Social security trust fund default?

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Author Message   themp Supporter Username: Themp Post Number: 1445 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 10:25 am:        "Some in our country think that Social Security is a trust fund -- in other words, there's a pile of money being accumulated. That's just simply not true. The money -- payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust. We're on the ultimate pay-as-you-go system -- what goes in comes out." Is Bush referring to the two trillion dollars in treasury bonds that are in the SS trust fund? Is he advocating defaulting on them? US Constitution, Amt XIV sec 4 - "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." I don't understand this high finance, but it is an interesting new wrinkle.   Michael Janay Citizen Username: Childprotect Post Number: 1553 Registered: 1-2003 Posted on Thursday, February 10, 2005 - 11:50 am:        No, he's not. He's referring to the fact that most Americans believe that the money they put in to SS through FICA is set aside in a trust fund for their retirement. That is just plain incorrect. As you should know, the money you pay in goes straight to current retirees. Hopefully now you understand.   Chris Prenovost Citizen Username: Chris_prenovost Post Number: 324 Registered: 7-2003 Posted on Thursday, February 10, 2005 - 11:50 am:        President Bush's statement is correct. There is nothing in the social security trust fund but a bunch of IOU's. The surplus of social security tax revenues over expenses has been used to cover the federal government's deficits. This has been going on for years. Polls indicate that most Americans think that their SS taxes go into an account with their name on it that they can draw on when they retire. This is completely untrue, and Bush is trying to correct that impression. Having said that, his solution is lunacy of the highest order and seems designed to destroy social security, not save it.   cjc Citizen Username: Cjc Post Number: 3104 Registered: 8-2003 Posted on Thursday, February 10, 2005 - 12:20 pm:        "Polls indicate that most Americans think that their SS taxes go into an account with their name on it that they can draw on when they retire." This seems to indicate that most people believe they are the ones funding their retirement. I think they'd like to be able to fund their own retirement as generally being a welfare recipient isn't an esteem builder. The only way they can do that is with their monies invested.   jet Citizen Username: Jet Post Number: 740 Registered: 7-2001 Posted on Thursday, February 10, 2005 - 12:56 pm:        If nothing is done & SS goes on it's current path it will not have any reduction in payouts untill 2052, even then, your only talking 1.5 to 3% reductions. What Bush is doing is stealing this issue from the Dems.   cjc Citizen Username: Cjc Post Number: 3105 Registered: 8-2003 Posted on Thursday, February 10, 2005 - 1:05 pm:        3% reductions? I've only read that the reduction in benefits is at least 18% to upwards of 22% if nothing is done. Where did you get that?   themp Supporter Username: Themp Post Number: 1448 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 1:52 pm:        "a bunch of IOUs" Does that mean Treasury Bonds? I think they are a little more than IOUs, personally. We buy them for our son, for instance, believing them to be negotiable and of real value. ("A negotiable, coupon-bearing debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of more than 7 years." ) "The surplus of social security tax revenues over expenses has been used to cover the federal government's deficits." Yes, but they are supposed to be repaid, because they are represented by Treasury Bonds, right? When they re-jiggered the system in the early 80's, I thought they set it up deliberately to yield a surplus. I don't think they have to touch the "trust fund" until 2014, or something, right? It is becoming clearer that what this whole thing is about is throwing up so much squid ink that the government will somehow become free to not pay back the operating funds that were borrowed from Social Security. Tell you what, I'll buy your Treasury bonds for 50% of face value if you think they are bad IOUs. Hell, I'll even stop by and pick them up.   Michael Janay Citizen Username: Childprotect Post Number: 1557 Registered: 1-2003 Posted on Thursday, February 10, 2005 - 1:53 pm:        He's got his numbers mixed up... It would take raising the FICA about another 3% (on top of the 12% they already take). The reduction in benefits will need to be close to 30% without raising taxes or reforming the system. Of course reducing the benefits 30% would mean negative interest on the money invested in the system by workers.   