Social Security trust fund history question

[antigop]

I have searched for some information, but have been unable to get the complete story.

The rightwing talking point on "the trust fund is meaningless" is echoed throughout the press.

Can someone please tell me:

Why can the SS trust fund only invest in special Treasury bonds that cannot be sold on the open market? Was this part of FDR's original plan?

Any info would be appreciated. Thanks.

[ret5hd]

1. congress passed a law...

dont now when 70's maybe?
read that here on du a couple days ago.

[Salviati]

2. my response to: "the trust fund is meaningless"

"Are you suggesting that the U.S. is going to default on its debts? If that's the case then we've got a lot bigger problems than SS..."

Don't know much about the question you're asking about though...

[whistle]

3. Contact Sten Hoyer Congress Man from Maryland and....

...minority whip who held a town hall meeting yesterday at the University of Maryland on the privatization issue of social security. I watched much of the presentation on C-Span this morning, but can't find a link to any transcript or video of the proceedings. He presented great facts and numbers and basically showed up all of the flaws in George Bush's arguments for privatization. Maybe C-Span will do a replay, or someone on DU can post a link.

[Inland]

4. It's really not relevant. Pubbies plan to steal the proceeds.

The question isn't whether the bonds will be paid. It is whether the payments for the bonds will be used for benefits.

The rightwingers announce that the government isn't legally obligated to pay ss benefits, and therefore the fund is "worthless". After identifying the big failure of social security as having a trust fund that can be legally stolen sometime in the future, they try to prevent that bad outcome by proposing that it be legally stolen today.

Here's what the SS fund is like. You and your wife have a special savings account that the two of you have agreed is your special retirement next egg. You take it to buy a lifetime membership at a bowling alley. You can correctly argue that you were under no legal obligation; that it is simply money that the two of you owned anyway; that it was just money you two owed each other. Your wife would argue that there was a reason why the money was earmarked for a specific purpose, that there was an agreement, and that you are going to die.

It isn't imporatnt, therefore, whether the SS fund is "legally" separate. I have paid increased income taxes for 25 years to build the fund under the promise that it was earmarked for my social security benefit. A promise to me and every fricken wage earner in the country. Whoever breaks the promise is going to be hated forever and ever and ever. Period.

[MousePlayingDaffodil]

5. Well, there's a second question, too, isn't there?

You write: "The question isn't whether the bonds will be paid. It is whether the payments for the bonds will be used for benefits."

A further question is, where is federal government going to GET the money to pay the Social Security system when (i) the benefits that need to be paid exceed the amount of revenue being raised by payroll taxes; and (ii) the Social Security system shows up at the doorstep of the federal government with its bonds and says "pay up"?

[Igel]

6. That is the reason that the trust fund is meaningless.

Not that the US won't pay the bonds. But that the majority of benefits will have to come from general revenues (even if it triggers deficits).

The money will come from taxes or from selling bonds, like it does now.

The unfunded liability is great.

It started I think in the '80s (I remember the discussion, and barely remember politics from the '70s), when the previously sequestered FICA revenues and expenses were deemed to be part of the general income/expenses. General fund deficits when funded by FICA money used to show up as deficits; put them all into one large ledger, and that portion of the deficit becomes invisible.

[MousePlayingDaffodil]

7. Yes, that was the thrust of my question.

At that point, the federal government's options will include (i) raising taxes, (ii) borrowing the money, (iii) cutting its so-called "discretionary" spending elsewhere, or (iv) reducing Social Security benefits. Each of these options has its own political consequences.

[papau]

9. Easy ethical answer - the Soc Sec financed Rich tax cut - so increase tax

on rich to pay it back.

NO WAIT - that would be a tax increase on the rich and class warfare and that would be bad!

sigh....

:-)

[Inland]

10. That is the question. But it shouldn't be.

We shouldn't have to wonder if, on the day that the current receipts are below current benefits, the politicians will announce that the system is insolvent because "there is no fund".

But every argument of the repugs is telling us that they have no intention of respecting the fund. They have told us that they have no intention of letting SS be anything BUT a means to tax wageearners in order to fund operations.

The fund is dedicated by twenty five years of promises on the use that would be made on a HUGE tax hike on workers approved by Reagan, Greenspan. Bush can try to name those promises non-operative, but I don't give a shit unless he returns the higher taxes to me. He took my money for five years himself on the pretense of the fund.

[antigop]

8. With all due respect, please do not hijack this thread

This is not a thread about whether the trust fund is meaningless or not. Please start another thread if that is what you wish to discuss.

I appreciate all the info here, but the discussion does not help me. (I've read more than I care to about whether the trust fund is meaningless or not.)

I simply want to know:

Why does SS invest in government bonds that cannot be sold on the open market. Was that part of FDR's original plan? Has it always been this way, etc. etc.

[Igel]

11. No, FDR had the system on a pay-as-you-go plan.

But everybody realized the baby boomer bulge would kill it if something wasn't done. Hence the trust fund, which was originally intended to be stashed someplace.

Where? Well, the safest place possible, in the US government's estimation: US treasury notes. There just happened to be a lot being freshly issued because we were running large deficits, so the politicians decided they had more important uses than maintaining the integrity of the fund.

The Treasury bonds could be sold on the open market, as long as there's a sufficient demand for them; if we had a budget surplus, that might work, because they're a safe investment. In principle the SS fund could have purchased T-bills already in circulation, depending on how many were on the market.

If we didn't invest in T-bills when we were running a deficit, the publicly held debt would be higher. Politicians wouldn't like that.

And we'd have one or two trillion dollars invested in stocks, bonds, or the like. This disturbs a lot of people. The government would then be in a position to influence boards of directors to suit its own ends and policies--note what the NY and California pension funds do from time to time. It would also work the other way round: would you really want to take on some industry knowing that you have $300 billion invested in it? And can you imagine the reaction if the Enron/WorldCom (etc.) business wiped out billions in the SS trust fund?

Apart from benefit cuts and tax hikes, I don't see an iron-clad way out of the problem. And even then the usual tax increases won't cut it--they assume that the money for repaying the trust fund will just from the sky. Economic growth would help a lot, but it's a risky bet.