6 ms·

I don't like just treating trust fund debt as if it doesn't exist. It's not so much that the government owes itself that money, it owes the American people that

by _uhtu 3y ago

I don't like just treating trust fund debt as if it doesn't exist. It's not so much that the government owes itself that money, it owes the American people that money via Social Security. So it's as much a public debt as any other. I especially don't like ignoring it like this because it implies the US government simply needs to ignore that obligation to the public, let millions retire with no safety net, and just default on trillions of debt. It's horrible from every financial perspective. What should be mentioned is that Social Security could easily be well in the black with even higher payments to retirees by simply raising the income limit on the social security tax. The biggest problem with funding Social Security is that income inequality has ballooned, so more and more income is exempt from the tax.

dboreham 3y ago
Isn't the trust fund a fake concept? Benefits are always going to be paid from current year tax or borrowing. You can't actually "invest" trillions for the future if you're a government. At least that's what my Economist mother told me.
- _uhtu 3y ago
  If that's the case, then that's my point made exactly, it's public debt as much as any other.
- MattGaiser 3y ago
  The USA is probably too large to invest it into stuff, but Canada does invest its public pension money into stocks, bonds, airports, etc. The Canada Pension Plan is a full fledged investment firm.
- bryanlarsen 3y ago
  Illustration: country A and B both see an upcoming demographic crisis and decide to get ahead of it. Country A ensures they don't run deficits and pay off their debts to prepare. Country B prepares by incurring a debt to build hospitals and train nurses. 20 years later the demographic crisis hits. Country A cannot build hospitals and train nurses fast enough to meet the need so the price of both skyrocket and the piles of money they "saved" is inflating away to almost nothing. Meanwhile country B is fine.
  - deleted 3y ago
    [deleted]
  - pc86 3y ago
    How does this address the question "Isn't the trust fund a fake concept?"
  - ballenf 3y ago
    Don't forget the maintenance costs and related expenses that Country B incurs. Not to mention that Country B has to guess the right amount of infrastructure to build. The costs Country A incurs are plowed back into Country A's economy during the "building boom". Don't know which country ends up better off, but there are many more variables than you imply.
    - bryanlarsen 3y ago
      Exactly! It's a lot more complicated than "deficits bad".
orangepurple 3y ago
I don't understand the problem with Social Security. The Federal Reserve has already willed hundreds of billions into existence for COVID relief and wars in the last few years. What's another few hundred billion more for Social Security in a few years?
- kyrra 3y ago
  You're off a little. From Dec 2022 https://www.wsj.com/articles/how-much-washington-really-owes-100-trillion-debt-social-insurance-expenditure-medicare-medicaid-treasury-11671571955 https://www.wsj.com/articles/how-much-washington-really-owes... "That brings us to the alarming milestone. Add the net position of $29.9 trillion to the social insurance net expenditures of $71 trillion, and you find that they topped $100 trillion—the first time they have ever done so." Our unfunded social security tab is crazy.
- BurningFrog 3y ago
  It's vastly more money than that.
onlyrealcuzzo 3y ago
> What should be mentioned is that Social Security could easily be well in the black with even higher payments to retirees by simply raising the income limit on the social security tax. Obviously. It could also be in the black if you raised the rate 2x... > I especially don't like ignoring it like this because it implies the US government simply needs to ignore that obligation to the public, let millions retire with no safety net, and just default on trillions of debt. The US government might technically default - i.e. miss payments - but the payments will likely be delayed (due to political BS) rather than not paid in full w/ accrued interest. They've missed payments before. They'll probably miss them again. But they can literally print money. There's zero reason to truly default - and ENORMOUS consequences if they do. AFAIK, The Treasury at least claimed to be able to pay SS benefits in full even if the US "defaulted" (delayed) Treasury payments. It's hard for me to imagine a world in which the government just doesn't pay SS Treasuries. With enough political will, anything is possible. But even if political winds change dramatically - there's no way around how enormous the financial consequences would be to everyone in the country. I guess you can never underestimate how much politicians are willing to destroy this country to get a very small soundbite on TV - but I'm skeptical this is worth worrying about. Is it possible COLA for SS will be nerfed? That seems within the realm of possibility. Is it possible the Federal Government just decides to stop paying Treasuries SPECIFICALLY to SS? Super-dooper highly unlikely.
- lazide 3y ago
  I wonder if the US is going in the same direction as Greece/Italy on this front?
  - throw0101a 3y ago
    Both of those have lower borrowing costs on their bonds than the US currently does: * http://investing.com/rates-bonds/greece-government-bonds http://investing.com/rates-bonds/greece-government-bonds * https://investing.com/rates-bonds/italy-government-bonds https://investing.com/rates-bonds/italy-government-bonds * https://investing.com/rates-bonds/usa-government-bonds https://investing.com/rates-bonds/usa-government-bonds * https://www.investing.com/rates-bonds/world-government-bonds https://www.investing.com/rates-bonds/world-government-bonds
linuxftw 3y ago
They have raised the social security income tax limit dramatically over the last 5 years.
toast0 3y ago
The question is, is Social Security's Old Age, Survivors, and Disability Insurance program insurance, or is it a government welfare program. If it's insurance, than removing the cap on income charges without removing the cap on benefits is fundamentally unfair. If it's a social welfare program, having a trust fund doesn't make a whole lot of sense. As well as quite some other things like paying people more benefits when they've had a higher historic income; that's the opposite of what I'd expect from a welfare program. IMHO, it's a social welfare program that pretends to be an insurance scheme with wacky rules. Maintaining the fiction of an insurance scheme is clearly important to acceptance. There's also lots of features to encourage behaviors... Be sure to stay married for at least ten years to qualify for spousal benefits. Be sure to save up so you can delay claiming, and wink take advantage of our outdated actuarial tables. Don't forget to earn more money now (and pay more taxes now) so you can get higher benefits later.
daft_pink 3y ago
The core problem with trust fund debt is that if the government maintained assets for the social security trust fund the way vanguard or fidelity did, the underlying assets would be so high that the government would start to own and control a large part of the American economy. Do we really want all our company's to be majority owned by the government? The practical answer from the government's perspective was to just the loan the money to itself. Except the problem now is that the government owes itself a lot of money. Reality is that there is not trust fund and current payers simply have to pay the benefits for existing retirees. That's the way it has always been and that's the way it's always will be. There will be economic problems no matter how the government handles such a large amount of money. I believe that whenever there is a crisis or issue they will simply raise the income limits to correct it, and that's largely been happening as the income limit is going up and up and up every year. Way more than it did 20 years ago.
- hotnfresh 3y ago
  > Do we really want all our company's to be majority owned by the government? Not sure I’d want them to have voting shares, but actually—yeah, that sounds pretty good.
  - daft_pink 3y ago
    But this is the problem they grappled with when they created social security directly after the great depression market crash. It's important to understand that they invested in risk free assets ie government bonds, because it was a social safety net in reaction to problems in the market. Except it was much smaller then, the problem is that now they've created so many bonds that the bonds are the problem. Anyway you look at it, creating a giant government program like this is. going to be a problem.

