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Corrupt Government Title: Social Security and the Trust Fund Social Security and the Trust Fund nolu chan Note that the source here is the SSA itself, putting their best shine on it. Further below I quote extensively from an SSA Actuarial Note and two Congressional Research Service reports. http://www.ssa.gov/oact/progdata/fundFAQ.html#a0=6 Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government. Many options are being considered to restore long-range trust fund solvency. These options are being considered now, well in advance of the year the funds are likely to be exhausted. It is thus likely that legislation will be enacted to restore long-term solvency, making it unlikely that the trust funds' securities will need to be redeemed on a large scale prior to maturity. If the General Fund runs dry, there is nothing to pay Social Security benefits with. The money has been spent. The special-issue securities in the lockbox cannot be redeemed if the General Fund does not have spending authority to redeem them with. Recently, when Congress threatened a budget default, or threatened to not raise the debt limit, Social Security beneficiaries were told their benefits might be delayed. If Congress had not increased the debt limit, or authorized spending, the General Fund was threatened with running dry. They can't give the SSA their monthly funding if they don't have it. In government-speak, the fund is wonderful on paper and backed by the full faith and credit of the U.S. government. They also admit that the money has been "borrowed" and actually spent. And the government is over $18T in debt and running huge deficits every year. That is also on the good faith and credit of the U.S. government. The "logic" is that the government spent the money, but the government still has the money, as the government promises to repay the money to the government. With interest. Picture this as "left pocket, right pocket" savings. From your earnings, each month you put $1,000 in Federal Reserve Notes in your left pocket. Call this your Individual Trust Fund. The next thing you do each month is create a debt instrument, payable only by you, for $1,000 and replace the $1,000 in your Individual Trust Fund with the $1,000 debt instrument. You are honest, creditworthy, and a person of good faith. You promise yourself to pay the debt and guarantee it with your full faith and credit. You take the $1,000 in Federal Reserve Notes and place that in your right pocket. Call that your Slush Fund. You spend liberally from your Slush Fund, and in addition use your credit cards to supplement your earnings to pay for your liberal spending. You do this each and every month for a year. At the end of the year you have nothing in your right pocket. The Slush Fund is empty, that money has been spent. The credit card balance is higher. But you feel good because you have $12,000 of your own debt instruments in your left pocket, your Individual Trust Fund. When both "accounts" belong to the same person, one is a credit and the other is a debit. Together, they equal nothing. You are broke and have credit card debt, but your left pocket makes you feel good. http://www.ssa.gov/OACT/NOTES/pdf_notes/note142.pdf ACTUARIAL NOTE Number 142 SOCIAL SECURITY ADMINISTRATION SOCIAL SECURITY TRUST FUND INVESTMENT POLICIES AND PRACTICES by Jeffrey L. Kunkel Current Investment Policies and Practices With but one exception, the current policies governing investment of trust fund assets were adopted in 1960 or earlier. Many of these policies actually date back to the original Social Security Act of 1935. At 2: Three other statutory policies also govern trust fund investment. These varied in the early years of the Social Security program, but have been unchanged since 1960 or before. They provide that: At 3: The Department of the Treasury, acting on the instructions of the Managing Trustee (the Secretary of the Treasury), currently uses the following investment procedures for Social Security’s OASI and DI Trust Funds. As individual income taxes and Social Security payroll taxes are received daily throughout a month, the general fund of the Treasury transfers to the trust funds an estimated proportion of these taxes until the total of the daily transfers equals a predetermined estimate. If the total of the daily transfers fails to meet this estimate by the end of the month, additional funds are transferred on the last business day to exactly meet the estimate. The estimated tax transfers are allocated between the two funds in proportion to the statutory OASI and DI tax rates. The transferred funds are immediately invested in certificates of indebtedness, the special obligations that mature on the following June 30. Other trust fund income during the month is also invested in certificates of indebtedness immediately upon receipt. All trust fund investment in special obligations is, however, subject to the statutory limit on total public debt outstanding. The gross Federal debt includes amounts owed to Federal trust funds, including the Social Security trust funds. New Treasury obligations cannot be issued to the trust funds if doing so would cause the debt limit to be exceeded. https://fas.org/sgp/crs/misc/R41633.pdf Reaching the Debt Limit: Background and Potential Effects on Government Operations Mindy R. Levit, Coordinator Clinton T. Brass Thomas J. Nicola Dawn Nuschler March 27, 2015 Congressional Research Service The gross federal debt, which represents the federal government’s total outstanding debt, consists of (1) debt held by the public and (2) debt held in government accounts, also known as intragovernmental debt. Federal government borrowing increases for two primary reasons: (1) budget deficits and (2) investments of any federal government account surpluses in Treasury securities, as required by