August 7, 2012

AP’s Ohlemacher Pretends That Social Security Has ‘Funds,’ When All It Has Are U.S. IOUs

The modern equivalent of a broken record, which used to be a common saying about someone who says the same thing over and over, is the “infinite loop” — “a sequence of instructions in a computer program which loops (i.e., repeats) endlessly.”

On Social Security, the establishment press has played a false infinite loop for decades, namely that its “trust fund” contains lots of real assets. Here is Stephen Ohlemacher’s replay of the loop found in his coverage at the Associated Press on early Monday:

SOCIAL SECURITY NOT DEAL IT ONCE WAS FOR WORKERS

… The trustees who oversee Social Security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits.

To cover the shortfall, future retirees probably will have to pay higher taxes while they are working, accept lower benefits after they retire, or some combination of both.

Funds, schmunds.

Here is something else “The trustees who oversee Social Security” had to say about the system’s annual cash deficits:

In 2011, Social Security’s cost continued to exceed both the program’s tax income and its non-interest income, a trend that the Trustees project to continue throughout the short-range period and beyond. … the 2011 deficit of non-interest income relative to cost was $45 billion, and the projected 2012 deficit is $53 billion.

This is after considering the government’s reimbursement for the payroll tax cut in both years.

In other words, the system has currently been running cash deficits, and those deficits continue to grow. Those deficits have to be made up out of “general funds,” i.e., from the rest of the government.

Now, to the infinitely looped “trust fund” fiction, here is what Bruce Bartlett articulated quite well in 2009 at Forbes:

News reports emphasized that the date when its trust fund will be exhausted is now four years earlier than estimated last year. But in truth, this is an utterly meaningless fact because the trust fund itself is economically meaningless.

… a government trust fund, which is really nothing but an accounting device.

Most Americans believe that the Social Security trust fund contains a pot of money that is sitting somewhere earning interest to pay their benefits when they retire. On paper this is true; somewhere in a Treasury Department ledger there are $2.4 trillion worth of assets labeled “Social Security trust fund.”

The problem is that by law 100% of these “assets” are invested in Treasury securities. Therefore, the trust fund does not have any actual resources with which to pay Social Security benefits. It’s as if you wrote an IOU to yourself; no matter how large the IOU is it doesn’t increase your net worth.

This fact is documented in the budget, which says on page 345: “The existence of large trust fund balances … does not, by itself, increase the government’s ability to pay benefits. Put differently, these trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the government as a whole.”

Consequently, whether there is $2.4 trillion in the Social Security trust fund or $240 trillion has no bearing on the federal government’s ability to pay benefits that have been promised. In a very technical sense, it would lose the ability to pay benefits in excess of current tax revenues once the trust fund is exhausted.

… The trust fund is better thought of as budget authority giving the federal government legal permission to use general revenues to pay Social Security benefits when current Social Security taxes are insufficient to pay current benefits–something that will happen in 2016.

That’s what the trustees thought in in 2009 based on financial results in 2008. As seen earlier, benefits began exceeding current taxes in 2010, thanks to the horrid economy and the government’s failed stimulus-based attempt to revive it.

The government’s ability to continue to pay Social Security benefits depends not on how long the “trust fund,” which really ought to be called in the “IOU fund,” lasts. It depends on the government’s general ability to continue to pay its bills. As the national debt approaches $16 trillion, its ability to continue to be able to pay for anything becomes ever more dicey — while Ohlemacher and the rest of the establishment press stubbornly and deceptively refuse to include that in their infinite loop.

Cross-posted at NewsBusters.org.

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