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I haven't looked much at medicare from an accounting perspective, but Social Security is a textbook case of the sort of off-balance-sheet entity that blew up En

I haven't looked much at medicare from an accounting perspective, but Social Security is a textbook case of the sort of off-balance-sheet entity that blew up Enron earlier in the decade and some of the banks more recently. SS currently takes in more money than it spends, but the excess is then "borrowed" and spent by the rest of the government. It has tremendous future liabilities but the assets consist of IOUs from the Treasury. If I ran a pension fund like this, the administration could be perfectly efficient in terms of processing incoming and outgoing payments, but I'd still be guilty of conducting a Ponzi scheme. The difference between the government doing this and a private entity doing this is that the government will just change the rules to make the problem go away when they get into trouble, while the administrators of a private entity would go to jail.

jbooth 17y ago
"IOUs from the treasury", otherwise known as T-notes, are, according to everybody, including "everybody in the private sector", the safest interest-bearing investment on the planet. Where do you think they should put their short term surplusses to offset the long term obligations? Cash under the mattress? Honest question -- where else should they keep that money?
- bd_at_rivenhill 17y ago
  They shouldn't keep the money, they should return the excess back to the taxpayers or they should convert it into on-balance-sheet debt to reflect the fact that an IOU to yourself does not really represent an asset. Treasury debt is certainly the safest interest-bearing investment on the planet from the perspective that if the instrument says you will get X number of dollars every few months and Y dollars at maturity, then that is exactly what will happen. The problem comes in due to the fact that the Fed has a great deal of control over the real value of those future dollars and they might not be worth as much as you hoped when you eventually receive them. When it comes right down to it, the people in charge when the debt gets too big to manage would have to be galactically stupid to choose explicit default/repudiation over inflation. Given that the government must already borrow from sources outside the Social Security trust fund in order to meet its expenses, what do you think will happen when social security outflows exceed payroll tax inflows? The following answers seem to cover all cases as far as I can tell: 1. Raise payroll taxes to cover the excess. 2. Raise general taxes and use the extra money to redeem the special treasury bonds from the trust fund. 3. Cut spending in the rest of the government and use the excess to redeem trust fund bonds. 4. Borrow money from external sources to redeem trust fund bonds. 5. Cut benefits down to a level at which they are covered by payroll tax inflows. Any way you slice it, the trust fund is an accounting fiction and eventually taxes will need to be raised, more money borrowed, or spending or benefits cut.
  - jbooth 17y ago
    What? It's not excess, it's future obligations. They're still projected to go broke in 40 years or whatever, they have obligations to people who've been paying into the system. Taxpayers. Social Security, Medicare, and Federal discretionary spending are 3 entirely different things and you should think of them as different entities instead of one big thing called "government". They each maintain separate balance sheets. Social Security's being smart with their money.. the federal discretionary budget over the last 8 years or so, not so much. Hopefully we'll get back to that soon.
    - bd_at_rivenhill 17y ago
      Ah, so this is where we disagree. As a taxpayer and consumer of government services, I do not view things this way. We have a government, and to this government I pay taxes, and from this government I receive services. I only care about the amount of taxes that I pay, not how they are apportioned between payroll vs. income vs. other. Since congress sets the rules for all three entities, I can't see how you can argue that "Social Security" is being smart and discretionary spending is not. The money all comes from the same place: taxes and debt. Frankly, and with no offense intended, you seem to be falling for what looks to me like accounting shenanigans.

jbooth 17y ago

"IOUs from the treasury", otherwise known as T-notes, are, according to everybody, including "everybody in the private sector", the safest interest-bearing investment on the planet. Where do you think they should put their short term surplusses to offset the long term obligations? Cash under the mattress? Honest question -- where else should they keep that money?

bd_at_rivenhill 17y ago
They shouldn't keep the money, they should return the excess back to the taxpayers or they should convert it into on-balance-sheet debt to reflect the fact that an IOU to yourself does not really represent an asset. Treasury debt is certainly the safest interest-bearing investment on the planet from the perspective that if the instrument says you will get X number of dollars every few months and Y dollars at maturity, then that is exactly what will happen. The problem comes in due to the fact that the Fed has a great deal of control over the real value of those future dollars and they might not be worth as much as you hoped when you eventually receive them. When it comes right down to it, the people in charge when the debt gets too big to manage would have to be galactically stupid to choose explicit default/repudiation over inflation. Given that the government must already borrow from sources outside the Social Security trust fund in order to meet its expenses, what do you think will happen when social security outflows exceed payroll tax inflows? The following answers seem to cover all cases as far as I can tell: 1. Raise payroll taxes to cover the excess. 2. Raise general taxes and use the extra money to redeem the special treasury bonds from the trust fund. 3. Cut spending in the rest of the government and use the excess to redeem trust fund bonds. 4. Borrow money from external sources to redeem trust fund bonds. 5. Cut benefits down to a level at which they are covered by payroll tax inflows. Any way you slice it, the trust fund is an accounting fiction and eventually taxes will need to be raised, more money borrowed, or spending or benefits cut.
- jbooth 17y ago
  What? It's not excess, it's future obligations. They're still projected to go broke in 40 years or whatever, they have obligations to people who've been paying into the system. Taxpayers. Social Security, Medicare, and Federal discretionary spending are 3 entirely different things and you should think of them as different entities instead of one big thing called "government". They each maintain separate balance sheets. Social Security's being smart with their money.. the federal discretionary budget over the last 8 years or so, not so much. Hopefully we'll get back to that soon.
  - bd_at_rivenhill 17y ago
    Ah, so this is where we disagree. As a taxpayer and consumer of government services, I do not view things this way. We have a government, and to this government I pay taxes, and from this government I receive services. I only care about the amount of taxes that I pay, not how they are apportioned between payroll vs. income vs. other. Since congress sets the rules for all three entities, I can't see how you can argue that "Social Security" is being smart and discretionary spending is not. The money all comes from the same place: taxes and debt. Frankly, and with no offense intended, you seem to be falling for what looks to me like accounting shenanigans.