The Truth (short version) about Social Security and the national debt.

One photo making the rounds of social media today is this:

As most who know me are aware, I don't play favorites; if either side is lying, I call them on it.  In this case, McConnell is both right and wrong.

On a popular talk show, McConnell stated that Social Security and Medicare were affecting the national debt, and by association, the budget deficit.  What McConnell conveniently didn't state was that it was actually affecting these things in a positive way.

The photo states that Social Security and Medicare are both self-funded.  What the text conveniently omits is that in 2010, they started paying out more than they were taking in.  The extra money comes from a trust fund: a surplus which has been funded by an increase in FICA/Medicare taxes, enacted by Congress in 1983 and modified in 1990 and 1993.  The Congresses of those years realized that there would be an increase in retirees vs. workers in coming decades, as the rate of population increase slowed down, and the baby-boomers (generally considered to be people born between 1945 and 1958) began to retire in the next millennium.   From 1983 until 2010, there was a surplus which increased the trust fund, as revenues were greater than payouts.  It's not a complete coincidence that 2010 would be the year that the first baby-boomers turned 65, the classically-viewed retirement age.  From 2010 on, Social Security and Medicare payments have outpaced revenues.  The extra money is paid out of the surplus, as was set up to be done.  Various sources estimate the surplus will be exhausted somewhere between 2025 and 2035, assuming that nothing is done to change things in the meantime.

Beginning around 1990, when Social Security was taken "off-budget," meaning when it was considered a separate entity from the budget, Congress began to "borrow" money from it.  This was done by issuing long-term Treasury bonds.  These bonds were and are repaid when they come due, along with the appropriate interest.    While technically this may be considered "borrowing" from the surplus fund, it's more accurately depicted as investing the portion of the fund that goes into Treasury bonds into relatively safe long-term low-interest bonds.

The claim that "Congress is stealing from Social Security and spending it elsewhere," is based on the fact that the government does issue Treasury bonds for money taken from the trust fund.  What isn't mentioned is that if the government didn't issue Treasury bonds from the Social Security surplus, it would borrow it from somewhere else.  Since the government pays the bonds back with interest, it's actually increasing the revenues of Social Security and Medicare by the amount of interest paid.

The claim that "Social Security and Medicare are raising the national debt!" is based on the fact that the government does need to pay interest on the money borrowed from the trust fund, and that raised the national debt.  What again is glossed over is the fact that the government would borrow the money anyway from a different source.

In fact, borrowing some of the money from the trust fund will actually help LOWER the national debt.  The government sets the rates for Treasury bonds.  If it has (roughly) $2.7 trillion readily available in the fund to borrow from, it can offer a lower rate than if it had to get it from the public at large.  Currently, the $2.7 billion in the trust fund is almost completely issued to Treasury securities, and a mean (average) rate of about 3.4%.    If the government couldn't borrow from the trust fund and had to go to external sources, that rate might have needed to be, say, 4%.  The additional six-tenths of a percent would mean an extra outlay of $168 billion per year in interest payments.  So by "raiding" the Social Security/Medicare trust funds, the government is lowering its interest payments by $168 billion per year (which lowers the deficit by that much and thus the national debt).  By the same token, the 3.4% that the trust fund is receiving in interest is increasing its revenue by $95.2 billion per year.

Should the government, to use the proverbial phrase, "borrow from Peter to pay Paul?" One could argue that the government finished with those two Apostles many years ago and moved on to the other ten, but it makes perfect sense to do what they're doing.  Why pay more interest than needed?  The government isn't just taking the money and putting it back without some interest added.  They can basically set their own rate, a somewhat fair one, and it helps save them money.  The trust fund makes the interest rate competitive to outside lenders, and it saves the government interest expense by using readily available money that would otherwise sit idle without earning anything.

As many point out, the potential problem would come if the government could no longer pay its debts and essentially defaulted.   If and when that happens, life on Earth as we know it will change, as the global economy will collapse, and no more Social Security and Medicare will be just one of a number of problems facing us.

In summary:

1) Congress isn't stealing from the trust fund; it's adding to it.

2) Doing so (vs. borrowing from external sources) actually decreases expenses, the deficit, and the national debt, rather than increasing these.

Here is an article that you may find interesting.  Believe it or not, I didn't find this until after I'd written this blog post.

Policy Basics

Deport 11 million illegal immigrants, and here's what happens

Assume for the time being that Trump can make good on his promise to deport 11 million illegal immigrants and keep them out of the country.  When that happens, the following will fall naturally into place:

About 5 million of those 11 million illegals work; the rest are children or relatives/spouses who take care of said children.   About 4 million of those 5 million workers are getting paid sub-standard wages, with no taxes or other deductions, and most of the other million are being paid less than a citizen or legal alien would be paid.  So now we have 5 million brand new jobs for citizens and legal aliens to take.

The problem is that almost nobody is going to do those jobs for what the employers were paying the illegal aliens.   The employers will have to pay much more.  It's estimated that for these 5 million jobs, employers will have to pay a little over twice as much in personnel costs via base wages, benefits, and employer contributions to FICA and Medicare.  Being that personnel costs are usually one of a company's biggest expenses, doubling it for the jobs done by the illegals is no small number.

Now, these employers aren't going to eat that cost. They're going to pass it on to the next point in the chain, who will pass it on to the next, until it reaches the pockets of American consumers in the form of higher prices.   Illegal immigrants generally work in laborer positions, farm work, and low-paying service positions such as restaurants and hotels.   Free up those jobs, and pay MUCH more to fill them than previously, and prices go up for food (especially produce and meat), in restaurants, for housing and rent, and general contracting.

It's estimated that, if all illegals are kept out,  the consumer will pay about 60% more for produce, 40% more for meats, 20-25% more for other groceries, and at least 25% more for most things in restaurants (close to 35% in big cities).  The cost of a house will rise by about 20%, and the cost of rent will go up by about 15%. Gasoline and fuel prices will rise by 5-10%.  And there are others that will go up.

On the other side of the coin, there will be 5 million jobs now filled by American citizens and legal aliens, who will be paying taxes and FICA/Medicare, and costs will go down for welfare-related services and law enforcement in many states and on the Federal level.

Understand that I support the regulation and enforcement of existing immigration laws, and that illegals should either be deported or forced to register (and thus require employers to pay them a fair wage and pay their fair share of taxes).   Just be aware that this isn't a one-way rosy proposition.  It comes with a cost, and we'll be paying that cost out of our pockets as consumers.