[BlueLyon note: My reply to this comment to my original post got to be too long, so here it is as a full-fledged post.]
What the heck are you talking about?
. . . beginning in 2016 and continuing until the Trust Fund is depleted, Social Security will add to deficits each year as the bonds in the Trust Fund are redeemed
The trust fund will never be “depleted.” Yes, there will come a time when SS will start giving out more in benefits than it takes in in payroll taxes. That was what the changes to SS in 1983 were made to cover. It was expected that baby boomers working their way through the program would start taking out more than went in. So changes were made in 1983 to make sure that there would be a reserve to cover this additional strain.
Have you read the 2010 Trustees Teport? From the summary
The financial outlook for Social Security is little changed from last year. The short term outlook is worsened by a deeper recession than was projected last year, but the overall 75-year outlook is nevertheless somewhat improved primarily because a provision of the ACA is expected to cause a higher share of labor compensation to be paid in the form of wages that are subject to the Social Security payroll tax than would occur in the absence of the legislation. The Disability Insurance (DI) Trust Fund, however, is now projected to become exhausted in 2018, two years earlier than in last year’s report. Thus, changes to improve the financial status of the DI program are needed soon.
Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The projected exhaustion date for the combined OASI and DI Trust Funds is unchanged from last year’s report.
The reserves are exhausted, not the entire trust fund as you claim. If we do NOTHING, Social Security will still be able to pay out all claims until 2037, and then the fund would still be taking in enough to pay 75% of scheduled benefits. There is no imminent crisis here, but I fear the Catfood Commission is about to lop off our collective heads anyway.
Every dollar from Social Security that has mitigated past deficits will add at least a dollar to future deficits.
1. Social Security adds to the deficit.
Social Security, by law, cannot add to the deficit. It is a separate program, paid into through FICA contributions, with benefits paid only from the revenue it raises. If the trust fund were to be exhausted and current contributions were not adequate to pay benefits, Social Security could not borrow from the general budget. Federal law prohibits Social Security from borrowing.
2. Social Security is broke, and there is no “Trust Fund.”
Conventional wisdom among Social Security skeptics is that the program is out of money now and that there is no Social Security Trust Fund. This is fueled largely by the fact that Social Security did begin to pay more in benefits than it received in taxes earlier than was projected due to the depth of the 2008 recession. Regardless of this fact, the Social Security Trust Fund currently runs a $2.5 trillion surplus. The Economic Policy Institute estimates the surplus will peak at $4.2 trillion in 2024 Trust Fund intact, with no changes to the program, Social Security is projected to be able to pay 100 percent of benefits until the year 2037. After 2037, Social Security will still be able to pay 75 percent of benefits.  A program projected to meet costs almost 3 decades into the future with no adjustments is not a system in crisis. Other government programs would be hard pressed to meet such a standard.
I realize this is a repeat of my point above. Lather, rinse, repeat until the lie dies.
So the $2.5 trillion in the Trust Fund is not included in the $13 trillion or whatever is now reported as the national debt. The government gets to count the surplus income from Social Security as revenue but doesn’t have to count the bonds they issue in return as debt.
A company needs funds to expand into new markets, while governments need money for everything from infrastructure to social programs. The problem large organizations run into is that they typically need far more money than the average bank can provide. The solution is to raise money by issuing bonds (or other debt instruments) to a public market. Thousands of investors then each lend a portion of the capital needed. Really, a bond is nothing more than a loan for which you are the lender. The organization that sells a bond is known as the issuer. You can think of a bond as an IOU given by a borrower (the issuer) to a lender (the investor).
Bonds are debt, whereas stocks are equity. This is the important distinction between the two securities. By purchasing equity (stock) an investor becomes an owner in a corporation. Ownership comes with voting rights and the right to share in any future profits. By purchasing debt (bonds) an investor becomes a creditor to the corporation (or government).
Nice little scheme – one that might earn you a stint at the Gray Bar Inn if you tried it at a private company.
I wish. Isn’t this what a major part of the financial meltdown was all about? But I digress…
That doesn’t change the fact that this debt has to be paid off in exactly the same way as the government’s other debt – through a combination of tax increases, spending/benefit cuts and sale of assets.
Yes, somehow those treasury bonds have to be paid. Just like the ones that are owned by counties. My suggestion and that of many is to raise the cap on SS payroll tax. Problem solved. Or, eliminate the cap altogether and lower the rate to 3% or so. There is no need to cut benefits or raise the retirement age. In fact, with our unemployment problem as it is, lowering the retirement age and getting more people on Social Security might just be the solution..
As for the full faith and credit of the US, one’s ability to keep one’s promises is limited by one’s ability to keep one’s promises.
To date, the U.S. has met all of its debt obligations, and should continue to do so. If it doesn’t we’ve got bigger problems than Social Security.
The capacity of the federal government to honor commitments to future spending is large but it is not infinite.
Yeah, actually it is.
The Fed was able to spend so much money so quickly because it has a unique* power: It can create money out of thin air, whenever it decides to do so. So, [the New York Fed’s Richard] Dzina explains, the mortgage team would decide to buy a bond, they’d push a button on the computer — “and voila, money is created.”
“Voilà, money is created.” Savor that. Not knowing what they said, they said it. Because you just saw the Fed validate one of MMT’s (Modern Monetary Theory‘s) central claims: That, for a government that is sovereign in its own currency, spending is not operationally constrained by revenues.* When Julie Remache pushed the button on her computer, did a red light go on because money was going to run out? Did an alert pop up, saying “This transaction will cause the country to run out of money. Please OK or Cancel“? How about “Insufficient $$$: Abort, Retry, Fail”? Of course not!
In other words, Jamie Galbraith is 100% correct, and according to the Fed; modern money is a spreadsheet:
[M]odern money is a spreadsheet! It works by computer! When government spends or lends, it does so by adding numbers to private bank accounts. When it taxes, it marks those same accounts down. When it borrows, it shifts funds from a demand deposit (called a reserve account) to savings (called a securities account). And that for practical purposes is all there is. The money government spends doesn’t come from anywhere, and it doesn’t cost anything to produce. The government therefore cannot run out.
(So much, therefore, for the ideology underlying the Cat Food Commission, which is, in short form, that “We’re running out of money ZOMG!” and so the MOTU, in order to continue to live the lifestyle to which they have become accustomed, must — Must, I tell you! Must! — strategically default on their obligations to elders under Social Security, and use that money for themselves.)