I’m not sure where I ever acted shocked or amazed that the SSA would want its surplus back. What does kind of shock or amaze me is the whole idea that the SSA actually has a pile of funds to draw on. Like I said before, the only way to pay the SSA back is through tax revenue or new debt. I’m not saying it will never be paid back, I’m saying the point is moot. The whole problem is that the government has been using the FICA surplus to overspend instead of (more honestly) raising income taxes. I think we both agree on that point. It’s very regressive, since it’s a flat rate on only the first $90k of income, as you pointed out.

You can call it paying back the SSA or you can call it devoting more tax revenue to SS benefits… you can call it selling bonds to China and using the money to pay back the SSA. You can call it whatever you want… no matter what, those bonds that represent the ‘balance’ in the SS ‘account’ can only be turned into cash that old people can spend if the taxpayer or some third party loans the government the money to pay back the SSA.

I’m really not sure how else to make my point. Bonds are a promise to pay back a principle value plus interest in the future. The only way for the government to meet that promise is to pay them back out of current tax revenue, or roll over the debt to a third party. So all those bonds the SSA holds are really just a promise by the people of the US that they will eventually pay more taxes towards SS.

That is what is so mindbending about the whole deal. It’s like current workers paid too much FICA taxes so they could inflate this huge pile of bonds that the SSA owns, then future workers have to pay extra FICA taxes just to pay back the SSA. Who benefits? The rest of the government, which got by spending all this surplus money without any plan to pay it back.

I think Al Gore was right to claim the ‘SS Trust Fund’ was being ‘raided’ … but his solution was moronic (to somehow create a big bank account for SS that the rest of the government couldn’t touch… a lock box). It just doesn’t work that way. The better solution would be to lower FICA taxes to neutral rate, no deficit or surplus, then raise/lower them over time as needed. This would prevent the rest of the government from dishonestly spending money that wasn’t theirs. That is the root of this problem… through convoluted accounting no one realizes that the government is basically borrowing against our future.

I’m not even sure how we got on this whole tangent, because I was originally agreeing with you anyway. Our point of contention seems to be about these bonds the SSA possesses. If you really want my take (like I haven’t babbled enough already), then I think they are less than useless. The mechanism they represent allows our government to spend money that it later swears up and down is safely held for future needs. It’s not. If the SSA had been forced to refund any surplus it had, rather than loan it to the general fund via purchase of treasury bonds, then the entire situation would be better off.

The bonds that Soc Security holds are not Social Securities fault. That Social Security will want it’s money back eventually is no different than the Chinese, or American, bond holders wanting their money back eventually. When we have to raise taxes (or inflation rates) to cover our debts, it will not be because of Social Security- it’ll be because we spent a bunch of money we didn’t have.

This is one of the things that annoys me about this entire conversation- the (professed) shock and amazement at the concept that it might be necessary, some day, to actually repay the money loaned us. And that it’s our creditor’s fault for wanting repayment. Why, that’d be… inconvient.

First, the SSA has all these bonds and they start redeeming them when SS payments start to exceed FICA tax intake. The rest of the government, to pay back the SSA, must raise tax money to pay.

Second situation, the SSA has no bonds at all. SS payments start to exceed FICA tax intake, and the government must raise tax money to keep paying out SS benefits.

Third situation, the SSA has bonds, starts to sell them to keep paying out SS benefits, and the treasury sells new bonds to a third party (most likely the American public) to cover them.

No matter what, our future SS shortfall will be covered out of taxes or new debt, not some mythical pile of cash stored away. Of course you can always cut benefits or grow the economy (and hence the tax base) faster, but neither of those have to do with the SSA’s bonds at all.

I’ll bite on your nits about debt vs GDP, while I still consider the 40-75% band it has stayed in for the last 50 years ‘fairly steady’ … it was definitely Reagan-Bush that ran it up again recently. And I didn’t mean to attack the New Deal (or involvement in WW2)… both of those programs/actions paid off splendidly, and I think represent the entire point of running a deficit… as in investment in the future. The trick is to only make smart investments!

First point: I wouldn’t debate that, but I don’t think that having debt is necessarily bad if you are responsible in managing it. I think a lot of people have forgot what a debt crisis is (I certainly am too young to know), and hubris took over. Now they get to learn their lesson.

Second point: You can refer to this pie chart of who holds our National Debt.

http://www.optimist123.com/photos/uncategorized/2007/08/23/piechart200706.png

The big red slice is the SSA and other intragovernment lending. Notice that domestic owners are about even with foreign owners. Of the foreign owners, everyone frets over China. Last I checked, China held about $400 billion worth of dollar instruments. This is about 4.5% of our total debt, or about 8.2% of our public debt (which is a much more useful number to think about anyway). The thing is, China would be stupid to try and use this debt against us. With a little politicking, I’m absolutely sure the American public would buy ‘China Bonds’ willingly, like they did during WW2, and just eat up everything China tried to sell. $400 billion is only about $1300 for every man, woman, and child. Throw in a bunch of rich people to be realistic, and China dumping it’s bonds would have very little effect. China, on the other hand, would be screwed. With no foreign reserves to draw on to stabilize its own currency, it’s economy would overheat from inflation very quickly.

Third point: I totally agree about being responsible and the New Deal and WW2 were both very responsible uses of debt financing. While I don’t really agree with their politics at all, I would say that Reagan/Bush (but mostly Reagan) bought us Global Military Superiority with all that debt they racked up. I think time will tell whether that is a good investment or not, but that seems to be what it was spent on.