law. Nearly all of this debt is subject to the statutory limit. At 1-2: This report examines the possibility of the federal government reaching its statutory debt limit and not raising it, with a particular focus on government operations. First, the report explains the nature of the federal government’s debt, the processes associated with federal borrowing, and historical events that may influence prospective actions. It also includes an analysis of what could happen if the federal government may no longer issue debt, has exhausted alternative sources of cash, and, therefore, depends on incoming receipts or other sources of funds to provide any cash needed to liquidate federal obligations. A discussion of the effects that prior debt limit impasses have had on the economy is also included. Finally, this report lays out considerations for increasing the debt limit under current policy and what impact fiscal policy could have on the debt limit going forward. Federal Government Debt and the Debt Limit The gross federal debt, which represents the federal government’s total outstanding debt, consists of: Federal government borrowing increases for two primary reasons: (1) budget deficits and (2) investments of any federal government account surpluses in Treasury securities as required by law. The debt held by the public represents the total net amount borrowed from the public to cover the federal government’s accumulated budget deficits. Annual budget deficits increase the debt held by the public by requiring the federal government to borrow additional funds to fulfill its commitments. The debt held in government accounts represents the federal debt issued to certain accounts, primarily trust funds, such as those associated with Social Security, Medicare, and Unemployment Compensation. Generally, government account surpluses, which include trust fund surpluses, by law must be invested in special non-marketable federal government securities and thus are held in the form of federal debt. Treasury periodically pays interest on the special securities held in a government account. Interest payments are typically paid in the form of additional special securities issued by Treasury to the trust funds, which also increases the amount of intragovernmental debt and federal debt subject to limit. When a trust fund invests in U.S. Treasury securities, it effectively lends money to the rest of the government. The loan either reduces what the federal government must borrow from the public if the budget is in deficit, or reduces the amount of publicly held debt if the budget is in surplus. At the same time, the loan increases intragovernmental debt. The revenues exchanged for these securities then go into the General Fund of the Treasury and are indistinguishable from other cash in the General Fund. This cash may be used for any government spending purpose. At 2-3 Treasury’s standard methods for financing federal activities can be disrupted when the level of federal debt nears its legal limit. If the limit prevents Treasury from issuing new debt to manage short-term cash flows or to finance an annual deficit, the government may be unable to obtain the cash needed to pay its bills. The limit may also prevent the government from issuing new debt in order to invest the surpluses of designated government accounts, such as federal trust funds. Treasury is caught between two requirements: the law that requires Treasury to pay the government’s legal obligations or invest trust fund surpluses, on one hand, and the statutory debt limit which may prevent Treasury from issuing the debt to raise cash to pay obligations or make trust fund investments, on the other. At 14: Failing to raise the debt ceiling would not bring the government to a screeching halt the way that not passing appropriations bills would. Employees would not be sent home, and checks would continue to be issued. If the Treasury was low on cash, however, there could be delays in honoring checks and disruptions in the normal flow of government services. Alternatively stated, in a situation when the debt limit is reached and Treasury exhausts its financing alternatives, aside from ongoing cash flow, an agency may continue to obligate funds. However, Treasury may not be able to liquidate all obligations that result in federal outlays due to a shortage of cash. In contrast to this, if Congress and the President do not enact interim or fullyear appropriations for an agency, the agency does not have budget authority available for obligation. If this occurs, the agency must shut down non-excepted activities, with immediate effects on government services. At 28-29: By law, the Social Security Trust Funds must be invested in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States (42 U.S.C. §401(d) and 42 U.S.C. §1320b-15). The securities that Treasury issues to the Social Security Trust Funds count toward the federal debt limit. Under normal procedures, Social Security revenues (Social Security payroll taxes and individual income taxes) are immediately credited to the Social Security Trust Funds in the form of shortterm, non-marketable Treasury securities called certificates of indebtedness (CIs). Under the terms of this exchange, when Treasury credits payroll tax and other revenues to Social Security in the form of CIs, the revenues themselves become available in the General Fund for other government operations. CIs generally mature on the following June 30. Each June 30, any surplus for the year is converted from short-term Treasury securities to long-term, non-marketable Treasury securities called “special-issue obligations” or “specials.” In addition, other special issues that have just matured and that are not needed to pay near-term benefits are reinvested in special-issue obligations. Interest income is credited to the trust funds semi-annually (on June 30 and December 