RE: Sen. Gregg on calculating Social Security's rate of return

["Steven H. Johnson" <info@sscommonsense.org>]

Dear Sen. Gregg,

In your reply to Previous Questions, you write:

"Beginning in 2014, a small but rapidly increasing portion of the system's
benefits will be financed, under current law, through general
revenue outlays.  By the year 2030, these outlays will be of a size
that is equivealent to approximately 5 percentage points of national
taxable payroll.  This is a consequence of Social Security's "pay
as you go" structure, in which no advance funding is possible,
because all surplus Social Security taxes must by law be invested
in federal government securities, which underwrite current federal
government consumption.  Consequently, in the years when the program
enters annual financing deficits, the gaps between revenues and
outlays are met by raising money from the general revenues of the
federal government -- in other words, from the taxpayer."

That's an interesting perspective, and certainly worth considering.
But I'm not sure it's the most accurate way to think about the
2015 - 2030 time period.  Wouldn't it be more accurate to see it
as a period that will entail simple refinancing of an existing 
debt?

Suppose I owe $10,000 to Nationsbank.  I decide I like the terms
offered by BankOne just a little better.  I borrow $10,000 from
BankOne, and use the proceeds to pay off my debt to Nationsbank.
At the beginning of the day, I owed $10,000 to Nationsbank.
At the end of the day, I owe $10,000 to BankOne.  Have I spent 
any more money out of my own budget?  No.  All I've done is 
refinance.

I think the same holds for the U.S. Treasury.  At the moment, its
total debt is somewhere in the vicinity of $5.4 trillion, is it not?
Of which, roughly $3.8 trillion is owed to creditors outside the
government, and $1.6 trillion is owed to government-related Trust
Funds.  Social Security holds roughly half the internally-owed
debt, about $0.8 trillion.  

And aren't we talking something similar for the 2015 - 2030 time period?  
As the Treasury redeems debt owed to Social Security, it borrows
money elsewhere?  At the beginning of the day, Treasury owes $100
billion to Social SEcurity; at the end of the day, having borrowed
$100 billion on New York financial markets, it owes $100 billion
less to Social Security, $100 billion more to outside creditors.
Taxes don't inherently have to go up.  Spending on other programs
doesn't inherently have to go down.  (It is true, I grant, that
the cash payments on interest will rise, since interest on debt
owed to outside creditors is more likely to be paid in cash than
interest owed to "inside" creditors. But that's a small fraction
of the amount you're asserting in your quote.)

Not until 2033, or so, would taxpayers have to incur an out-of-
pocket cost to subsidize the program's obligations to beneficiaries.
(Or, what is more likely, in 2033, beneficiaries would have to take
a 25% benefit cut.)

Given that the transactions needed in the 2015 - 2030 time period
to support Social Security's obligations to beneficiaries constitute
a refinancing of an already-owed debt, I'm not sure it's kosher
to count them as expenditures by taxpayers.

-Steve Johnson
Common Sense on Social Security
http://www.sscommonsense.org