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‘Why the Social Security Trust Fund is Real’

Saturday, December 15, 2012 21:10
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pgl at Econospeak:

Kevin Drum on Why the Social Security Trust Fund is Real, by pgl: Kevin Drum has a short and sweet analogy for the position that the assets in the Social Security Trust Fund are real:

Now, suppose this surplus had been invested in corporate bonds. What exactly would that mean? It means that workers would be giving money to corporations, who would turn around and spend it. In return, the Social Security trust fund would receive bonds that represent promises to repay the money later out of the company’s cash flow. In effect, it gives workers a claim on the cash flows of the company at a later date in time. When that time comes, the company would have to pay up, which would make it less profitable. If the company was already unprofitable, it would make their deficit even worse. If that’s what had happened, there would be no confusion about the trust fund. Everyone agrees that corporate bonds are real things, and that the corporations who sell them have an obligation to pay them back, even though it means less money for shareholder dividends.

He then substitutes treasury bonds for corporate bonds and draws the same conclusion. QED! While I agree, let me try to offer the rightwing rebuttal, which begins with the proposition that the general fund is essentially bankrupt. Is it and why? Well – it is true that the Reagan years cut taxes on the very rich just as it raised payroll taxes. It is also true that President Reagan increased defense spending. Although we had the peace dividend and some reversals of those tax cuts during the 1990’s, George W. Bush put us back on the path of high defense spending and low taxes on the rich in 2001. The Republican Party seems to believe that we must forever have high defense spending and low taxes on the rich. Well if that is true, it is analogous to paying high dividends to corporate shareholders even as corporate profits are well below the dividend policy. But do we really have to accept this Republican belief system? No we can honor these promises to pay Social Security benefits if we as a nation are willing to tell the rich to pay higher taxes and tell the military industrial complex that it gets less largesse. But I guess some Republicans see the promises of low tax rates for the rich and continuing largesse for the military industrial complex as sacrosanct, which of course leads them to conclude that the problem is those promises to Social Security beneficiaries.

The tax cuts can also be viewed as a loan from the Social Security Trust Fund that didn’t pay off as promised.



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  • desertspeaks

    you should really check out (CAFR) comprehensive annual financial report’s, every town, city, county, state, federal government and government subsidiary has a SURPLUS!! They all keep a double set of books! one they moan about and demand, beg and plead for more funding for.. and the other set of books called CAFR is some sort of slush fund and were you to combine all of them, it is estimated to be somewhere in the vicinity of 60 trillion dollars nationwide!
    Doubt me? do some bloody research! check out via your favorite search engine and type in the name of your town, city, county, state, government subsidiary and type cafr after it.. you will find that every november, each and every one of them put out a cafr, it lists all the debt and cash/investments/holdings etc.. in almost every instance, each entity cafr has more than enough to pay off all the debt with a very nice surplus!
    OH and fyi, social security has a cafr too!

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