31) in the form of additional special-issue obligations. Social Security benefits are paid by Treasury from the General Fund. When Treasury pays Social Security benefits, it redeems an equivalent amount of Treasury securities held by the trust funds in order to reimburse the General Fund. The Social Security program is projected to run a cash deficit through the 75-year forecast period. That is, Social Security’s tax revenues are projected to be less than outlays for benefit payments and administration. In a year when Social Security runs a cash flow deficit, Treasury redeems some long-term government securities held by the trust funds. However, Social Security will still need to invest in non-marketable, short-term government securities to manage short-term cash flows during the periods between receiving revenues and paying benefits (42 U.S.C. §401(a), 42 U.S.C. §401(d) and 42 U.S.C. §1320b-15). Investing the trust funds’ revenues for even very short periods ensures that the trust funds maximize their interest earnings. Social Security will also need to invest in non-marketable, long-term government securities in June of each year, when short-term and certain long-term trust fund securities mature and amounts not needed to pay nearterm benefits are rolled over into long-term government securities, and in June and December of each year, when semi-annual interest income is paid in the form of government securities. In 2011 and 2012, Social Security drew on general revenues as a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312, as amended by P.L. 112-78 and P.L. 112-96). P.L. 111-312 provided a temporary 2 percentage point reduction in the Social Security payroll tax for employees and the self-employed in 2011, resulting in a tax rate of 4.2% for employees and 10.4% for the self-employed.122 To protect the trust funds, P.L. 111-312 appropriated to the Social Security Trust Funds amounts equal to the reduction in payroll tax revenues. P.L. 111-312 specified that the appropriated amounts “shall be transferred from the General Fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.” On December 23, 2011, Congress passed H.R. 3765 and President Obama signed the bill into law as P.L. 112-78 to extend the payroll tax reduction for workers and the general revenue transfers through February 2012. On February 17, 2012, the House and the Senate agreed to the conference report on H.R. 3630, which further extended the payroll tax reduction for workers and the general revenue transfers through the end of calendar year 2012. H.R. 3630 was signed into law by President Obama on February 22, 2012 (P.L. 112-96). Depending on the extent and duration of any future debt limit crisis, and also on Treasury prioritization decisions, Social Security Trust Fund investment management procedures and benefit payments potentially could be affected because of the requirement that Treasury obligations cannot be issued to the Social Security Trust Funds if doing so would exceed the debt limit. At the same time, as described above, P.L. 104-121 restricts the Treasury Secretary’s ability to delay or otherwise underinvest incoming receipts to the Social Security and Medicare Trust Funds. Delayed issuance of government obligations to the Trust Funds, or early redemption of some Trust Fund assets, could accelerate depletion of the Trust Funds and move up the expected insolvency date, absent congressional action to make the Trust Funds whole. Depending on the government’s cash position in a given month, Treasury may need to issue new public debt to raise the cash needed to pay benefits. Treasury may be unable to issue new public debt, however, if doing so would exceed the debt limit. Social Security benefit payments may be delayed or jeopardized if Treasury does not have enough cash on hand to pay benefits. http://www.fas.org/sgp/crs/misc/RL33028.pdf Social Security: The Trust Fund Dawn Nuschler Gary Sidor July 31, 2014 Congressional Research Service Although Social Security is a pay-as-you-go system, meaning that current revenues are used to pay current costs, changes made to the Social Security program in 1983 began a sustained period of annual cash flow surpluses through 2009. Since 2010, however, Social Security has had annual cash flow deficits (program costs have exceeded tax revenues). The 2014 annual report of the Social Security Board of Trustees projects that annual cash flow deficits will continue throughout the 75-year projection period (2014-2088) under the intermediate assumptions. The 2014 Annual Report projects that the Social Security trust fund will remain solvent until 2033. Social Security benefits scheduled under current law can be paid in full and on time until then. This is the same trust fund exhaustion date projected in the 2012 and 2013 Annual Reports. In addition, the average 75-year actuarial deficit for the trust fund is projected to be equal to 2.88% of taxable payroll. This is an increase of 0.16 percentage point from the projection in the 2013 Annual Report. With respect to the change in the projected 75-year actuarial deficit, the trustees state, As noted above, on a combined basis, the Social Security trust fund is projected to remain solvent until 2033. Separately, however, the OASI trust fund is projected to remain solvent until 2034 (compared with 2035 in the 2012 and 2013 Annual Reports) and the DI trust fund is projected to remain solvent until 2016 (the same year projected in the 2012 and 2013 Annual Reports). Under current law, DI benefits could not be paid in full and on time following DI trust fund exhaustion in 2016. With respect to the DI trust fund, the trustees state, At 9: At 10: The Secretary of the Treasury is required by law to invest Social Security revenues in securities backed by the U.S. government. In addition, the Social Security trust fund receives interest on its holdings