333367 has been saying that SS is a giant ponzi scheme for the longest...
3333 knows WTF he is talking about.
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The Social Security Trust Fund May Be Worth Less Than Zero
By Jed Graham
Fri., Feb. 25, 2011 12:08 AM ET
Tags: Social Security - Debt - Deficit - CBOIt is well known, if not universally acknowledged, that the Social Security Trust Fund doesn’t hold any assets of value to offset the government’s cost of benefits.
Every dollar’s worth of special-issue Treasury bonds held by Social Security — and there are currently about $2.6 trillion worth — is a dollar that Treasury must come up with by issuing new debt, raising taxes or taking away from the rest of government, which is in far worse fiscal shape.
But an analysis done by the Congressional Budget Office last year on the effect of high government debt levels suggests that unless the government gets its fiscal act together, the value of the trust fund is less than zero.
Under the Alternative Fiscal Scenario, which approximates current policy, CBO finds that elevated debt levels would crowd out private investment and restrain economic growth to a significant degree. Specifically, GDP would be 15% smaller in 2035 under the current policy trajectory than it would be if debt stabilizes around current levels, as it would under the baseline scenario.
While CBO assumes the current-law trajectory for Social Security under both the alternative and baseline scenarios, what matters for its crowding-out analysis is suffocating debt levels, not what contributes to the debt.
Debt would be 185% of GDP in 2035 under current policy — vs. 79% under the baseline scenario By that point, using assumptions from Social Security’s 2010 annual report,
redemptions of trust fund bonds would have raised debt levels by about 18.5% of GDP, or $4.5 trillion in 2010 dollars.
In other words, debt incurred by paying unfunded Social Security benefits would account for nearly 1/6th of the crowding-out effect, curbing GDP by about 2.6%.
So, under the current budget trajectory, here is roughly the bottom-line value of the Trust Fund in 2035.
The trust fund would cover $317 billion in unfunded benefits (in today’s dollars), but the government would owe $236 billion in interest on the $4-trillion-plus in extra debt, and taxable wages would be about $235 billion lower (assuming a tight link between wages and GDP).
(These numbers are inexact because they only take account of the impact of crowding out in 2035. If anything, they are likely understated because crowding out in earlier years would mean higher interest rates and higher interest payments, along with modestly lower payroll tax revenue and benefits.)
Even without the crowding-out effect, the real cost of paying unfunded Social Security benefits is much higher than acknowledged. Under the current trajectory, Social Security’s cash-flow deficit would stabilize around 1.3% of GDP after 2030, but interest on the extra debt tied to trust fund redemptions would cost an extra 1.2% of GDP and rising by the time the fund is depleted in 2037. This is not small potatoes.
Instead of costing 6.2% of GDP in 2037, Social Security and the legacy of trust fund-connected debt would cost 7.4% of GDP, up from 4.2% in 2008.
So what does this all mean? At the least, it means that Social Security defenders should spend more of their energy offering realistic ideas to rein in spiraling debt.
And while neither side of the political aisle seems to agree, there really is no more logical time for addressing the unfunded trust fund than concurrent with Social Security reform, perhaps as part of a great fiscal deal.
http://blogs.investors.com/capitalhill/index.php/home/35-politicsinvesting/2479-the-social-security-trust-fund-may-be-worth-less-than-zero
