privatizing the Social Security program
as proposed by President Bush be economically beneficial?
Can privatization maintain benefits and employment taxes?
Table of Contents
The Idea of Privatization
Examination and Evaluation
Mathematical Accuracy : Argument's Validity
Additional Conclusions Can Be Drawn
Substantitation: Facts and Findings
Substantiation of Assumptions by facts
Download Underlying Financial Data (Excel 97-2000 format)
In 1934 the "Social Security Act" was enacted as a transfer-payment program that allowed covered workers to receive benefits according to their level of participation. Enrollment to this unique transfer program began in 1936, and was quickly considered to be a success. In 1940 Congress expanded the coverage of employed workers, a trend that continued until 1965 when the Medicare program was introduced, gaining popularity among employees and employers alike(1).
The Social Security program was enacted as a supplementary benefit for retired employees. It was not intended to be a whole retirement program; further, it is based on a fund-transfer structure. In a fund-transfer program, employees who are currently receiving benefits from the fund are able to do so because other employees continue to contribute to the fund. There is not a personal-account in the program as is there is in an Individual Retirement Account (IRA) or other pre-tax retirement accounts.
In the past decade, the debate on the future of the fund became heated: many critics of the program and its administration have argued that the system is flawed and should be changed. In particular, the critics said, it should become a privatized system where funds are invested in an open market. Although the argument for privatization of the Social Security program are numerous, this paper examines and critiques only one such proposal. The proposal set forth by President George W. Bush was picked for this examination because, as a vocal critic of the Social Security program, and as President of the United States, President Bush is in a position to make changes that many have said are needed. Bush's proposal(2) is one argument among many for the need for privatization of the Social Security program. This paper intends to examine the substance of the Bush proposal and evaluate its validity; through the process of examination and evaluation, the paper hopes to make concise and clear some of the issues that are now facing the Social Security program.
The Idea of Privatization
Overall, the issue of privatizing a retirement fund, in whatever scope and capacity, touches on the role of Government in redistributing funds, or its attempt to divorce itself from its current role of 'fund manager'. The U.S. government is now seen by many as an all-around provider of a their retirement. This notion goes to the issue of personal responsibility vis-a-vis reducing the intervention of the government in personal life. Although, strictly defined, the role of the goverment is not within the scope of financial theory, this aspect shapes the future of any implementation of the privatization of the Social Security fund.
Similarly, the issue is of administration of any changes to the Social Security program has significant financial consequences. Because any change in the financial landscape, simply by the mere order of magnitude of the actual dollars managed in the Social Security fund, has side effects for the economy. Further, if a change in the management of the fund is carried out, there is unpredictable risk of financial change that could be a result of vast amount of dollars changing position in the economic cycle (from public to private hands, essentially). For example, it is possible to see in the immediate and intermediate time-lines, that changing the venue of the fund from public to private hands will create an inflation in the prices of equities that the private sector will pursue with the newly injected money.
Another example of the possible effects of a privatization change is the "doomsday" scenario in which a private fund has poor yields, or even become insolvent. Under such circumstances, there is the question of responsibility for the retirement of the affected employees who contributed to that insolvent fund. The "doomsday" scenario also goes to the issue of personal responsibility and the financial accountability of the U.S. government.
Other concrete side-effect can also be involved in any change of the Social Security fund, namely that the U.S. demography is about to see its largest retirement wave as the "baby boomers" start to retire in the next two decades. Change in the structure of the Social Security program comes into doubt in light of the introduction of the large group into the benefit-receiving side of the fund. The ramification of any proposed change in the structure of administration of the fund is not only affecting the contribution population, but also that of the retirees, specifically casting a shadow on continuing the current level of benefits. Another example of possible ramification is the one of accumulation of wealth: can the investment of funds in the private sector be simply an empty promise of "easy money"? Are the yields on such investments really going to provide a higher level of personal funds for retirement along with an accumulation of wealth? Finally, any investigation of the Social Security fund, and in particular changes to it, needs to take in account the effect such a change will have on the inflow of money to the Federal Government -- will a privatization action take any toll or, conversely, improve, the funding of the U.S. government?
