The Federal Guarantee Fund and Federal Warranty Guarantee and the Federal Disability Insurance Trust Fund (collectively, Social Security Security Fund or Trust Fund) are trusting funds which provides Social Security payments (Old Age Security, Congratulations, and Disability Insurance; OASDI) administered by the United States Social Security Administration.
The Social Security Administration collects payroll taxes and uses the money collected to pay for Old Age, Congratulations, and Disability benefits through a trust fund. When the program runs surplus, the excess funds increase the value of the Trust Fund. By the end of 2014, the Trust Fund is contained (or alternatively, owed) $ 2.79 trillion, up $ 25 billion from 2013. Trust Funds are required by law to be invested in unpublished securities issued and guaranteed by "full and credit "from the federal government. These securities generate market interest rates.
Excess funds are used by the government for non-Social Security purposes, creating liability to the Social Security Administration and thus the recipient of the program. However, Congress may bypass this obligation by amending the law. The Trust Fund liability is considered an "intra-government debt", a "public" or "national" debt component. As of June 2015, international government debt reached $ 5.1 trillion of $ 18.2 trillion of national debt.
According to the Social Security Supervisor, who oversees the program and reports on its financial condition, program fees are expected to exceed non-interest income from 2010 onwards. However, because interest (earned at 3.6% in 2014) the program will run an overall surplus that adds funds by the end of 2019. Under the current law, securities in the Trust Fund are legal liabilities the government should value when program earnings are not again enough to fully fund the payment of benefits. However, when the Trust Fund is used to cover the program deficit in a given year, the Trust Fund balance is reduced. By 2034, the Trust Fund is expected to run out. Thereafter, the payroll tax is projected to cover only about 79% of the program's liabilities.
There are various proposals to address these shortcomings, including reducing government spending, such as by raising the retirement age; tax increases; and borrow.
Video Social Security Trust Fund
Structure
The "Social Security Trust Fund" consists of two separate funds that hold a federal government debt obligation associated with what has traditionally been considered a Social Security benefit. Bigger than this fund is the Old-Age Guarantee Fund and Survivors Insurance (OASI), which holds the confidence of a federal government securities purchased with a surplus of OASI salary income tax. Secondly, the smaller fund is the Disability Insurance Trust Fund (DI), which holds much more confidence in the special flower federal government securities, purchased with surplus DI salary income tax.
Trust funds are "off-budget" and treated separately in certain ways other federal expenses, and other federal trust funds. From US Code:
EXCLUSION OF SOCIAL SECURITY OF ALL BUDGETS Pub.L. 101-508, title XIII, Sec. 13301 (a), 5 November 1990, 104Ã, Stat. 1388-623, provided that: Notwithstanding any other provisions of law, the acceptance and disbursement of the Fund for Old Age and the Federal Liberty Guarantee and the Federal Disability Insurance Trust Fund shall not be counted as the authorization of a new budget, expenditure, receipt, or deficit or surplus for purposes of, (1) the budget of the United States Government as expressed by the President, (2) the congress budget, or (3) the Law on Deficit Budget Control and the Distorted Reduction in 1985.
Trust funds carry a surplus in the amounts paid by current workers more than the amount paid to the current beneficiaries. This surplus is granted to the US Treasury (and thus a part of the general federal budget) in return for special US government securities, deposited into trust funds. If the trust fund begins to deficit, meaning more benefits are paid than the paid contribution, the Social Security Administration is empowered to redeem the securities and use the funds to cover the deficit.
Maps Social Security Trust Fund
Government
The Trust Fund Trusteeship Board consists of 6 members:
- The Minister of Finance (Managing Trustee),
- Secretary of Labor,
- Secretary of Health and Human Services,
- The Social Security Commissioner, and
- 2 members appointed by the President and confirmed by the Senate.
The Supervisory Board holds a trust fund. Managing Trustees are responsible for investing funds, which have been delegated to the Fiscal Services Bureau.
History
The Social Security system is basically a pay-as-you-go system, which means payments to current pensioners come from current payments into the system.
In 1977, President Jimmy Carter and the 95th Congress increased FICA's tax to fund Social Security, gradually gradually into the 1980s. In the early 1980s, the financial projections of the Social Security Administration showed short-term income from payroll taxes would not be sufficient to fund the full benefits of the short-term (thus increasing the likelihood of cutting benefits). The federal government appoints the National Commission for Social Security Reform, headed by Alan Greenspan (who has not been appointed Chairman of the Federal Reserve), to investigate what additional changes the federal law requires to sustain the fiscal health of the Social Security program. The Greenspan Commission projected that the system would be a solvent for the entire 75-year estimation period with specific recommendations. The amendment of federal laws enacted in 1983 and signed by President Reagan [2] and in accordance with the Greenspan Commission's recommendation to advance the time frame for the previously scheduled salary increase payroll (although it raises a small payroll tax for entrepreneurs for the same level of employees) , change certain benefit calculations, and raise the retirement age to 67 by 2027. By the end of calendar year 2010, the surplus accumulation in the Social Security Guarantee Fund is at more than $ 2.6 trillion.
