> My brother tells me that under the Reagan administration the > accounting of Social Security was changed. He says that they used to > be separate budgets, but now they are combined accounts. He also says > that the government has borrowed money from the Social Security > accounts and not paid it back. > > Max (anyone), is this accurate? Of what importance is this, if so? > If not, what really happened? I don't know exactly what the former status may have been, or when it changed. Currently Social Security is "off-budget", which means there is a separate account. This means, among other things, that the program's costs and receipts are reported separately, the receipts are earmarked to the specific account, and the account includes a separate fund with inflows, outflows, and a balance. The fund balance consists of credits for government bonds. There are no actual bonds on pieces of paper. Nor can these bonds be used in transactions. All they can do is imply interest receipts to the fund. At such time as the fund's cash inflows do not meet cash expenses, the bonds must be redeemed by the Federal government (specifically, the 'Federal funds', as opposed to the Social Security Trust Fund). The Fund currently runs large cash surpluses (about $80B now, due to rise considerably for about another ten years). These are borrowed by the federal funds. In previous years the borrowed funds financed spending. Now they are financing the liquidation of debt the Federal government owes to the public. Currently, U.S. politics is laboring under the canard that lending the balance to the rest of the government is some kind of chicanery, as if any bank doesn't do exactly the same thing with its deposits. There is pressure to wall off the Trust Fund surplus from the rest of the Unified Budget, preclude its use for spending increases or tax cuts, and make it available to help finance privatization of the program. The resulting accounting deficit in the Federal funds, or "On-budget deficit" creates new pressure for spending cuts. The only thing financial markets care about is the unified deficit--what the government borrows or lends in net terms to the private sector. But accounting reflects politics, and the separate status of Social Security and present fiscal circumstances prompt all sorts of political machinations. MBS
