If the federal government issues itself its own bond, is it an asset? The only way you can claim the Social Security Trust Fund is an asset is to answer this question yes.

So within my microcosm of economy. How much does my $100 in the bank really mean, or is it just a nice accounting trick so that I can fool myself into thinking that I’m staying afloat?

Oh, Thank God! We can all stop worrying.

The problem is the following: unlike ordinary businesses, the US does “cash accounting”. Future obligations are not entered into the books today, only when they occur. This also holds for future income (taxes). In some ways it makes sense, but this creates a big issue with the SSA, which has a big future obligation. Thus the big difference in perception between having the SSA “in” and “out” of the budget. With the SSA “out” of the budget, there’s a big national debt to the SSA (count the trust fund with all the other outstanding T-bills). With the SSA “in” the budget, the future obligation represented by the T-bills disappears (it cancels against the asset of the T-bills themselves). In theory, it should be replaced by the obligations of the SSA, but in practice that’s not they way the accounting is done.

Economically of course there’s no difference, but the current accounting method greatly underestimates the national debt by omitting future SS benefits from it.

LBJ didn’t change anything in the way SS works, this is a lie spread by the right wingers. The only thing LBJ did was change the accounting procedures so that the federal budget included social security (and the other “trust funds”). This was simply a reporting change, nothing more.

Yes, the taxpayers will have to pay back the T-bills that make up the trust fund eventually – but the same is true of private investments in T-bills. If the SS trust fund was not loaning the feds the money by buying T-bills then the feds would have had to borrow the money from someone else, like China. Taxpayers will have to pay back the same amount of bonds regardless of who hold them, China or the SS admin.

Social security was NEVER a savings plan.

http://www.snopes.com/politics/taxes/sschanges.asp

From the point of view of the SSA, this is an investment scheme, not a pyramid scheme: they collect more money today than they have to pay out. The remainder should, of course, be invested. By law the only investment that SSA is allowed to make it to loan the money to the Feds.

Now there are two problems: one is that benefits are not correlated to investments. Thus unless benefits are reduced to correspond to the actual size of the investment, the investment fund will indeed be drained eventually.

The second problem is that as the SSA tries to redeem the treasury bonds, taxpayers will have to fund this. This is the “pyramid” aspect — and this is what LBJ did.

Basically, in the 50s and 60s taxes were artificially lowered: instead of collecting taxes the government took a big loan from the SSA. In a few years, the loan will have to be repaid at which point today’s young taxpayers will have to pay for the spending when taxes should have been higher. The problem is not with the SSA but with the Treasury, which counts social security taxes as income instead of counting the “trust fund” as part of the national debt.

“Dependent on DC” by Charlotte Twight is a good read.

(Anyone who is planning on responding with “you can choose not to work” can just go ahead and fuck right off.)