John E. Sedar – 2/23/05

This page was last updated on February 25, 2005.

Surplus is borrowed; John E. Sedar; Beaver County Times; February 23, 2005.

Mr. Sedar blames the Socialist Security solvency problem on “unified budgeting.” Mr. Sedar doesn’t appear to understand what the unified reporting provision does.

Below is a detailed critique of the subject letter.

“The Social Security system accumulates a money surplus each year. Yes, a surplus, and it is worth between $2 trillion to $3 trillion. A surplus in any context means it is not in trouble, it is solvent.”

[RWC] If you want to call Socialist Security “solvent” for a given time period, fine. SS, however, is an ongoing program with a funding model that prevents SS from being solvent over the long term.

“This is the reason it is in trouble. The passage of a law called ‘The Unified Budget Act’ in the Nixon administration. This law allows the government the privilege of looting the surplus Social Security funds.”

[RWC] “The Unified Budget Act” was actually named the “Congressional Budget and Impoundment Control Act of 1974.” It covered a lot more than just a unified budget provision. Though President Nixon signed the bill, the paragraph is a little misleading.

First, President Johnson was the first president to use a “unified” budget process. As discussed below, it would be more accurate to refer to this as a “unified budget reporting” provision. The bill President Nixon signed only codified what was already standard operating procedure.

Second, though President Nixon signed the bill, it was a Democrat-controlled Congress that passed the bill.

Third, the bill had nothing to do with Socialist Security taxes going into the General Fund. SS taxes in excess of those required to pay benefits went into the General Fund from the first day SS taxes were collected in 1937.

Fourth, the unified budget provision is more accurately described as merely a reporting mechanism intended to make it easier to see if the federal government “income statement” is in balance. Before President Johnson implemented this reporting method in his final budget, the surpluses/deficits of the general budget and each of the many federal “trust funds” were reported separately. The unified budget provision simply allowed everything to be reported together. The provision didn’t change the flow of “trust fund” dollars. In addition to making some sense, the unified reporting mechanism was also of political interest to President Johnson. It allowed Johnson’s last budget to report a surplus; the previous 7 Kennedy/Johnson budgets were in deficit.

The unified reporting provision was no guarantee of a budget surplus. In fact, even with unified reporting we had budget deficits from 1970 through 1997. Also, the inclusion of SS didn’t always help. From 1976 through 1982, SS cash flow itself was in deficit. Only since 1985 has SS cash flow been in consistent and significant surplus.

“The American workers, serving as investors, transfer the excess money into this surplus fund. The surplus is credited to Social Security trust funds in the form of U.S. government securities.”

[RWC] “Investors?” You are not an investor when you have no choice and your taxes are not kept in a personal account. You’re also not an investor when you pay the interest on your own “investment.” Who pays the interest on U.S. government securities? Taxpayers, of course.

“In reality, the surplus is borrowed by the Treasury Department each year to pay for whatever it chooses. This practice is referred to as ‘raiding the trust fund.’ This is an ingenious way to pay for taxable expenses without raising your taxes.”

[RWC] As noted above, the provision for SS taxes in excess of those required to pay benefits to go into the General Fund was in the original SS bill passed in 1935. The Socialist Security Administration is required by SS law to purchase U.S. government securities with surplus cash flow.

“Congress refuses to combine these activities with the general fund balance sheet. It treats it as an off-balance sheet liability. In accounting, omitting an item from the balance sheet is like pulling an Enron, Worldcom or an Adelphia.”

[RWC] Mr. Sedar has it exactly backward. The unified reporting provision includes all revenue and expenses on the same income statement.

“We all know about those companies, and we also know about the Sarbanes-Oxley Law to prevent future accounting manipulations.

“The Congressional Budget Office and the Democrats make the mistake of believing Social Security has $2 trillion in an asset fund. The money is gone, spent.

“This money was in an account receivable. Money received from your Social Security deductions.

“When it left the fund, it became an account payable, with $2 trillion owed to it. This money is uncollectible unless additional taxes are imposed on you to pay the account payable.”

“The ‘Unified Budget Act’ should be repealed to prevent the loss of additional Social Security money.”

[RWC] As noted above, merely repealing the unified reporting provision would do nothing.