Williams provides a great service and even mentions the real evil: the Unified Budget. But applying GAAP, as I understand it, to SS makes very little sense. It is a pay-as-you-go program, not a pension program. Williams is right about the original purpose of the Unified Budget but it was a very limited significance until the Reagan Administration. This is because, during Reagan's years, the pay role tax was increased, in accordance with the recommendations of the Greenspan Commission, to create surplus revenues. It was claimed that the purpose was to create a fund from which bubble in benefits required by the retirement of the Baby Boomers (BBs) could be handled. The increases, completed during the Bush Sr. years, have apparently been adequate as the Fund, which is still growing, is projected to assure adequate funds to supplement contributions through the retirement years of the BBs.
Prior to Reagan, I expected one of the first acts of a Republican controlled congress would be the elimination of the Unified Budget. The securities in the Trust Fund are special Treasuries and pay interest at the average of the 4-and greater-year Treasury notes. The funds are borrowed by the Treasury and it was assumed that such borrowing would reduce the need to borrow from the Public. But the Reagan Administration, and every Administration since has, used it to hide the real deficit. Not only are the surplus pay role tax revenues subtracted from the deficit but the interest paid on the securities in Trust Funds is hidden by the Unified Budget. FWIW, there never was a surplus during Clinton's years.
The problem is that in about 10 or so years the SS revenues will no longer cover benefits and it will be necessary to redeem special treasuries. This will add to the Unified Deficit and the redemptions will require more borrowing from the public. This will mean an increase in rates and all of this debt will become debt held by the public. |
