run out until 2050. Ten years ago, it was 2030. Last year, it was 2015. And here we are in 2010, and Social Security is broke.
The bulk of the Baby Boomers haven’t even retired yet–any bets on how many of them have an actual nest egg of real savings, as opposed to the real estate ATM and stock market gambling most of them have been practicing? Hell, any bets on how many Gen-Xers have anything saved up for their retirement, thinking SS was going to bail them out?
This program has been the biggest con job since Potemkin was building his facades. If our current “leaders” had any stones, they’d allow us to opt out, take a lump sum payout of what we’ve put into the system to date and let us figure out what to do with it ourselves. It certainly couldn’t be any worse than the roughly $60 trillion in future obligations that will have to be paid on this.
Another Chris (2d8013) — 3/17/2010 @ 6:05 amThe other JD needed to be on the other thread.
MD in Philly (70a1ba) — 3/17/2010 @ 6:20 amInstead the solution i figure they will go for is to make the social security contribution more progressive.
Which is to say keep the maximum payout fixed, but remove the corresponding maximum “contribution.”
BTW, I like that word “contribution”; it seems so voluntary.
Kevin Murphy (3c3db0) — 3/17/2010 @ 7:15 amI should point out that removing the SS tax cap while continuing to cap the benefits IS means-testing. Just less transparently so.
Kevin Murphy (3c3db0) — 3/17/2010 @ 7:17 am“Which is to say keep the maximum payout fixed, but remove the corresponding maximum “contribution.” ”
Or lift it.
“I should point out that removing the SS tax cap while continuing to cap the benefits IS means-testing. Just less transparently so.”
I’ve only heard ‘means-testing’ used to discuss benefits levels. Not contributions levels.
imdw (b40b74) — 3/17/2010 @ 7:32 am