Social Security Benefits are paid out of a combination of social security payments paid by current workers and interest income earned by the Social Security Guarantee Fund. According to projections from the Social Security Administration, Trust Funds will continue to show net growth until 2022 because interest earned by bonds and income from payroll taxes exceeds the amount required to pay benefits. After 2022, without a Social Security tax increase or withholding allowances, the Fund is projected to decline every year until it is completely discharged by 2034. At this point, if no legislative action is taken, benefits will be reduced.
Recent activity and financial status
The 2015 Trustees Report Press Release (which includes statistics 2014) states:
- "Income includes interest for the combined OASDI Trust Funds of $ 884 billion in 2014. ($ 756 billion in net contributions, $ 30 billion in tax benefits, $ 98 billion in interest, and less than $ 1 billion in replacement of the General Fund of the Treasury - almost exclusively resulting from payroll tax laws of 2012)
- Total spending from the combined OASDI Trust Funds of $ 859 billion by 2014.
- Non-interest income fell below the cost of the program in 2010 for the first time since 1983. Program costs are projected to exceed non-interest income over the remaining 75-year period.
- The combined assets of the OASDI Trust Funds increased by $ 25 billion in 2014 to a total of $ 2.79 trillion.
- During 2014, an estimated 166 million people have income covered by Social Security and payroll taxes.
- Social Security pays $ 848 billion in benefits in calendar year 2014. There are approximately 59 million beneficiaries by the end of the calendar year.
- The $ 6.1 billion cost of managing the program in 2014 is 0.7 percent of total expenditure. However, because the value of the dollar spending is enormous, this percentage is actually very high.
- The assets reserve of the Trust Funds combined earns interest at an effective annual rate of 3.6 percent by 2014. "
Some basic equations for understanding the balance of funds include:
- Final balance funds for a given year = Early interest income program funds - program payments
- Annual surplus program (or deficit if negative) = interest program revenue - program fee
- Program an annual cash surplus (or deficit if negative) = program revenue - program costs
"Program revenue" has several components, including payroll tax contributions, benefits taxes, and accounting entries to reflect final payroll tax cuts during 2011 and 2012, to make the funds "intact" as if this tax cut had not yet taken place. This all adds to the program's revenue.
During 2016, the initial balance per January 1 was $ 2.780 billion. An additional $ 710 billion in salary tax revenues and $ 87 billion in interest are added to the Fund during 2016, while expenses of $ 776 billion have been removed from the Fund, for a December 31, 2016 balance of $ 2,801 billion (ie $ 2,780 $ 710 $ 87- $ 776 = $ 2,801).
Recent attention
Under George W. Bush
On February 2, 2005, President George W. Bush made Social Security a central theme of his State of the Union Address. One consequence is the increasing public interest in the nature of the Social Security Trust Fund. Unlike a typical private pension plan, the Social Security Trust Fund does not have a valuable asset to secure a paid worker contribution. Instead, it keeps US Treasury bonds non-negotiable and US securities backed "by full confidence and credit to the US government". Trust Funds have been invested primarily in Treasury debts that can not be sold, firstly, because the Social Security Act prohibits "prefunding" by investments in equity or corporate bonds and, secondly, due to the general desire to avoid major changes in the Treasury market otherwise if Social Security invests large amounts of payroll tax revenue in marketable government bonds or redeems these marketable government bonds to pay for benefits.
The Office of Management and Budget has described the differences as follows:
This balance (Trust Fund) is available to finance future benefit payments and other Trust Funds expenditure - but only in the meaning of bookkeeping.... They do not comprise real economic assets that can be withdrawn in the future to fund the benefits. Instead, they are claims in the Treasury that, when redeemed, must be financed by raising taxes, borrowing from the public, or reducing benefits or other expenses. The existence of a large Trust Fund fund, therefore, does not, by itself, have an impact on the Government's ability to pay benefits. (from FY 2000 Budget, Analytical Perspective, p. 337)
Other public officials argue that trust funds do have financial or moral value, similar to the value of a bill, note, or other Treasury bonds. This belief comes largely from a "full assurance and credit" guarantee. "If someone believes the trust fund assets are worthless," argued former Representative Bill Archer, then the same reason implies that "Americans who have bought EE saving bonds must go home and burn them because they are worthless because the money has been spent." On Senate hearing in July 2001, Federal Reserve Chairman Alan Greenspan was asked whether trust fund investments were "real" or just an accounting device. He replied, "The crucial question: Do they claim the right to real resources? And the answer is yes."