themp Supporter Username: Themp Post Number: 1449 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 2:03 pm:        "In 2002, Social Security's income was $627.1 billion. It paid out $461.6 billion, leaving a surplus of about $165.5 billion. That $165.5 billion went into the trust funds. Last year, the Trustees invested what was a $165.5 billion Social Security surplus, buying special Treasury Bonds that are earning interest in the trust funds. It brought the total holding of the trust funds to more than $1.4 trillion. When we need to use them, the Treasury Bonds will be cashed." How can you say there's "nothing in there"? It is absurdly untrue.   Michael Janay Citizen Username: Childprotect Post Number: 1558 Registered: 1-2003 Posted on Thursday, February 10, 2005 - 2:04 pm:        Themp, T-bonds are very safe. But they are nthing more than government debt. What you are missing is that the government got a surplus by borrowing. Thats fine, but in 2018 (approx), they won't be able to borrow that money anymore, AND they will have to start paying the borrowed money back because SS will need it to pay out its promised benefits. Its a double whammy that will hit the budget like a ton of bricks if something isn't done NOW. You're probably right when you say "It is becoming clearer that what this whole thing is about is throwing up so much squid ink that the government will somehow become free to not pay back the operating funds that were borrowed from Social Security. " Once the 2 trillion dollars becomes due, it'll be a real mess. One might even call it a crisis. Of course if SS could be reformed so that it wouldn't need the money back, the crisis could be averted, by SS re-lending the government the money. Is that sucky for those of us who have paid in to the system to know that the government squandered our money... You bet! But thats where the vaunted surplus came from.   themp Supporter Username: Themp Post Number: 1450 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 2:09 pm:        "In present-value dollars, it would take $3.7 trillion in total borrowing to fill the gap, according to the Social Security Trustees. That sounds like a lot, but it's really not. It's the equivalent of only 0.7% of gross domestic product summed over the next 75 years. On the scale of the U.S. economy, the Social Security gap is like a rounding error."   Michael Janay Citizen Username: Childprotect Post Number: 1559 Registered: 1-2003 Posted on Thursday, February 10, 2005 - 2:15 pm:        So you're OK if we add to the deficit by $50,000,000,000 every year for the next 75 years? I thought you wanted a balanced budget.   themp Supporter Username: Themp Post Number: 1451 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 2:16 pm:        But that money was taken out of the first 80k (or so) earned, not all of income, so it is much more unfair to poorer folks than richer folks. Many people argue that payroll taxes should always be thrown in to the discussion when talking about how fair or unfair our income tax system is. Clearly, if that money is just a backdoor to the general fund, then someone is getting screwed and rather than accepting that, we should avoid it and honor the intentions under which that surplus was collected.   Bobkat Supporter Username: Bobk Post Number: 7550 Registered: 5-2001 Posted on Thursday, February 10, 2005 - 2:17 pm:        And the Bush plan has a price tag of around $1trillion in the next ten years. Also, given the Bush administrations penchant for fuzzy math the actual tab will probably be much higher, and all of it funded by debt. Anyone notice the stories today about the real cost of the Medicaid drug plan? At present SS is bringing in around 120% of current payouts. The rest of the government is bringing in about 80cents for each buck spent. The solution, for rationale people anyway, will probably be something along the lines of indexing to CPI instead of wages (although this can backfire), a 50% reduction in benefits, to be made up by the private accounts and cash funding of the $1trillion plus transistion costs through, well, I don't know. As my favorite President Bush called it, "Voodoo Economics".   themp Supporter Username: Themp Post Number: 1452 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 2:21 pm:        Better 75 years than some short "transition period" for massive debt. Borrowing transition money is a pig in a poke, because it is impossible to say how the potential extra income will actually work out, given different growth scenarios, nor what the handling fees will be like. They were very high in England when they ran their privatizing experiment. Since you don't disagree with deficits, what is wrong with simply borrwing the money to set SS on firm footing and pay it back from income tax revenue?   Michael Janay Citizen Username: Childprotect Post Number: 1560 Registered: 1-2003 Posted on Thursday, February 10, 2005 - 2:27 pm:        I tend to agree with you... But we're not talking about fairness, we're talking about accounting, and where the money is and where it goes. But if the Government actually honored the intentions under which the SS surplus was collected, there never would have been a budget surplus, as it never would have borrowed the money in the first place. No matter how you slice it, someone is getting screwed, and its the taxpayer, no matter how much they earn... thats why personal accounts that are REAL, and not just a promise is such a good thing. The government COULDN'T take them, and they couldn't reduce them because of squandering the money elsewhere.   