Breaking! Amtrak rider seen heading north!


Won't be posting till Saturday: We're off on a matter of national import and don't expect to post today. As we head north, we still have this question troubling our minds:

As he continued, how did Glenn Kessler explain "The Facts" about the workings of Social Security? That and other vital matters will be on the docket when our labors resume.

We're not trying to single out Kessler! Our side has never created a clear response to the disinformation machine which has confused so many people for so many years concerning the workings of this program.

That said, we thought Kessler's work was very unclear. To read his account of The Facts for yourself, you know what to do:

Just click here.


  1. There are three ways to look at SS: the two mentioned by Kessler and the way the Social Security Actuaries look at it. The Annual Report of the Social Security and Medicare Boards of Trustees ought to be the most valid. After all, the government pays a lot of money to have top-notch actuaries spend their entire career studying SS. Yet, most people ignore these reports.

    From the POV of the Social Security Trustees, Kessler is comparing two invalid approaches.

  2. Kessler doesn't understand the difference between running the deficit and financing the deficit. Social Security was used for the latter. Secondly, he claims that SS contributes to the deficit because it may contribute to the deficit sometime in the future.

    1. According to James Kwak, SS will be unable to provide full funding when the trust fund runs dry sometime in the 2030's.

      At this point, Congress will have to decide whether to reduce benefits by 25% or cover payments with revenues from other sources.

      Since cutting SS benefits is considered the "third rail" of politics, Kwak thinks it most certainly will be supported by other revenues, hence it will contribute to the deficit starting then.

      Note: There was a temporary deficit in SS due to the crest of the Baby Boomer wave reaching retirement age (which was accounted for), and a large number of unemployed that were no longer paying in. (Obama also reduced payroll taxes.)

      In addition, many more 62 year olds opted for early retirement because they were out of work and unemployment benefits, and needed income. (This was NOT anticipated.)

    2. Note: there was no temporary deficit in SS; SS had to cash in some of the bonds from the accumulated $2.7 Trillion surplus.

  3. It's "unclear" because it is simply wrong. It is wrong as a matter of fact because it is wrong as a matter of law, and it is the law and the law only which creates the facts.

    Kessler's thinking derives entirely from believing there is a "unified budget." Although the White House issues reports as if there is one, including a "unified budget" with Federal Budget and "Off Budget" figures (including all the Trust Funds) -- presumably for the convenience of people like economists who want to look at it that way for some analytical purposes -- as a matter of law since 1993 the Social Security Trust Fund is an entirely separate fund from the U.S. Government general fund. It's the "unified budget" that legally is a fiction -- a useful fiction for some purposes, no doubt, but not for deciding how to manage the Social Security program. Law matters.

    Keep in mind, too: if the Federal Government had not borrowed the funds from the Social Security Trust Fund to pay for general fund obligations, it would have borrowed it in the general market, with the same obligation to pay interest and return the principal when due. Accordingly, the lending by way of buying Treasury Bonds to the general fund does absolutely nothing to increase the deficit. To say it does is the same thing as saying paying back interest and principal on the Treasury Bonds purchased as (very safe) investments by wealthy Americans. The fact is, while paying off obligations may cause the government to borrow to pay it, another debt obligation in the identical amount, one to the Social Security Trust Fund, is retired.

  4. Obama was wrong on all bases. I just noticed the following paragraph from the SS Trustees' 2012 Report:

    A temporary reduction in the Social Security payroll tax rate reduced payroll tax revenues by $103 billion in 2011 and by a projected $112 billion in 2012. The legislation establishing the payroll tax reduction also provided for transfers of revenues from the general fund to the trust funds in order to “replicate to the extent possible” payments that would have occurred if the payroll tax reduction had not been enacted. Those general fund reimbursements comprise about 15 percent of the program's noninterest income in 2011 and 2012. (emphasis added)

    Apparently a substantial portion of SS income came from the General Fund. Thus, SS contributed to the deficit on every possible accounting basis.


    1. Actually, no, SS did not contribute to the deficit. To be more precise:
      The legislation which established the payroll tax reduction and also provided for transfers of revenues from the general fund to the trust funds contributed to the deficit.

    2. But that "tax holiday" that requires general fund substitution is supposed to be temporary to boost worker purchasing power. Many supporters of Social Security thought it a bad mistake -- lower taxes for everyone, sure, but any other method and not out of Social Security revenue -- precisely because it muddies the legal separation of the funds. That legal separation reflects the public's legitimate belief that they have, in effect, paid for their benefits.

    3. SS did not contribute to the deficit. Legislation providing that general fund monies be used to pay SS benefits contributed to the deficit.

      Huh? Are you serious, mm?

      I agree, urban legend. Another problem is that it was a step in the wrong direction. After all, the problem is that SS benefits won't be covered by SS assessments going forward. Reducing the assessments makes the problem that much worse.

      IMHO this "wrong direction" action shows that in practice fixing SS will not be easy for our elected representatives, even though it may seem simple in principle.

    4. As I understand it, SS right now has about $2.7 Trillion in the trust fund. The 2% payroll tax holdiday reduced the amount of SS taxes collected by about $100 billion. If the law didn't require this shortfall to be replaced with general fund monies, all benefits would still have been paid using a little bit more from the trust fund.

  5. Quaker in a BasementDecember 7, 2012 at 6:16 PM

    "After all, the problem is that SS benefits won't be covered by SS assessments going forward. Reducing the assessments makes the problem that much worse."

    Dynamic scoring for thee but not for me, Dave?

    1. Actually, Quaker, the SS actuaries use dymanic scoring. If you look at the summary Trustees' Report, you'll see that they built in an assumed economic expansion.

      Futhermore, the assumptions used by SS actuaries have been too optimistic for a long time. That's why we keep seeing earlier and earlier predictions for the year when the SS Trust Fund will be used up.