by _uhtu 3y ago

dboreham 3y ago

Isn't the trust fund a fake concept? Benefits are always going to be paid from current year tax or borrowing. You can't actually "invest" trillions for the future if you're a government. At least that's what my Economist mother told me.

_uhtu 3y ago
If that's the case, then that's my point made exactly, it's public debt as much as any other.
MattGaiser 3y ago
The USA is probably too large to invest it into stuff, but Canada does invest its public pension money into stocks, bonds, airports, etc. The Canada Pension Plan is a full fledged investment firm.
bryanlarsen 3y ago
Illustration: country A and B both see an upcoming demographic crisis and decide to get ahead of it. Country A ensures they don't run deficits and pay off their debts to prepare. Country B prepares by incurring a debt to build hospitals and train nurses. 20 years later the demographic crisis hits. Country A cannot build hospitals and train nurses fast enough to meet the need so the price of both skyrocket and the piles of money they "saved" is inflating away to almost nothing. Meanwhile country B is fine.
- deleted 3y ago
  [deleted]
- pc86 3y ago
  How does this address the question "Isn't the trust fund a fake concept?"
- ballenf 3y ago
  Don't forget the maintenance costs and related expenses that Country B incurs. Not to mention that Country B has to guess the right amount of infrastructure to build. The costs Country A incurs are plowed back into Country A's economy during the "building boom". Don't know which country ends up better off, but there are many more variables than you imply.
  - bryanlarsen 3y ago
    Exactly! It's a lot more complicated than "deficits bad".

orangepurple 3y ago

I don't understand the problem with Social Security. The Federal Reserve has already willed hundreds of billions into existence for COVID relief and wars in the last few years. What's another few hundred billion more for Social Security in a few years?

