Budget

Obama's Budget Director Explains Why You Shouldn't Trust the Social Security Trust Fund

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"Let's keep this Social Security thing under wraps, OK?"

Via GOP Sen. Tom Coburn, I see that President Obama's budget director, Jacob Lew, has provided a helpful and honest explanation of why no one should count on the Social Security "trust fund." 

"These [trust fund] balances are available to finance future benefit payments and other trust fund expenditures—but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the Government's ability to pay benefits." [bold added]

Lew wrote that in 2000 in his role as President Bill Clinton's budget chief. Sadly, since taking the budget director job with the Obama White House, he's decided that Social Security ain't so bad for the budget after all. Here's how he explained the program's effect on the budget in USA Today last month:

Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries.

Lew knows the trust fund is an accounting fiction. He knows that the money doesn't really exist and that any assumption that it does also requires one to assume tax hikes, borrowing (i.e. delayed tax hikes), or counterbalancing budget cuts. But the Obama administration doesn't want to admit this, so they've tasked Lew with selling the fiction as truth. 

In Obama's early days, the president's first budget director, Peter Orszag, told The New York Times that "the president prefers to tell the truth, rather than make the numbers look better by pretending." He promised that the Obama White House would put an end to budget gimmicks. But that sure didn't happen under Orszag, and it doesn't appear to be happening under Lew. Instead, Obama has shrugged off the debt problem and installed two consecutive budget directors whose job seems to be to mislead the public about the budget. 

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40 responses to “Obama's Budget Director Explains Why You Shouldn't Trust the Social Security Trust Fund

  1. “They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”

    Where’s Tony to tell me that this is just a right-wingnut shibboleth and everything will be ok?

    1. Everyone knows we’re not really out of money, we just have to get over the childish aversion to the thought of raising taxes to increase revenue.

      1. Eat the Rich! Then what?

      2. “…we’re not really out of money…”

        I gather, then, that you’re a disciple of the Michael Moore school of thought that holds that nobody’s wealth or income belongs to them, as it is a “national resource”.

        1. He’s made it perfectly clear before that your income is whatever is left AFTER taxes.

  2. Having a Social Security Trust Fund is exactly like not having a Social Security Trust Fund…except for the huge amount of money the federal government took from us to create this fictional fund.

    1. b-b-but Clinton! Surplus! Zomg!

  3. The fact that so many people, especially on the left, don’t realize that the “trust fund” isn’t anything more than a broken lockbox with a piece of coffee-stained, crumpled paper with “IOU a gajillion dollar” written on it is incredibly sad.

    1. I discussed this fact with a woman I was taking a night course with a few years ago and she certainly fits into your….so many people, especially on the left, don’t realize that the “trust fund” isn’t anything more than a broken lockbox with a piece of coffee-stained, crumpled paper with “IOU a gajillion dollar” written on it category. Where the conversation really got interesting was when I made mention of a potential return someday of something resembling a gold standard again….she condescendingly informed me that the US was still on the gold standard and that federal reserve notes were fully backed by metal.

      Good times.

      1. Did you ask her if she thought that writing herself an I.O.U. for a million dollars would maker her a millionaire?

        1. I didn’t want to clean up the mess from her head exploding when comprehension set in.

        2. Well, technically, if you write “IOU $1,000,000 – left pocket” and stick it in your right pocket, your right pocket is a millionaire.

  4. Why, that evul teabagger!

    Oh, wait….

  5. You know, this sounds familiar to me.

  6. Oh yeah, you can rest assured that in 10 years there will be no social security.

    http://www.anon-tools.es.tc

  7. Social Security benefits are entirely self-financing.

    While that may have been true at one time, I seem to recall seeing that SocSec taxes weren’t going to cover SocSec payments this year.

    Regardless of whether it was this year or some point in the future, calling anything “self-financing” when it is, in fact, taxpayer financed, strikes me as a lie.

    1. While that may have been true at one time, I seem to recall seeing that SocSec taxes weren’t going to cover SocSec payments this year.

      True. And that was before they cut the FICA rate in the latest round of stimulus.

      1. But the FICA rate cut did absolutely nothing to the Social Security Trust Fund. It’s no problem, if you read the legislation or the statement, we’re just transferring extra money from the General Fund to the Social Security Trust Fund to cover it. Even for people who believe in the mythical Trust Fund, this should be acceptable.

        Cutting the FICA rate for stimulus is generally good policy (though if the problem is unemployment and you’re a Keynesian who thus believes in sticky wages, it’s better to cut the employer portion rather than the employee portion; the former helps unemployment, the latter helps people who already have jobs).

  8. Congratulations on being a lying sack of shit, fuck face. I’d love to see this guy confronted with his first statement over and over again, while hearing the defenses of how his second statement is somehow more accurate.

  9. I know I’ve heard stories before about retirement programs that take in money from one group of people, and instead of creating value with it they use it to pay out to another group of people. As I recall, it works well until you start running out of the first group of people.