of special U.S. government obligations. Each government security issued by the Treasury for purchase by the Social Security trust fund must be a paper instrument in the form of a bond, note, or certificate of indebtedness. Specifically, Section 201(d) of the Social Security Act states, Any interest or proceeds from the sale of government securities held by the Social Security trust fund must be paid in the form of paper checks from the general fund of the Treasury to the Social Security trust fund. The interest rates paid on the government securities issued to the Social Security trust fund are tied to market rates. For internal federal accounting purposes, when special U.S. government obligations are purchased by the Social Security trust fund, the Treasury is shifting surplus Social Security revenues from one government account (the Social Security trust fund) to another government account (the Treasury’s “general fund” account). The special U.S. government obligations are physical documents held by the Social Security Administration, not the U.S. Treasury. The government securities held by the Social Security trust fund are redeemed on a regular basis. These special U.S. government obligations, however, are not resources for the government because they represent both an asset and a liability for the government. At 15-16: As part of the annual congressional budget process, the level of federal debt (the federal debt limit) is set for the budget by Congress. The federal debt limit includes debt held by the public as well as the internal debt of the U.S. government (i.e., debt held by government accounts). Borrowing from the public and the investment of the Social Security trust fund in special U.S. government obligations both fall under the restrictions of the federal debt limit. This means that the Social Security trust fund balance has implications for the federal debt limit. The Social Security Trust Fund and Benefit Payments The accumulated holdings of the Social Security trust fund, which represent budget authority for the program, can be viewed as a measure of funds dedicated to pay current and future benefits. However, when current tax revenues are below levels needed to pay benefits, these funds (the accumulated holdings) are available to pay benefits only as the government raises the resources necessary to pay for the securities as they are redeemed by the Social Security trust fund. The securities are a promise, by the U.S. government, to raise the necessary funds. When the system is operating with a cash flow surplus, the surplus Social Security revenues (which are invested in government securities held by the trust fund) are used to fund other government activities at the time. The surplus Social Security revenues, therefore, are not available to finance benefits directly when the system is operating with a cash flow deficit. Stated another way, when the Social Security trust fund runs a cash flow deficit, the trust fund cashes in more federal government securities than the amount of current Social Security tax revenues, relying in part on accumulated trust fund holdings to pay benefits and administrative expenses. Because the federal government securities held by the trust fund are redeemed with general revenues, this results in increased spending for Social Security from the general fund. With respect to the Social Security program’s reliance on general revenues, it is important to note that Social Security does not have authority to borrow from the general fund of the Treasury. Rather, the program relies on revenues collected for Social Security purposes in previous years that were used by the federal government at the time for other (non-Social Security) spending needs and interest income earned on trust fund investments. The program draws on those previously collected Social Security tax revenues and interest income (accumulated trust fund holdings) when current Social Security tax revenues fall below current program expenditures. The Social Security trustees project that the accumulated holdings of the Social Security trust fund will be exhausted in 2033. At that time, the program will continue to operate with incoming receipts to the trust fund that are projected to equal about 77% of program costs. By the end of the 75-year projection period (2088), incoming receipts are projected to equal about 72% of program costs (based on the intermediate assumptions of the 2014 Annual Report). The Social Security Act does not state what would happen to the payment of benefits scheduled under current law in the event of Social Security trust fund exhaustion. Two possible scenarios are (1) the payment of full monthly benefits on a delayed schedule or (2) the payment of partial (reduced) monthly benefits on time. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest Begin Trace Mode for Comment # 9.
#2. To: nolu chan (#0)
That is a load of fantasy BS.
Well, it's kinda sorta true. The trust fund is faith and credit, but no money.
In other words, the SS fund is worthless. Too late now, but years ago, for the SS Fund, they should have put the unused portion into gold & silver coin. Today, it would be worth something. Oh, and they should have NEVER allowed borrowing from SS, and putting it into the general fund. Spending by the Fed govt should have been cut to the bone, only allow what is authorized by the US Constitution. And still should be! But they did not, and now we have a huge financial storm of Biblical proportion on the horizon. We are going to make the implosion of the Wiemar Republic look like a church picnic. I hope all you big government proponents are the first to suffer!!!
#10. To: Stoner, nolu chan (#9)
The "full faith and credit" of the American government has become a punchline, most likely to incite giggling from the public.
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