Michael Janay Citizen Username: Childprotect Post Number: 1561 Registered: 1-2003 Posted on Thursday, February 10, 2005 - 2:37 pm:        Too much cross posting... Since you don't disagree with deficits, what is wrong with simply borrwing the money to set SS on firm footing and pay it back from income tax revenue? Simple, Deficits are OK, and even prefered when the economy needs stimulus or in times of war. In that case, deficits are run to generate GDP growth or finance war operations which shouldn't be part of the long term general budget. Deficits to bail out a system that is inherently unsustainable is a bad use of funds. SS as it is now will NEVER be on a firm footing, it will always be at the mercy of population changes. Using general funds to bail out that system is beyond foolish. And why is 75 years better than a short term transition that shores up the system for the future? What if we finance the transition costs with 75 year bonds? You are confusing the transition costs with the benefit payouts. The transition costs are the costs of paying out current benefits when money is going in to the private accounts and not the SSI system. Either way, its 1 trillion now or 3.7 trillion later.   themp Supporter Username: Themp Post Number: 1453 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 2:38 pm:        What if you have to retire during a down cycle? And Bush plan has something about being forced to purchase an annuity with the money? How is that "real"? doesn't that die with you?   cjc Citizen Username: Cjc Post Number: 3108 Registered: 8-2003 Posted on Thursday, February 10, 2005 - 2:58 pm:        I'd hold off on being forced to pay an annuity. Much like the "clawback" that was erroneously glommed on by reform detractors, I'd wait for the plan. If you retire in a down cycle -- if you're smart, you shift your investments to safer investments as you get closer to retirement. You might be 80/20 stocks to bonds when you're young, but as you get older you shift more and more to bonds and other cash instruments. I don't think you can pass along an annuity. Anyone know otherwise? themp -- are you in the market now?   themp Supporter Username: Themp Post Number: 1454 Registered: 12-2001 Posted on Thursday, February 10, 2005 - 3:04 pm:        "a short term transition that shores up the system for the future?" Nice if it works, but you have to account for the inefficiency of administering this new system. Among the great things about Social Security is its efficiency. They've already said more than a trillion, so it will be more than "1 trillion" now. "Asked about estimates that trillions of dollars in additional borrowing would be needed in subsequent decades, Cheney said: “That’s right. Trillions more after that.”" Did you know that? I mean everyone knows he said it. Maybe you forgot for a second.   Bobkat Supporter Username: Bobk Post Number: 7551 Registered: 5-2001 Posted on Thursday, February 10, 2005 - 3:15 pm:        cjc, the plan, if you call it that, announced by Bush requires that upon retirement an annuity be purchased to provide income at the poverty threshold. Of course, given inflation and such that is an ever increasing number. The balance in the account, if any, is yours to do with what you want. For most low and moderate income workers the smart move would be to annuitize the entire account because of inflation and the possibility of living longer than the actuaries think you will.   Dr. Winston O'Boogie Citizen Username: Casey Post Number: 1061 Registered: 8-2003 Posted on Thursday, February 10, 2005 - 3:23 pm:        one of the reason this plan sucks for someone 45-55 is that you've got at most 15 years before you (if you're smart) transition to safer investments as you get close to retirement. If I do that, how on earth do I take advantage of the terrific growth I'm supposed to get on my investments? If you're 25 and you've got 30 years until you start transitioning to safe investments, you've got a great opportunity to grow a nest egg. But what if you're 50?   Michael Janay Citizen Username: Childprotect Post Number: 1562 Registered: 1-2003 Posted on Thursday, February 10, 2005 - 4:54 pm:        You may not get "terriffic growth". But you will get an assett that you can use as you wish and give to your wife, kids, or whoever you want. And retiring in a down cycle means NOTHING. If you invested for the 40 years before the crash of 1927 you still made better returns than social security gives you... even if you sold the day after the crash. Thats because long term, the market has NEVER returned less than 4%.   