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Originally Posted by mohawkx
Once the Social Security Revenue stream from current employees is stopped, where does the money come from to pay current recipients and those included in the cutoff date?
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In theory, that would come from the Trust Fund.
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Treasury special securities are an asset to the OASI and DI Trust Funds and a liability to the U.S. Treasury. Because the OASI and DI Trust Funds and the U.S. Treasury are both part of the Government, these assets and liabilities offset each other for consolidation purposes in the U.S. Government-wide financial statements. For this reason, they do not represent a net asset or a net liability in the U.S. Government-wide financial statements.
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What the Treasury Department is saying here is that the Trust Fund is an asset for the Social Security Administration, but it is a liability for the US Government. They cancel each other out, so in reality, there is no actual money in the Trust Fund. You can see that here:
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When the OASI and DI Trust Funds require redemption of these securities to make expenditures, the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures.
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accumulated cash balance" is a Budget Surplus. We already know for a fact that there will be no Budget Surplus for the next 10 years, and as best I can tell, for the 10 to 20 years after that even.
"[R]aising taxes or other receipts" effectively means increasing the Social Security tax cap, increasing the Social Security tax, increasing personal income taxes, increasing the Capital Gains or Estate Tax, increasing import/export tariffs or duties, or increasing user fees, such as the cost of filing a lawsuit in bankruptcy court or federal courts, or any combination of those.
While suggested raising the cap on Social Security to $250,000, at this stage in the game, raising any taxes would be economic suicide, except for Capital Gains or Estate Tax.
One of my criticisms of Federal Minimum Wage is that it does not take into account Cost of Living or Purchasing Power Parity. Someone in Montana living on minimum wage will have a Middle Class life-style, while someone in New York or California wouldn't even rise to the level of Working Class Poor.
The military awards COLA (Cost-of-Living-Adjustment) with housing allowances. Those personnel based in foreign countries or areas of the United States where the cost of living is higher get a proportional increase to their housing allowance. I find it odd that the military has the common sense to recognize differences in cost of living from country to country, region to region and State to State, but that the federal government does not.
You could make the same argument for Social Security benefits, that you issue a base rate and then adjust it up or down depending on the cost of living in the recipient's area.
I would make about $14,000/year on Social Security ($1,183/month) and people say how can you live on that, well it's easy here. I have a better richer, fuller life-style than someone earning $30,000 living somewhere else. Why? Because after I pay rent, utilities, buy food, etc. I have more disposable income than those people could ever dream of having.
Someone in White Plains, New Jersey earning $250,000 is not the same as someone in Cincinnati earning $250,000. The person in Cincinnati will have close to $200,000 in discretionary disposable income while the person in White Plains has maybe $50,000. Obviously, $50,000 and $200,000 are not the same thing. I guess my point is that if you raise the Social Security cap, then you need to take cost of living and purchasing power parity into consideration when awarding benefits later.
You have some $2.5 TRILLION in the OASI Trust Fund, and at first glance it appears you have until 2037, but my numbers show 2028. You'd need to raise about $150 Million in revenues each year, which you should be able to do rather easily, and raising the cap to $250,000 should be enough to cover it.
Still, you would need to raise additional taxes to cover the quarterly short-falls. Right now, you're losing $3 Billion per quarter ($12 Billion annually). Since your economy will remain unchanged for the remainder of the decade, that number will slowly increase every quarter as new retirees start drawing benefits.
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[b]orrowing from the public" means converting the Trust Fund from non-public debt to public debt. That will
not increase your National Debt. It's simply a matter of shifting numbers from one part of the balance sheet to the other.
The problem here is you may find it increasingly difficult to sell public debt with the current and future financial conditions. This is probably the least painless option. What to do about the quarterly/annual short-falls? I suppose you can wrap that up and sell it as public debt as well, so long as you can. That would increase your National Debt.
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[R]epaying less debt" means defaulting on debt obligations in order to make payments to beneficiaries. That is the least desirable option as that would decrease your credit rating and make it near impossible to sell public debt in the future.
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[C]urtailing other expenditures" is robbing Peter to pay Paul. Effectively you would take money from Education, Agriculture, Defense or HUD and use it to pay the Trust Fund. You can also do that to make up current shortfalls. Note that reducing their budgets means fewer contracts they can award, meaning some job losses would be associated with that. As an example, you take money from DOD, so DOD cancels procurement contracts for the F-35 or something like that, and then those workers get laid off since production has been curtailed, or DoEd gets cut so they cut bi-lingual program spending, so schools start laying off bi-lingual education instructors and so on.
That is how you will convert the Trust Fund "IOUs" to cash.
As far as the current short-falls, the government will just have to keep diverting money from the General Fund by freezing the budgets of departments, offices and agencies and taking money from them.
OADI is the same way.
Medicare? That will take a lot of work, and a lot of money and many reforms.
Those are real problems and they need to be addressed now, instead of waiting until the last minute to avoid a crisis. We all know how that will go. We already saw the movie-trailer with the Debt Ceiling Crisis.