Examination and Evaluation
The paper asks the following question: The scope of the paper is within these two elements: (1) the level of "benefits" distrubuted (from fund transfer) and (2) the level of payroll taxation. Within this scope, will privatizing the Social Security program enhance (or maintain) the benefits and reduce or maintain the employment taxes? If a valid and substantiated answer to this question is yes, then the conclusion of this paper will be that the proposal by President Bush should be implemented.
This core question as stated above will be answered in respect to the proposal made by President Bush. The method of using the Bush proposal to answer the question is as follows: the Bush proposal, or any other proposal, was made under certain assumptions. Once these assumptions are stated, certein arguments are made, arriving at the conclusion. The paper will utilize an "audit program" model to evaluate the Bush proposal overall. As in a financial audit, the auditor takes three general steps to evaluating the assertion made by the auditee. After the three general steps are completed, a conclusion about the validity of the assertion can be made.
First, the paper will evaluate the level of Control Risk, mapped to the political agenda of President Bush. However, because of the inherit instability of politicized proposal, it is fair to evaluate control risk as "high" which, under this audit model neccessitates in the auditor a high level regarding skepticism to any assertion.
The second step in an audit is one of Mathematical Accuracy mapped to the validity of the argument. The argument presented by President Bush needs to be valid and complete. An example of an invalid argument will be one where the conclusion does not follow from the assumption of the Bush proposal. Or, if there are internal contradiction between assumptions or conclusion, the argument is rendered invalid. An incomplete argument is one where additional conclusions can be drawn from the assumptions stated, or if there are unstated assumptions that lead to any conclusion. If the latter occurs, an investigation of the effect of such unstated assumptions has to take place to see if they invalidated any argument or a portion of it. For example, in his argument president Bush declares that statistic "A" had been cited (low unemployment) and that statistic "B" had been cited (the Social Security existed for four decades.) No relationship between "A" and "B" is shown. The Bush proposal goes on to argue that the presence of "B" is a proof for the presence of "A". This of course is completely unreasonable and is discarded from serious debate as an invalid argument.
Overall, this step is purely logical: the paper will present assumptions, arguments and conclusions made by President Bush as the "building blocks" of the proposal. These building blocks are an important tool to understand the issue at large -- they can provide simplification and clarification of the issues on hand.
The third step in the "audit program" model is Substantiation of assertions, mapped to the accuracy of the assumptions. A substantiation is simply a confirmation of the assumptions by facts and reality. If an assumption is found incorrect by factual data, then it is rendered invalid and any argument based on that assumption is too, invalid. Further, a vague assumption can be rendered invalid if a precise definition of the assumption leads to invalidating the argument it supports. For example, the Bush proposal refers to "Taxes paid by Families". It is not specific enough: are "Taxes" monies actually paid? Are they taxes actually owed? Are "Taxes" money paid also to State and Local authorities? In this example, the definition of "Taxes" -- as used in the the assumption -- is vague, leading to a potential invalidation of the argument that is based on this particular assumption.
Finally, by following the audit program through its three general steps: evaluation of control-risk, computation of validity and substantiation by facts, the auditor -- this paper -- will render an opinion on whether the Bush proposal as presented herein is overall valid and substantiated. The conclusion of this critique is not intended to answer the question of whether all proposals for privatizing social security are good or bad. This paper introduces the subject through a particular proposal, one to be expected to be close to the final proposal, if any, because of the supported of the newly elected president. Thus, the conclusion of this evaluation will address the validity of this particular proposal by President Bush, citing its strengths and weaknesses.