    1. If you’re interested I suggest you investigate the Madoff family of funds.

      1. Don’t forget the pioneering entrepeneur Charles Ponzi.

        Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be rational economically if there is a reasonable expectation that government or other person or organisation will bail out those participating in the scheme.
        So is Lew expecting the Chinese to bail us out?

        Good article:
        http://www.sciencedirect.com/s…..archtype=a

  10. Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries.

    I make no claim to be any kind of expert on the workings of Social Security, but what little reading I have done on the subject leads me to think that the first statement is a falsehood; the second is at best grossly misleading and disingenuous, and the third is a blatant falsehood.

    IOW, pretty much what I’ve come to expect from the Obama Administration.

    1. Dear BSR: If you haven’t done more than a “little reading” on the subject, why not wait to comment until you are better informed?

  11. Well, it’s sort of like a potential trust fund, one that is stocked with the sum of the political capital of tax-raising and spending-cutting politicians. Though, by that logic, it’s still severely deficient.

    1. I think what bogs everyone down is the thought of IOUs, a stack of paper, backing up the Social Security benefit you plan on enjoying. Instead of thinking of paper, think of happy unicorns prancing with merriment. Would unicorns rob you of your SS? Heck no, big guy, relax and have another beer.

  12. Why is this “trust fund” lie so easily promulgated?

    Of course, the politicians have an incentive to further this lie. But, it is readily disproven in fairly simple terms.

    I guess I can understand a large part of the populace not having the time or intellectual horsepower to give this much thought, but what about the mainstream press? Yes, most of them are statists, but they also like to play “gotcha” with politicians. It seems like they could have fun with this.

  13. I’m curious. What was the government supposed to do with the surplus Social Security receipts during the years when receipts in were greater than payments out?

    1. Um… Spend them immediately and replace the money with an IOU. That’s the way it has always been, by design. (At least since the redesign in the 80’s by Greenspan)

      1. And that’s what happened. So, are you saying that the Greenspan/Reagan changes relied on an accounting trick?

        1. Yes, explicitly and purposefully.

    2. You seem to be under the impression that we are Regan worshiping Republicans. Why is that?

      Also, what the government SHOULD have done is put that surplus money in an interest bearing account instead of pissing it into the wind of the “Cold War”.

  14. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

    Just the other day, somebody who should know better was telling me, “It’s all right there.”

  15. Social Security benefits are entirely self-financing. They are paid for with payroll PONZI taxes collected from workers and their employers throughout their careers.

  16. Everything you need to know, courtesy of some nerd on wikipedia: (http://en.wikipedia.org/wiki/Social_Security_Trust_Fund)

    Scenario 1 (Trust Fund is an accounting fiction):
    1984: $1 payroll tax collected in 1984
    1984: $1 lent by Social Security to the federal government
    1984: Federal government increases spending on government programs by $1
    2020: Federal government raises taxes by $1 plus interest to repay the loan to Social Security
    2020: $1 plus interest transferred from Federal Government to Social Security.

    Scenario 2 (Trust Fund represents real economic savings):
    1984: $1 payroll tax collected in 1984
    1984: $1 lent by Social Security to the federal government
    1984: Federal government increases spending on government programs by $0
    2020: Federal government raises taxes by $0 to repay the loan to Social Security. Any tax increases that occur in 2020 would have happened anyway without Social Security.
    2020: $1 plus interest transferred from Federal Government to Social Security.

    hmmm…. scenario 2… under which mattress is the government keeping that dollar until 2020? I want to see it. It’s MY money! Really!

    Someone should trace a few payroll tax dollars to see where they really go after leaving our employers’ bank accounts.

    1. Since the government has run a deficit in almost all years since 1984, it is impossible for Scenario 2 to be true.

      1. It’s entirely possible that the government is creating marketable and appreciating assets with that money and just hasn’t bothered to tell anyone, but I’m not holding my breath for 60 Minutes to get down to the bottom of it.

  17. SS is not going broke!!!
    Why don’t the tell the truth?

    This is a trust fund that is solvent until 2037 and even if we do NOTHING there will only be a 25% CUT IN BENEFITS after that. The government lies because the have robbed this fund and do not want to pay back their IOU’s I say PUT IT BACK AND LEABE IT ALONE!!!

    1. Sure, it’s solvent in the same way that you would be if you loaned all of your money other than what you immediately needed for your expenses to a guy who was already balls deep in debt, with no practical plan to repay it and no evident desire to meaningfully cut his spending.

      The good news is, I think Japan may already have created plants for recycling the elderly well before we need them, so we can probably just ship our elderly overseas once the money runs out.

    2. So, Jim B thinks that “SS is not going broke!!!” and yet also believes that “The government lies because the[y] have robbed this fund and do not want to pay back their IOU’s[sic]”

      This is what we have to work with.

      Absolutely no comprehension of what the article said, or what the issue actually is.

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