Sunday, July 31, 2011

Social Security and the Debt Ceiling Negotiations

Why are Republicans and Democrats insisting on making Social Security part of the current Debt Ceiling negotiations?

Social Security accounting is separate by law, and in fact is counted as an off-budget item. The trust fund holds special Treasury Bonds, bought whenever there is more collected in Social Security payroll taxes than is paid out in Social Security benefits. Those bonds fund part of the national debt, to the tune of $2.6 trillion. (Yes, those paper IOU's in the Trust Fund are actually U.S. Treasury Bonds, backed by the full faith and credit of the United States.)

When Social Security pays more in benefits than it collects in payroll taxes, it cashes in some of those treasury bonds. The Treasury Department is able to pay for those special Treasury Bonds by selling regular Treasury Bonds (say, to China).

Treasury Bonds are what fund the national debt (and have since the 1917 sale of Liberty Bonds). Since Social Security's special Treasury Bonds are only redeemed at the same time that new regular Treasury Bonds are sold, and money given to Social Security for redeeming the special bonds is offset by money from the sale of regular bonds, there is no change in the national debt. Thus, even if Social Security is running a deficit for the current year, there is no impact on the National Debt, and no change in how close or how far that actual debt is from the debt ceiling.

Furthermore, even though Social Security is projected to have deficits for the forseeable future, the $2.6 trillion Trust Fund will insure that Social Security is able to pay out 100% in benefits for the next 26 years, and is able to do so with no changes in retirement ages and no changes to benefits. (The upcoming retirement of Baby Boomers was foreseen, and is the reason the Trust Fund was built up to such a large amount.) In fact, any changes to retirement ages or benefits would have absolutely no impact on the National Debt. Raising retirement ages or cutting benefits will only have an impact 26 years from now, and would still only affect Social Security benefit payouts, not the National Debt.

Anyone trying to include Social Security in the Debt Ceiling negotiations is doing so only as part of a partisan agenda, either as a tactic to scare Social Security recipients, or in an effort to privatize (think huge administrative fees) or eliminate Social Security. Social Security is the reason (along with living wages) that we no longer have huge numbers of seniors and disabled people in poorhouses and in poverty. Private retirement plans are subject to theft, bankruptcies, stock market crashes, bank closings, and incompetent or unscrupulous administration. In contrast, Social Security will always be there. Unless, of course, our politicians take it from us.

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