Mathematical Accuracy : Argument's Validity
In order to examine the validity of the proposal, a complete copy of the proposal is attached with this paper (exhibits "I" and "II"). The proposal, titled "Saving Social Security and Medicare" is roughly divided into three parts: discussion of Social Security, discussion of Medicare and a section of tables, quotes and other miscellanea. In order to create the "building blocks" of assumptions, arguments and conclusion within the Bush proposal, the paper concentrates on the first section, immediately following the Executive Summary in "I. Challenge and Opportunity."(3)
The following paragraphs have been mapped to labels to further assist in reconstructing the Bush proposal (the first two paragraphs are a reiteration of the argument, and because they are stated later on, they were not labeled). They are classified as assumptions or argument and displayed graphically in exhibit "II":
A. The Baby Boomers generation is about to retire soon, increasing the population of Social Security recipients
B. Overall, life expectancy has increased in the United States since 1935, when the Social Security program started.
C. As a result of A and B above, the ratio of contributors to recipients, has declined from 42:1 in 1945 to 3:1 in 1999 and is expected to decline below 2:1 in 2030.
D. (i) The Social Security program was enacted in 1935. (ii) Poverty has declined since 1960 from 35% to 11%. Because of (i) and (ii) above, the Social Security program is successful.
E. Because of D(i) and D(ii) above, the program needs "modernization".
F. The Social Security is a Fund-Transfer ("pay-as-you-go") structure.
G. The Social Security borrows money from the U.S. goverment to meet its financial obligations. This causes accrued interest and principle to be paid at a later time. The interest payments require the Social Security Administration to "raise taxes, cut spending or borrow from the public".
H. The reduced ratio as stated in C above, is only possible because of economic expansion. However, in 2025 that ratio is expected to be below 1:1 of contributors to recipients. "The resulting deficit will grow over time and the fund will become insolvent in 2037."
I. (ii) "As a result [of interest payments stated in G, above] nearly 80% of working families already pay more in payroll taxes than in income taxes". (ii) This paragraph is a rebutted of former Vice President Gore's proposal. It has no bearing on the Bush proposal.
J. President Bush recommends that young employees would be allowed "to invest a portion of their payroll taxes in stocks and bonds, these accounts will generate higher rate of return thus helping to increase retirement income..."
K. The rate of return from the Social Security fund is "less than 2 percent".
L. Allowing accounts to be created as proposed in J will also allow workers to "accumulate wealth"
M. J,K and L above represent a "huge opportunity" for workers to invest towards their retirement instead of paying "over 12 percent of their income into the Social Security System."
Directly related to the level of skepticism employedb by this paper's "audit", the set the control-risk is set at "high." An auditor should exercise this skepticism in examing the validity of the argument -- its "Mathematical accuracy" -- in terms of logic. Each of the above paragraphs relating to the Social Security program (the Medicare portion of the speech is outside the scope of this paper) can be classifed as an assumption, an argument or a conclusion. The three-tier classification makes the examination of the argument three-fold as well:
First, the paper examines any invalid arguments or arguments. These are presented in a graphic format in exhibit "III":
a. Does the enactment of the program in 1935 (D(i)) and The decline of poverty since 1960 (D(ii)) lead to the conclusion that the Social Security program needs modernization and that the program is "most successful in US History"? It is clear that the two events are independant of each other and the Bush proposal attempt to make a cause-and-effect between them is a weak effort.
b. The Bush proposal states that the Social Security program is underfunded by borrowing from the fund in prior decades. It argues that future repayment needed to keep the fund at standard level will require existing taxes. It then states as evidence that because of past repayment requirements, that payroll tax level is above income tax level: Is this really the case? Is this intermediate argument reasonable? The answer to this question, data has to be presented. Accordingly, data will be presented to support or defy this notion.
c. The Bush proposal states in G that "Payroll taxes paid greater than Income tax". This assertion begs the definition of "Income Taxes". It is not clear to what type and level of Income Tax does the Bush proposal refer. The concise and clear definition can render this "intermediate conclusion" invalid, weakening the flow of the argument from G (borrowing money from the goverement) through K (lower rate of return by the investment in the Social Security program.) Once defined, an answer based on data can be sought to validate or refute this argument.
d. The anticipation that the ratio of contributors to beneficiaries is decreasing and that subsequently the Social Security fund will be insolvent is not automatically connected. Is it possible that the required ratio of contributors to recipients is below 1:1? Is it possible that productivity can prolong the life of the fund beyond the demarkation of a 1:1 ratio? A positive answer to the latter will weaken the conclusion that the Social Security fund will become insolvent. The paper addresses such possible answer in the "Substantiation" section below.
