Want to save Social Security? Invest surplus in private bonds

[dolstein]

While this isn't a complete fix, it's a good start. Congress should pass a law requiring that all surplus social security tax revenues to be invested in a diversified portfolio of investment grade (perhaps even AAA rated) private bonds.

This would have two effects. First, it would no longer be possible for the Bush administration to divert social security surpluses to pay for its tax cuts and spending programs. The news media would finally have to report the real size of the budget deficit, which would be well over $100 billion higher than the figures currently used. The Bush administration could no longer pretend that we don't have a budget crisis.

Second, the private bonds would pay a higher rate of interest than the Treasury securities that are currently held in the social security trust fund.

The net effect would be to extend the solvency of the trust fund.

[thefloyd]

1. It is a good idea

What type of securities does social security invest in? I was thinking the funds could be invested in longer term U.S bonds in order to get a higher return.

[dolstein]

3. Treasury bonds

The funds are invested in Treasury bonds. I think the bonds that the social security system holds may actually pay a lower interest rate that other types of government bonds, but they may have a higher payment priority.

The problem with investing in U.S. bonds is that this does nothing to reduce the government's liabilities with respect to the social security system. Instead of prefunding benefits, which is what we should be doing, the government is simply agreeing to come up with the necessary funds later when they're needed to pay benefits. Sooner or later the government will have to raise taxes or cut spending elsewhere in order to come up with the money. If, on the other hand, the social security taxes are invested in private bonds, those bonds can simply be sold or redeemed later in order to finance benefits.

[kentuck]

2. Hmmm-mmm...

Interesting...

[Warpy]

4. Bonds go bust, too.

There are 3 things that need to be done:

First, raise that laughably low cap on earnings subject to FICA premiums.

Second, prevent any overpayment from going into the general fund.

Third, when the true cost of all those tax cuts to the rich and the corporate become known, roll back all those ruinous Bush tax giveaways.

The only real "crisis" in social security is that it's been embezzled for 20 years by a Congress determined to hide the true cost of tax cuts to the richest few by robbing the laboring many.

[dolstein]

6. Excuse me, but we're not talking about junk bonds

I'm talking about investing the surplus tax revenues in a broadly diversified portfolio of investment grade bonds. Hell, if you're worried about the issuer defaulting, we can require that they be invested only in the most highly rated bonds. These are incredibly safe investments. Plus, by diversifying, you minimize the risk even further.

I don't think you understand the problem. The ONLY way to prevent social security tax revenues from being diverted is to invest them in private securities. Investing the revenues in Treasury bonds doesn't do this. While Treasury bonds are assets, there is also an offsetting government liability. So investing the surpluses in Treasury bonds does absolutely nothing to reduce the government liability with regard to social security benefits.

[punpirate]

5. The net effect would be...

... to justify to the Republican majorities in Congress to go on a wholesale cut of social programs and returns to the states.

Your premise also assumes that the trust needs that source of income, which it does not (the difference in interest in, say, municipal bonds and the interest rate on trust fund loans is actually fairly small).

The answer is not to give the current administration reasons to destroy everything but defense--the answer to keeping the fund solvent is for general revenues to be available to pay the fund back at the interest rates set by law. That means returning to a truly progressive taxation system, and to eliminate the subsidies, tax credits and tax deferrals afforded corporations. That's the root of the problem with regard to repayments of governments loans against the trust fund.

Cheers.

[dolstein]

7. ROTFLMAO

While the different in return may be small, the dollar amounts are HUGE. We're talking about trillions of dollars in social security surpluses. Even if the return on the private bonds is only a few basis points higher, that's still billions of dollars in additional revenue. And that additional revenue WILL be needed down the road.

Besides, as I have already pointed out several times already, investing the surpluses in Treasury securities does absolutely nothing to reduce the governments liabilities to the social security system.

And excuse me, but revealing the true size of the deficit is a GOOD thing. Perhaps you'd rather pretend the deficit isn't a problem in order to stave off cuts in social programs for a few years. But you're deluding yourself if you think the government can fund every program indefinitely. The government is spending hundreds of billions of dollars more than its takes in each year. Sooner or later we'll have to face up to this.

[punpirate]

8. I agree that...

... it's good for the public to know the actual amount of the deficit... but that doesn't help pay it back--general revenues do.

There is a concerted effort to use lack of revenues (due to tax cuts) to ruin social programs--just have a look at the currently proposed budget.

Laugh if you will, but the answer is a return to a sensible taxation system. Any suggestion right now which considers even partial privatization of the system plays into the administration's hands.


Finally, the reason for the deficit is not horrible spending on social programs, but, rather, is due to tax changes which go back to 1981 and this country's stupidity about waging wars and buying weapons on credit.

Cheers.

[Yupster]

9. It would be a great improvement

over what we're doing now because today the surplus is just disappearing never to be seen again.

The money has to be physically moved from congress's grasp and put somewhere else. Bonds, or insurance company fixed accounts or even bank CD's would be an improvement.