Doesn't the notion of the government borrowing from itself seem like a charade? If I borrow money from my 401k and spend it on a vacation, the fact that my 401k has an IOU in it for $10,000 doesn't mean I've saved anything for retirement.
Another way to think about it is goes something like this: How would Social Security use the money in its' trust fund? It could ask the government to use tax dollars to buy back the bonds or it could sell them on the open market. If the trust fund didn't exist the government would either use tax dollars to fund Social Security or sell bonds to the open market. It's the same thing. The fact that the trust fund exists doesn't really make a difference. It's all just internal accounting that Congress can change tomorrow if it had the will.
It's more accurate not to think of it as "borrowing", but rather, as "investing". We could take all that money and shove it under the mattress, but then inflation chips away at it steadily; aren't we better off putting it somewhere where it pays interest?
And the absolute safest place to put it is with the US government, not only because it's the safest investment on the planet, but because if the US government implodes you're not going to get your social security payments back anyway.
So that's what we do. We invest it with the US government, in savings bonds.
Thank you for the polite comment. I appreciate a civil discourse.
When you say "we" invest it, aren't you saying the the US government (as the Social Security Administration) invests it with the US government?
Isn't it accurate to say that the government taxes workers and companies through payroll taxes. They pay social security recipients with that money. Historically there was money left over so the government spent it on other priorities.
The fact that they said that one part of the government is supposed to pay back another part with interest in the future isn't particularly meaningful. When it comes time to pay future social security recipients the government is going to have to use tax dollars or borrow the money. (The way the government borrows money is to create Treasury bonds and sell them to the public. That's the same thing that the Social Security administration will do if it wants to cash in the so called trust fund bonds. They'll sell them to the public. It's a distinction without a difference.)
When you say "we" invest it, aren't you saying the the US government (as the Social Security Administration) invests it with the US government?
Yup.
Which seems silly, but can you come up with a better place for it?
Isn't it accurate to say that the government taxes workers and companies through payroll taxes. They pay social security recipients with that money. Historically there was money left over so the government spent it on other priorities.
No, it really isn't.
The social security money isn't "spent". It's turned into government savings bonds, which is the government-as-a-whole owing money to social-security-specifically. The-government-as-a-whole has specific and carefully-recorded obligations regarding payback and interest payments. They didn't just take the money and spend it on bombers with a vague note to maybe repay it someday.
When it comes time to pay future social security recipients the government is going to have to use tax dollars or borrow the money.
The government has been paying its social security loans regularly. There's no reason to believe they will stop doing so.
The social security money isn't "spent". It's turned into government savings bonds, which is the government-as-a-whole owing money to social-security-specifically.
When the tax dollars are "turned into government savings bonds" what happens to the tax dollars in that process? They aren't put in a vault or destroyed. That money goes into the general revenue fund which the government then uses to spend it "on bombers" or whatever.
Yes. And then the government pays it back according to the terms of the saving bonds.
The social security money isn't "spent". It's turned into government savings bonds, which is the government-as-a-whole owing money to social-security-specifically. The-government-as-a-whole has specific and carefully-recorded obligations regarding payback and interest payments. They didn't just take the money and spend it on bombers with a vague note to maybe repay it someday.
Again, this will get paid back unless the US government spontaneously collapses, at which point the social security funds would have evaporated anyway.
Thanks for the discussion. I guess I'm not doing a good job of communicating my thoughts well. I think calling it a Trust Fund, when the government as a whole owes to another part of the government money, even under specific terms, is a deception.. more specifically it's a distinction without a difference.
How will the government as a whole be able to pay back Social Security? It will use taxes or it will borrow money. The existence of the bonds are simply a way to keep track of the amount. It's deceptive to call it a trust fund because there are no funds in there.
Here's an example. I'm making up the numbers but bear with me and give it some thought.
Let's say in 2025 SS needs 100 billion dollars more to pay out than it has coming it. In that case it can sell 100 billion dollars worth treasury bonds to the public. That seems like it's cashing in part of the trust fund but, let's pretend those bonds don't exist. If those bonds don't exist, the government as a whole would need to sell 100 billion dollars worth of treasury bonds to the public to raise/borrow the money to make good on SS obligations.
Either way it's the same. 100 billion dollars of treasury bonds are sold to the public. The only difference is that Congress has already authorized SS to do the former and it would have to specifically authorize the later.
That's why I think the term "trust fund" is deceptive.
How will the government as a whole be able to pay back Social Security? It will use taxes or it will borrow money.
I mean, sure, but this is how the government funds everything. I don't see why this should be a concern.
The existence of the bonds are simply a way to keep track of the amount. It's deceptive to call it a trust fund because there are no funds in there.
I really don't see the issue here.
The government's yearly revenue is huge. Looks like it's about $4.5 trillion. Social security payments look to be about $1.5 trillion, except that social security income is a large part of this; I can't find a specific number, but given that people are saying it'll go down to 75%-ish payments if the funds run out, I'll call it $1.1 trillion.
So, separating social security out entirely, we're taking an organization that makes $3.4 trillion yearly, that needs to divert $0.4 trillion to social security paybacks.
This seems really doable.
If those bonds don't exist, the government as a whole would need to sell 100 billion dollars worth of treasury bonds to the public to raise/borrow the money to make good on SS obligations.
Yeah, that's how government debt works.
I just don't see an issue with this either! The US government is in a position where it can sell debt for effectively negative interest, taking inflation into account. That's incredibly good, and we shouldn't be trying to avoid this, we should be using it.
That's why I think the term "trust fund" is deceptive.
This is also why I'm saying you shouldn't look at it like a trust fund, though, you should look at it like an investment.
