Reply #39: "combined OASDI Trust Fund is projected to be exhausted" [View All]

[Igel]

Precisely. That's the problem. The Trust Fund consists of IOUs, a special kind of security issued by the government promising to pay.

So, what happens in 2050, assuming that FICA taxes don't cover the outlays? How's it different from today?

Well, first, there's no FICA excess. It's covering for part of the deficit (silently, just reducing the deficit number). Do you reduce spending, increase taxes, or watch the deficit soar? After 2017--or probably a few years later than that--FICA doesn't cover any of Congress' profligacy any longer. It covers less and less from now till then.

So not only does SS stop covering for profligacy, it starts being a drain. They have to dip into the trust fund to fund SS payments. Ah, but the trust fund is IOUs. Where does the money come from to repay the IOUs? The general income tax revenue pool. By dipping into the trust fund, they dip into general income tax revenues. Tack on a few hundred billion out of general revenues after a decade or two. Do you reduce spending, increase taxes, or watch the deficit soar? (Didn't I type that already?)

It's a shell game. They don't use general income tax to fund SS. They use general income tax to redeem IOUs, money spent in the last 20 years by Congress. The money from redeeming the IOUs funds SS.

Hence the problem. The fiscal problem is identical if you include the IOUs or if you simply pretend they don't exist.