Like other US government debt obligations, government bonds held by trust funds are guaranteed by US government "full trust and credit". To avoid paying either the principal or interest on "special" bonds held by trust funds, the government must fail to fulfill this obligation. This can not be done by an executive order or by the Social Security Administration. Congress must pass legislation to reject this particular government bond. This action by Congress may involve some political risk and, because it involves the financial security of older Americans, seems unlikely.
Another alternative to refuse this bond is for Congress to limit Social Security spending at the level below which would require the bonds to be redeemed. Again, this will be politically risky, but it will not require a "default" on the bonds.
From the point of view of the Social Security trust fund, ownership of "special" government bonds is an investment that returns 5.5% to trust funds in 2005. Trust Funds can not resell these "special" government bonds in the secondary bond market, even though the interest rate is determined based on market rates. Conversely, "special" can be resold to the government at face value, which is an advantage when interest rates increase.
A week after his state speech, Bush downplayed the importance of the Trust Fund:
Some people in our country think that Social Security is a trust fund - in other words, there is a pile of money that accumulates. That's not entirely true. Money - the payroll tax that goes into Social Security is spent. They are spent on benefits and they are spent on government programs. No trust.
These comments were criticized as "laying the groundwork for failing US Treasury bonds worth nearly two trillion dollars".
Yet even right-leaning politicians have been inconsistent with the language they use when referring to Social Security. For example, Bush has referred to a system that will be "bankrupt" by 2042. That date comes from the estimated depletion of the Trust Fund, so Bush's language "seems [s] to show that there is something missing there in 2042. "Specifically, in 2042 and for the next few decades, the Social Security system can continue to pay benefits, but benefit payments will be limited by the income base of the 12.4% FICA (Payroll Social Security) tax on wages. According to the Social Security Supervisor, continuing a payroll tax income of 12.4% will allow Social Security to pay about 74% of the promised benefits during the 2040s, with this ratio falling to around 70% by the end of the forecast period in 2080.
Under Barack Obama
In 2011 and 2012, the federal government temporarily extended the deduction of employee share from payroll taxes from 6.2% to 4.2% of compensation. The resulting deficiencies are adjusted from General Government funds. Public debt increases, but does not advance the year of the Depletion of the Trust Fund.
Economic perspective
Overview
The Trust Fund is a legal obligation of the federal government to program beneficiaries. The government has borrowed nearly $ 2.8 trillion in 2014 from the Trust Fund and used the money for other purposes. Under current legislation, when the program has an annual cash deficit, the government should seek alternative funding beyond the payroll taxes dedicated to programs to cover the shortfall. This reduces the balance of trust funds as far as this happens. The program deficit is expected to be spent by 2034. After that, since Social Security is only authorized to pay the beneficiaries of what it collects in the payroll taxes dedicated to the program, program payments will fall by about 21%.
Trust funds are expected to peak at 2021 of approximately $ 3.0 trillion. If the sections of the budget outside of Social Security are in deficit, in which the Congressional Budget Office and some budget expert panels assume for the foreseeable future, there are some implications:
- Additional debt should be issued to investors to get the funds needed to pay this obligation. This will increase the "debt held by the public" while simultaneously reducing the "intragovernmental debt" represented by the trust fund.
- CBO reported in 2015 that: "Continued debt growth can lead investors to doubt the willingness or ability of the government to pay its obligations, which would require the government to pay much higher interest rates on its loans."
- Other parts of the budget can be modified, with higher taxes and lower spending in other areas to fund Social Security.
- The debate over whether an appropriate debt-to-GDP ratio to evaluate US credit risk is "publicly held debt" or "total debt" (ie, publicly held debt plus intragovernmental debt) will be moot, since the amount will converge substantially.
On the other hand, if other parts of the surplus budget and program beneficiaries can be paid from public funds, then no additional debt should be incurred. However, this scenario is highly unlikely.
Comment
Some commentators believe that whether trust funds are facts or fictions leads to whether trust funds contribute to national saving or not. If $ 1 is added to the fund raises the national savings, or replaces the loan from another lender, with $ 1, the trust fund is real. If $ 1 added to the fund does not replace another loan or otherwise increases the national savings, the trust fund is not "real". Some economic studies have argued that trust funds have led to only a slight increase in national savings and that most trust funds have been "spent". Others suggest a more significant austerity effect.
References
Further reading
- Mamta Murthi, J. Michael Orszag, and Peter R. Orszag, "Cost Ratios on individual accounts: Lessons from the British Experience," Birkbeck College Colleges Column 99-2. March 1999
External links
- Social Security: The Trust Fund Congressional Research Service
- Social Security Fund Trust Fund and Social Security Bulletin Fund Reserve
Source of the article : Wikipedia
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