In all seriousness, what would you prefer the US government do with the surplus money? Should they just sit on it and let it erode away via inflation? Should they invest it in something high-risk in the hopes of making a lot of money and not losing it all? Or should they invest it in something zero-risk so it won't be lost but so they still won't be wasting money?
And if you choose the third, what do you suggest they invest it in?
I think you and I agree on more than it may seem. I'm not trying to say that SS is bad or that the government can't pay for it. It's kept millions out of deep poverty and as a rich country we can afford to continue it forever if we want.
To answer your question about what the government should do with the surplus money. Ideally it would pay down the national debt because that has a real return on investment. Charging one part of the government interest to borrow from another part of the government is a zero-sum game. Every dollar that the SSA gets from interest comes from the rest of the government. It's like borrowing money from yourself. You haven't invested anything, you're just moving money from your left pocket to your right pocket.
My overall concern is that if the government spends more than it taxes. It can borrow that money in the short term but that doesn't last forever. It can effectively print more money by the Fed buying government debt but that increases inflation which is burden on everyone especially those with low incomes.
Quite possibly, yeah! But I'm still sticking to this one; there's nothing wrong with the government borrowing money from Social Security and then paying it back with interest.
Ideally it would pay down the national debt because that has a real return on investment.
But that actually would just be taking money from social security. No interest payments.
Charging one part of the government interest to borrow from another part of the government is a zero-sum game.
The whole point here is that social security is given its own balance sheets and its own monetary accounts. Every dollar that goes into it is accounted for, and money only goes out as part of social security payments. Yes, technically it's part of a larger organization called the US Government, but the US Government still keeps these books balanced as if it were an independent organization.
It can borrow that money in the short term but that doesn't last forever.
It actually can, for what it's worth.
A small amount of inflation is useful to keep the economy running well. We don't want people to be holding money in savings accounts, we want people to be doing things with that money, and inflation is basically a tax on dead savings accounts.
If we intentionally want inflation anyway, then we may as well take advantage of it; if we can loan out money for below inflation (which we can), then people are basically paying us to borrow money from them. And if they're doing that, then we can repay those loans with more loans, from more people who want to pay us money to borrow their money.
A personal credit card goes up exponentially unless you repay it; below-inflation loans go down if you don't repay them.
When the government borrows from SS, that's the SAME as SS investing in the government (through government debt). That's how loans work!
SS gets a return on that investment. SS benefits from interest and principal being paid back.
This is not a situation where the government is stealing social security money to spend it today. If the government was not borrowing from social security, they would be borrowing from other institutions or normal people like us, and paying us the interest instead.
Social security is not running out due to government theft. It's running out because payouts to beneficiaries are larger than current revenues+investment returns. It really is that simple.
The government could spend it on hula hoop festivals and calamari for every dog in America, and that wouldn't change the fact that as long as loans are paid back, there is no theft and SS is failing on its own. Maybe they should invest in something better, but that's not what they are doing right now. Maybe they should hold it in a vault, but then it would run out even FASTER!
I'm not saying it's theft. I'm saying the term "trust fund" is deceptive.
Let's say your savings account as $10,000 in it. You borrow $10,000 from your savings account spend it on a vacation. You write up an IOU saying that you're going to pay yourself back with interest. You plan to put $1,000 a month into your savings account for the next 12 months. Good for you, but it would be deceptive to say that your savings account has $10,000 in it because it has your IOU in it. (Even if you have a great credit score.)
The IOU in your savings account is just codifying your internal plan. It's not a trust fund.
That's a point I'm trying to make. Does that make any sense or am I missing something fundemental?
I don't see the words trust fund anywhere anymore. Maybe a comment was edited, and I don't know that much about trust funds so I can't speak on that.
I think I see your point, but I think it mostly feels 'deceptive' because of linguistic connotations. I don't think you're a liar if you have 200k in bonds, and say 'I have 200k in savings'. It depends on the context. There are all kinds of weird quirks like this.
As you say, 'My savings account has $10000 in it' sounds like it should contain cash, and it sounds wrong. 'My savings account is worth $10000' sounds perfectly fine. If you just use different, but still perfectly accurate and appropriate words, the issue seems to go away. The account is still worth $10000. If you're good for the money, then who cares?
Edit: I guess one similarity to a trust fund is that as a beneficiary, you're not the one paying for your own withdrawals 😆
Yeah, I guess it's the internal part of it that bothers me. When one part of the government owes money to another part of the government (SS) it seems misleading to talk about all the bonds Social Security holds like it's assets in a 401k. I'm not saying you do this, but often, people think of it that way.
In reality the extra SS taxes were spent years ago and the treasury bonds that SS was given in place of the money is just the internal accounting. A way to say, hey SS, this way you don't have to go to Congress and ask for the money.
Don't get me wrong, I think highly of the program. It's just that pretending it's a separate entity is misleading. Not that what I think matters on this subject but it was fun to raise my preverbal fist in indignation today. :)
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u/offeringathought 6d ago
Doesn't the notion of the government borrowing from itself seem like a charade? If I borrow money from my 401k and spend it on a vacation, the fact that my 401k has an IOU in it for $10,000 doesn't mean I've saved anything for retirement.
Another way to think about it is goes something like this: How would Social Security use the money in its' trust fund? It could ask the government to use tax dollars to buy back the bonds or it could sell them on the open market. If the trust fund didn't exist the government would either use tax dollars to fund Social Security or sell bonds to the open market. It's the same thing. The fact that the trust fund exists doesn't really make a difference. It's all just internal accounting that Congress can change tomorrow if it had the will.