HarryTheSpider

I'm trying to get a clear picture here, as a relative noob to the US.

Where does the money for Social Security come from?
My understanding is that it comes from payroll taxes - I have a line item on my pay check labelled 'Social Security' - I'm guessing that is it?

And where does the money go?
Does it go in to a separate fund that is ONLY used to pay out social security benefits to people? If not, where does it go etc tc?

Does changing social security in any way affect the budget, debit and/or national debt, and if so, how?

When does social security go insolvent, if indeed it does?

How does the fiscal cliff affect social security?

Thanks I advance for any insights and clarity!!

Signed,

A slightly confused HTS.

TimNiceBut

Correct. And interest income.

It goes into a trust fund, although the tin foil hat brigade has been opining for years that said trust fund doesn't exist. The trust fund "parks" the surplus in safe assets, which in this context pretty much means treasuries. Given that it's a PAYG system like the UK state pension, a large part of the money taken in gets paid out straight away and the trust fund is supposed to be long-term savings to make up for shortfalls. Like, when the economy falls off a cliff.

It does go "insolvent" when the trust fund runs empty and no additional measures are being taken to ensure that it doesn't. At that point, the federal government would have to find additional money to feed into Social Security. Of course, one could accelerate that process by doing something like, say, cut the social security tax at a point in time when you have comparatively high unemployment, but who'd do that?

It doesn't per se, but it's being lumped in with the rest by the mob who's been working since the 30s to roll back social security for being Unamerican because it's all their own fault if people are poor (I leave it to your imagination which side of the political spectrum they reside). There have also been several attempts at pushing for a privatisation of Social Security in various forms, which would mainly mean that more money is heading into the direction of Wall Street.

The elephant in the room is actually Medicare/Medicaid because health expenditures having been going up at a rate many times the rate of inflation, plus the Medicare prescription benefits that Bush the Younger added were essentially unfunded. Add to that a reluctance by both the current and previous administrations to use Medicare's status as the biggest health care provider in the country to negotiate much more favourable rates than their getting now - which they could as they *are* the 800lb gorilla in the room when it comes to health care - and those expenditures are going to be a much bigger problem than Social Security.

You do realise that the whole fiscal cliff is self-inflicted Washington political theater of the cheapest order, don't you? The whole thing came about because of the failure of the deficit reduction committee in 2011 not being able to come up with a suitably austere austerity plan, so the original negotiations basically called for adding an automatic process by which taxes would go up and spending would be cut if no compromise was reached. The idea at that point being that is should focus politicians' attention to essentially avoid automatic austerity and hammer out a suitable compromise.

CelticRover

http://www.ssa.gov/oact/progdata/fundFAQ.html

cranston

From their website

There you have it. Social Security money has been lent to and spent by the US Gov, who promises to pay it back.

penguinsix

More here.

http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

scot47

The real loonies in the US say that Social Security was a communist plot introduced by FDR who was an agent of the Japanese.

paddingtongreen

Exactly. but to whom does the government go to get the money they need to pay off the bonds so that SSA can continue with my pension, your pension too when you get there?

As I said in another thread, it is as though you got a CD from the bank, used it as security for a loan. The bank still owes you the value of the CD but can't pay until you pay off the loan. The Fed. will help out by printing more money, thus devaluing it.

penguinsix

The Fed has been buying up US debt by the shovel full lately and the trial balloons went out over the last few months discussing the concept of just 'writing it all off'--the idea that intergovernmental debt should just cancel itself out. Some in Washington are floating this idea and we'll see how it plays out.

scot47

It is called the National Debt. "Deficit Spending" in Keynesian Economics. The State can do things that you and I can't !