Face Citizen Username: Face Post Number: 514 Registered: 5-2001 Posted on Thursday, February 10, 2005 - 10:39 pm:        The plan isn't etched in stone yet folks. All things are open to discussion. For example, a caveat could be put in place that automatically shifts investment funds out of the more volitile investments, like stocks and growth funds and into less risky investments, (something more stable like bonds perhaps) as a person nears a certain threshold year approaching retirment. That way a market down cycle shouldn't have the dramatic impact it might. What I find interesting is the same Democratic Senators dead set against privatizing of any sort currently benefit from a similar plan today. So does their staff. I'll bet they'd be the first to complain if you tried to bring them into the current Social Security system as it is structured. AARP itself and on its own website complains about privatization, yet offers a bevy of mutual funds to assist its membership.   Madden 11 Citizen Username: Madden_11 Post Number: 619 Registered: 12-2003 Posted on Thursday, February 10, 2005 - 11:01 pm:        What I find interesting is the same Democratic Senators dead set against privatizing of any sort currently benefit from a similar plan today. So does their staff. I'll bet they'd be the first to complain if you tried to bring them into the current Social Security system as it is structured. AARP itself and on its own website complains about privatization, yet offers a bevy of mutual funds to assist its membership. What's so hard to understand about this? Nobody is calling for the outlaw of mutual funds or private investments...just that they shouldn't take the place of Social Security. You gamble with your pocket money, not your mortgage payment...seems pretty basic to me.   Ginny Brown Citizen Username: Ginny_brown Post Number: 18 Registered: 1-2005 Posted on Thursday, February 10, 2005 - 11:48 pm:        Social Security is an anti poverty insurance program. I has worked magnificently to virtually eliminate poverty amongst the elderly. It does not need to be "saved." Once again this president talks with forked tongue (remember how he terrorized us citizens by the threat of Iraq WMD, but now we see that was not the real reason for the war). What he believes is that social security should be eliminated in favor of an investment program. I don't agree but at least that could be an honest discussion. Same old boring tactics-bush terrorized the people and we are subservient out of fear. I'm tired of the lies.   Rastro Citizen Username: Rastro Post Number: 699 Registered: 5-2004 Posted on Thursday, February 10, 2005 - 11:52 pm:        The rhetoric about this is getting ridiculous. It's not going to be gambling. The plan is likely to have a limited set of relatively safe investments. I don't know where anyone is getting this idea that you'll be able to invest in stocks and growth funds. Because of this, no one is going to experience "fantastic growth" in their accounts. And no one is going to lose their entire nest egg. And there is no guarantee that returns will be better or worse than Social Security provides. But this entire concept of a "return" on Social Security is a fallacious argument. It is NOT an investment account. Over and over we've heard that it is NOT personal "trust fund." It has no relation to a return on investment, and to impy that it should is completely missing the point of the system. As we all know, the money you put into the system goes to other retirees, and any surplus is used to buy government obligation bonds. Perhaps the administration will pay for the cost of the plan by defaulting on the bonds that the trust fund holds. By the way, Michael, over what period are you speaking when you say "Thats because long term, the market has NEVER returned less than 4%?" Is long term 10 years? 50 years? 25 years? And what index are you using to make this determination? The DJIA? The S&P 500? NASDAQ? Russell 2000? It is a common misconception that there is "The Market." There are a plethora of indexes, all of which have related, but differing returns over time. Oh, and if you invested in the DJIA right before the market crash is 1929, you didn't get a positive return until 1955 or so. Is 26 years long term? And 1965 to 1980 was pretty much flat. Maybe it's another index you're talking about?   Michael Janay Citizen Username: Childprotect Post Number: 1563 Registered: 1-2003 Posted on Friday, February 11, 2005 - 11:57 am:        Rastro, Long term us usually considered 20 years or more. At least thats how it is in the bond market. What you are missing is that if you invest a lump sum right before a crash, it will take time to regain the loss, but if you keep investing the same amount at specific intervals (weekly, monthly, etc.) you benefit from whats called dollar cost averaging. That means that even if you bought at a peak, and the market crashes, you are still buying stocks at the new low price, which as you see from your chart prices rose very quickly from 1933 to 1937. So even though the stock you bought at the peak has lost value, all of the stock you bought at the low point has increased in value tremendously. Dollar cost averaging and diversification is the power of long term investing. Look, its pure gambling to put a lump sum in the market (any market or fund) and just hope it goes up over the long term. Dollar cost averaging reduces the risk to almost nil. Diversification is the next key... as some sectors lose, others gain. keeping a diverse portfolio, and keeping investing regularly to take advantage of DCA reduces risk even more. So I'm not talking about any one index, I'm talking about ANY index... provided you diversify relatively well and dollar cost average. 