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Discussion: (5 comments)

  1. nice try but no cigar.

    there are more than 100 trust funds in the govt including things like the gas tax and the military retirement trust fund.

    and they all work pretty much the same way and it goes like this.

    when you pay your gas tax, it goes into a designated fund in the treasury which takes that money and pays bills with it and when they do they issue a special T-note that will be redeemed when they need to build a highway.

    the only thing that is happening here is that the govt borrows temporarily from the gas tax fund knowing that they’ll have to pay it back but it delays how long before they have to sell Tnotes to the public anyhow.

    what happens if the the govt decides to not redeem special issue notes for the gas tax – or for SS?

    well first off, those who hold the public Tnotes are going to panic and demand their money back.

    second…what happens to SS?

    basically nothing.

    The FICA tax generates about 800+ billion dollars a year and that money goes straight to paying benefits.

    right now – they are at the point where they will have to start using some of the trust fund to pay benefits in full.

    But if the trust fund gets dorked as the gloom and doom folks predict (hope?) – then benefits still get paid – but perhaps at a 98% level instead of a 100% level.

    Not good but no where near the narrative coming from the likes of AEI and brethren who characterize it as the trust fund being “exhausted” , broke…etc.. SS is “dead”.

    about the only thing that can be said is that AEI and company are extremely effect at their propaganda – to the point where even clueless “journalists” – even at CNN actually buy the propaganda.

    In case anyone wants to know the truth – it’s easily available at the Social Security Trust Fund Summary:

    skip on down to the table entitled:

    ” What Were the Sources of Income to the Trust Funds in 2011?”

    and then to the row entitled: ” General Revenues”
    and note on that row that general revenues ARE
    spent for SMI which is Medicare Part B which is NOT funded by FICA taxes.


      trust fund is invested in treasury bonds; what do people expect, $2.7 trillion of greenbacks?

    2. LaryG has made the point that the trust fund is a fiction better than the article he criticizes does. LaryG says that the FICA taxes that are used to fund social security raise about 800 billion dollar that are used to pay beneficiaries, but if we hit the debt ceiling FICA taxes will only be able to fund 98% of the benefits paid to social security recipients. By admitting that only 98% of the benefits can be paid that of course reinforces AIE point that the other 2% of benefits cannot be funded from the trust fund because the trust fund is only an accounting gimmick. The social security trust fund is merely a claim on general revenues. When those revenues run out their are no assets in the social security trust fund that can be liquidated to make up the difference. So when LarryG admits that only 98% of the benefits can be paid directly from taxes and their is nothing in the trust fund itself to make up the difference he admits that the trust fund is an accounting gimmick, a fraud, broke, exhausted, dead, a shell game. Thanks, LarryG, you make an excellent point.

    3. “what happens if the the govt decides to not redeem special issue notes for the gas tax – or for SS?

      well first off, those who hold the public Tnotes are going to panic and demand their money back.”

      Larry, the special issue notes are just an accounting mechanism that show the amount of money the Federal government borrowed from the SS account. Individuals don’t hold those notes. It has nothing to do with T-bills. When those special issue notes are redeemed by the trust fund, then the government has to sell T-bills to investors to make those notes good. Rather than panicking, people will gladly accept real negative returns in order to make the trust fund whole. What a country!

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