kyrra 3y ago
You're off a little. From Dec 2022 https://www.wsj.com/articles/how-much-washington-really-owes-100-trillion-debt-social-insurance-expenditure-medicare-medicaid-treasury-11671571955 https://www.wsj.com/articles/how-much-washington-really-owes... "That brings us to the alarming milestone. Add the net position of $29.9 trillion to the social insurance net expenditures of $71 trillion, and you find that they topped $100 trillion—the first time they have ever done so." Our unfunded social security tab is crazy.
BurningFrog 3y ago
It's vastly more money than that.

onlyrealcuzzo 3y ago

> What should be mentioned is that Social Security could easily be well in the black with even higher payments to retirees by simply raising the income limit on the social security tax. Obviously. It could also be in the black if you raised the rate 2x... > I especially don't like ignoring it like this because it implies the US government simply needs to ignore that obligation to the public, let millions retire with no safety net, and just default on trillions of debt. The US government might technically default - i.e. miss payments - but the payments will likely be delayed (due to political BS) rather than not paid in full w/ accrued interest. They've missed payments before. They'll probably miss them again. But they can literally print money. There's zero reason to truly default - and ENORMOUS consequences if they do. AFAIK, The Treasury at least claimed to be able to pay SS benefits in full even if the US "defaulted" (delayed) Treasury payments. It's hard for me to imagine a world in which the government just doesn't pay SS Treasuries. With enough political will, anything is possible. But even if political winds change dramatically - there's no way around how enormous the financial consequences would be to everyone in the country. I guess you can never underestimate how much politicians are willing to destroy this country to get a very small soundbite on TV - but I'm skeptical this is worth worrying about. Is it possible COLA for SS will be nerfed? That seems within the realm of possibility. Is it possible the Federal Government just decides to stop paying Treasuries SPECIFICALLY to SS? Super-dooper highly unlikely.

lazide 3y ago
I wonder if the US is going in the same direction as Greece/Italy on this front?
- throw0101a 3y ago
  Both of those have lower borrowing costs on their bonds than the US currently does: * http://investing.com/rates-bonds/greece-government-bonds http://investing.com/rates-bonds/greece-government-bonds * https://investing.com/rates-bonds/italy-government-bonds https://investing.com/rates-bonds/italy-government-bonds * https://investing.com/rates-bonds/usa-government-bonds https://investing.com/rates-bonds/usa-government-bonds * https://www.investing.com/rates-bonds/world-government-bonds https://www.investing.com/rates-bonds/world-government-bonds

linuxftw 3y ago

They have raised the social security income tax limit dramatically over the last 5 years.

toast0 3y ago

The question is, is Social Security's Old Age, Survivors, and Disability Insurance program insurance, or is it a government welfare program. If it's insurance, than removing the cap on income charges without removing the cap on benefits is fundamentally unfair. If it's a social welfare program, having a trust fund doesn't make a whole lot of sense. As well as quite some other things like paying people more benefits when they've had a higher historic income; that's the opposite of what I'd expect from a welfare program. IMHO, it's a social welfare program that pretends to be an insurance scheme with wacky rules. Maintaining the fiction of an insurance scheme is clearly important to acceptance. There's also lots of features to encourage behaviors... Be sure to stay married for at least ten years to qualify for spousal benefits. Be sure to save up so you can delay claiming, and wink take advantage of our outdated actuarial tables. Don't forget to earn more money now (and pay more taxes now) so you can get higher benefits later.

daft_pink 3y ago

The core problem with trust fund debt is that if the government maintained assets for the social security trust fund the way vanguard or fidelity did, the underlying assets would be so high that the government would start to own and control a large part of the American economy. Do we really want all our company's to be majority owned by the government? The practical answer from the government's perspective was to just the loan the money to itself. Except the problem now is that the government owes itself a lot of money. Reality is that there is not trust fund and current payers simply have to pay the benefits for existing retirees. That's the way it has always been and that's the way it's always will be. There will be economic problems no matter how the government handles such a large amount of money. I believe that whenever there is a crisis or issue they will simply raise the income limits to correct it, and that's largely been happening as the income limit is going up and up and up every year. Way more than it did 20 years ago.

hotnfresh 3y ago
> Do we really want all our company's to be majority owned by the government? Not sure I’d want them to have voting shares, but actually—yeah, that sounds pretty good.
- daft_pink 3y ago
  But this is the problem they grappled with when they created social security directly after the great depression market crash. It's important to understand that they invested in risk free assets ie government bonds, because it was a social safety net in reaction to problems in the market. Except it was much smaller then, the problem is that now they've created so many bonds that the bonds are the problem. Anyway you look at it, creating a giant government program like this is. going to be a problem.