4% is actually very low. If you (as I did) invested in tech funds right before the bubble pop of 2000 you lost a lot short term, but if you kept buying good funds, they have rebounded and now, only 4 1/2 years later, I'm at a good profit. Sure it would have been better if there was no bubble pop, but I don't really care since I pulled about 5% over the last 5 years out of that fund, and I'm in for the long term. That only happened because I kept investing at the low.   cjc Citizen Username: Cjc Post Number: 3115 Registered: 8-2003 Posted on Friday, February 11, 2005 - 9:55 pm:        Wow. Any index over time gives you a decent return. But hey, still too hard, WAY too hard for so many people. And the best thing is you have smart people telling others it's way too hard for them. Let's run our schools like that. Wait. We do. Only smart people can be in the market and be successful at it. Just ask the Left.   tom Citizen Username: Tom Post Number: 3130 Registered: 5-2001 Posted on Friday, February 11, 2005 - 11:02 pm:        I had the experience of hearing OMB Director Joshua Bolten speak this morning. Among the points he made were: 1) the surpluses of the late '90s were "illusory" 2) they dissapeared because of recession, terrorist attacks and war. [and apparently only those reasons.] 3) proposals to cut the payroll tax and simultaneously raise the income limit are considered tax hikes. [I suppose it all depends on who you really love.] 4) CBO and OMB projects on future deficits differ because CBO has to "follow a lot of rules" in making their projections. [One of those rules is that they must acknowledge the fact that there is a war in Iraq.] 5) the obligatory "must-make-the-tax-cuts-permanent" spiel. It was clear from where I sat that the battle to "educate" the public is going to center largely around defining the vocabulary. The system is going to be "bankrupt," not underfunded. The unfunded portion is going to be $10,000,000,000,000. That is a very scary number even though it means nothing. These guys are nothing if not ruthlessly on-message. I've heard Snow speak a couple of times, and all he really has to say is, yes, "make the tax cuts permanent." Somebody on another thread said they make Goebbels look like an amateur. Reminds me of this site where they say of Rumsfeld, "At least Herman Goering knew how to conquer people. "   Bobkat Supporter Username: Bobk Post Number: 7568 Registered: 5-2001 Posted on Saturday, February 12, 2005 - 7:09 am:        Most of the flat tax proposals I have seen, and I think you can make an interlectual arguement in favor of a flat tax, eliminate the traditional middle class deductions for mortgage interest and state and local taxes, but leave in place provisions for special treatment of capital gains and losses, estate taxes and the tax free muni market, that are traditionally used by the wealthy to reduce their tax burden. On the subject of Social Security there was an interesting article in the business section of the Times yesterday. Basically simply changing the index for benefits to the cost of living from wages solves the funding problem, but reduces benefits greatly for younger people. The private accounts at 4% of wages, and assuming a 4 1/2 percent return, makes up most of the difference. The issue is how to fund the trillions needed to implement these accounts. Anyone who believes the Bush estimate, given the charade on the cost of drug benefits under Medicade, is either terminally naive or has been smoking those funny cigarettes again. I will also make a small bet that when this gets to Congress the 4% figure will not be limited to the maximum income subject to SS taxes, scheduled at $90,000 this year. Another tax break for the more affluent amongst us.   Cynicalgirl Citizen Username: Cynicalgirl Post Number: 1124 Registered: 9-2003 Posted on Saturday, February 12, 2005 - 8:25 am:        Really agree with Sir Winston. And, let's not forget that a goodly portion current high school students are far from proficient with math. These folks are going to be able to make intelligent investment decisions with even some of their SSI? Heck, it's a crap shoot even with 401Ks.   Bobkat Supporter Username: Bobk Post Number: 7570 Registered: 5-2001 Posted on Saturday, February 12, 2005 - 8:34 am:        There are issues with this. A fair number of unsophisticated investors are going to panic everytime whatever index they are invested in takes a nose dive and transfer funds to a money market or bond fund. This happens with company 401k plans as well, at least according to our HR director. Probably the chance to change funds should be limited to once a year. The plan a lot of mutual funds use to discourage market timers, charging a fee, probably wouldn't work with private accounts.