Jun 18, 2013

Some Straight Talk On The Trust Funds

Andy Landis writing for Market Watch at the Wall Street Journal, of all places, has an excellent Q&A piece addressing the recently released report of Social Security's trustees. It's refreshingly honest and straightforward. Here's an excerpt:
How much does Social Security waste in bureaucracy?
SSA's operating overhead is 0.8% of total expenditures, about the same as a discount mutual fund, and that includes Medicare. It's been a fraction of 1% for decades.
What about the 2% payroll tax "holiday"? Didn't that further erode Social Security finances?
No. During the "holiday" in 2011 and 2012, government made up the missing income with direct grants from general revenues. It was the first time SSA was not self-funded and depended on government money. Grants have stopped now that the "holiday" has ended.

Is this Social Security's worst financial report ever?

Far from it. In the late 1970s and early 1980s Social Security ran deficits. Trust fund insolvency loomed in July 1983. With mere months of solvency left, Congress acted to bolster finances on April 20, 1983. SSA still operates under the 1983 funding arrangement, generating surpluses every year since.


Anonymous said...

Amendments can be a good thing it seems.

Anonymous said...

Wow, a straight forward article, states the facts simply, no extreme statements. Those looking for gloom and doom will call this false, they do not want to hear the program is sound.

Still the best bang for the buck in government.

Don Levit said...

The system spends more in cash than it takes in, according to the latest Trustees report.
It has to utilze "resrves" to make up for the cash shortfall of revenues taken in to benefits paid out.
Doing so adds to deficits and the debt held by the public.
From a cash perspective, it is a huge expense, and expected to get bigger until trust fund exhaustion.
Why would your opinion be more valid than the SS trustees themselves?
Don Levit

Anonymous said...

Incorrect. The reserves are the money in the SSA, they in no way what so ever create, add to, increase in any way shape or form the debt.

FYI It all started with $75 million in loans made to the new United States of America during the Revolutionary War, and thus began the first American budget deficit. We managed to pay it back rather quickly and enjoyed several years of budget surpluses but the War of 1812 forced borrowing and once again we were back in debt—big wars tied to big deficits would be a recurring theme over the next 200 years.

Don Levit said...

What we are discussing here regarding the SS trust fund and its impact on debt is really 2 perspectives: the trust fund perspective and the governmentwide perspective.
You seem to take the view of the trust fund perspective, which basically views the trust fund as having neutral budget impact.
The governmentwide perspective takes a broader approach and looks at the cash flow impacts of trust fund redemptions to pay for cash shortfalls.
From a paper entitled "2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insuramce Trust Funds
Pages 223-224 "The 'trust fund perspective' is important, for the existence of trust fund assets provides the statutory authority to make such payments without an appropriation from Congress. The trust fund perspective does not include the interrelationship between the Medicare and Social Security trust funds and the overall Federal budget. The budget is a comprehensive display of all federal activities, whether financed through trust funds or from the general fund of the Treasury. This broader focus is termed the 'budget perspective' or 'government-wide perspective.'
The financial status of a trust fund considers all financing sources, including trust fund assets that Medicare or Social Security use to pay expenses. From a budget perspective, however, general fund transfers, interest payments to the trust funds, and asset redemptions represent a draw on other Federal resources for which there is no earmarked source of public revenue."
Page 226 "From the trust fund perspective, OASDI had a surplus in 2012, and HI and SMI had deficits. From the budget perspective, HI, SMI and OASDI required a net draw on the budget. HI, SMI, and OASDI had a trust fund surplus of $47.1 billion in 2012, but a net draw of $403.1 billion on the budget."