RE: Trust Fund cynicism - right mood, wrong target

[James <jamesk_51@hotmail.com>]

>From: Michael Jones 

>>>>When the government raised the payroll tax in 1983, it enabled the government to spend more by borrowing the excess FICA taxes. I would argue that the extra money didn't prevent government from borrowing less from the private sector. Rather, the extra money gave the goverment license to spend more. If these moneys had to be borrowed in full in the private sector without the cover of Social Security, it would have come under more scrutiny.

That's a nice theory.  You don't offer one iota of evidence for it.  The FICA taxes enable nothing.  The only 'enabling' required for borrowing is raising the National Debt ceiling, which must be done regardless of whether the borrowing is internal (for example from the SSTF) or public.  There is no 'vote' on annual deficits.  Non-Defense related discretionay spending really didn't increase during those times (it went down slightly) of massive deficits.  If your theory is right, we would have seen a jump after FICA increased.  Didn't happen.

Can you point to a single appropriations debate where the excess SS revenues were used to justify spending more money (except as related to SS)?  Didn't happen.  That is not how the appropriations process works.  Did people think that, for example, $240 billion in red ink wasn't too bad?  If so, how did we ever get below that number.  Your theory really doesn't match reality.

If we spent more the year that the deficit figure was '125 Gig' because we didn't know it was really '175 Gig', how does that explain the year we thought it was '175' but it was really '225', or the year we thought it was '225' but it was really '275'.  What figure was acceptable?  Your 'theory' can't really explain that, because the numbers changed every year.  Indeed, what kept us from spending this year's 'surplus'?  By your theory, it should be gone.

>>>>The government spent all the excess Social Security money and then some, somes as much as 300B / year. The end result was that the extra payroll taxes didn't strengthen the system. 

The excess SS was not meant to 'strengthen the system', whatever that means.  SS had no control over general fund spending.  What it was meant to do was to 'save the SS excess' for future needs.  It has done that.  

>>>>It enabled the government to spend more and increase the obligation to the Trust Fund to a future generation.

That is dead wrong.  Actually, even if all those massive deficits were one half the size of what they actually were, the Trust Fund debt obligation would be exactly the same.  That obligation merely depended on what the SS excess was in a given year, not how much the gov't borrowed elsewhere.

>>>>Only if the excess money was used to pay down existing debt would have the Trust Fund been strengthened, since this would reduce the long term interest costs to the rest of the government.

Wrong again.  It did that by keeping tens of billions of dollars of borrowing each year out of the public capital markets, which would have influenced interest rates.  We would have a much higher public debt today, if not for the SSTF.  And the SS excess would have been used to buy up existing debt IF THE GENERAL FUND HAD BEEN IN BALANCE.  IT WAS THE GENERAL FUND SPENDING THAT HAS CAUSED THE MASSIVE DEBT.

>>>>After 16 years of the increased payroll tax, we have more debt and higher interest payments each year. How did that tax increase strengthen the system? How can we trust the government that any future payroll tax increase would not cause even more long term debt?

The general fund spending was responsible for all that debt, not any SS surplus. The SSTF was not designed to allow the general fund to spend money it didn't have, without having the responsibility to pay it back.  It was designed to store the SS Excess for future needs, not to abolish the rule that "There is no free lunch"!

You don't seem to realize what happened to cause those massive deficits.  It wasn't spending increases (except defense).  It wasn't a FICA tax increase.  It was a decrease in income tax rates, that was NOT accompanied by a corresponding decrease in spending.  People like tax cuts.  They don't like spending cuts.  Result: lots of red ink!