Additional Conclusions Can Be Drawn
e. It is not clear from the conclusion in J that "these accounts will generate higher rate of return". The possibility of a "doomsday" where a privatized Social Security fund, invested in the free market, will be temporarility (i.e. for a short term) below its anticipated value or yielding returns below the required amounts for a sound retirement. If such a doomsday scenario is to take place, what can be said about the guarantee of future benefits? Can a private Social Security fund be stable enough to replace the existing level of benefits? This is an inherit problem for any investment. The answer is two-fold: first, the Bush proposal is not specific on the implementation of the revised Social Security privatization. Second, as addressed in the "Comments" section to this paper, some assurances can be built in to an investment portfolio of a privatized Social Security fund.
f. It is not clear from the Bush's proposal in J (or elsewhere) what will be the treatment of the accumulated of wealth. Will such wealth be considered capital asset or a pension fund? Will it be regulated to the extent of investment strategy or class, or will it have a free-for-all style? This question, as in (e) above, is not specified in the Bush proposal. A proposition is detailed below, within the "Comments" section of this paper.
Substantitation: Facts and Findings
This paper attempts to gather collaborating, contradicting or otherwise related findings of facts that relate to the assertions made by the Bush proposal. Specifically, the paper attempts to answer questions (a) through (f) raised during the "mathematical accuracy" section, above. In order to gain understanding of the issues, and to obtain some unqualified and unbiased findings, some opinions and articles were obtained, with an emphasis on post 1997 publications. The emphasis of "newer" opinions was made because the effect of such issues as the Workfare Act, the 1997 Taxpayer Relieve Act, the actual start of the baby-boomers retirement et cetera, are all more pronounced in the later opinions than in earlier writings that attempt to project, not reflect, an opinion.
However, the ultimate source of the data to answer the questions raised by the critique in this paper are from Statistical data from non-partisan sources. Primarily, data was collected from government agencies, presumed to have the lowest level of political interest, such as the Social Security administration, the Internal Revenue Service and the Department of Health. Data presented by other sources should correspond to the governmental findings. For efficiency and speed in obtaining the data, there was a great reliance on sources published on World Wide Web.
There are three main arguments presented by President Bush. Referring to Exhibits "II" and "III" they are divided into the following "cycles" of logic:
Argument No. 1: The "Program is Most Successful" argument, stemming from paragraph D. This argument is so weak that it does not merit a substantiation; no real argument is presented by the Bush proposal to relate this paragraph to the rest of the proposal except the vauge notion of "modernization" which is no where else defined or referred to.
Argument No. 2: The "Taxes must be raised" argument, stemming from paragraphs G and I. Exhibit "IV" details this section of the argument which essentialy claims that because the Social Security fund borrows from U.S. goverment, it must raise employment taxes to pay interest and repay the principle. In turn, the argument goes, most families must pay more in employment taxes than in income taxes.
Argument No. 3: The "Fund-Transfer structure leads to no accumiliation of wealth" argument, stemming from paragraphs A,B,C,F and L. This arguments, shown in exhibit "V", cautions that because the increase of recepients from the fund (the "Baby Boomers"), compounded with a longer life span (which translate to more years of recipienship) and a declining ratio of contributors to recipients, that the fund will be insolvent in either 2025 or 2037.
Substantiation of Assumptions by facts
Because argument No. 1 above becomes immaterial, the paper is left with two main arguments to deal with in its audit of the Bush proposal. Argument No. 2 claims that the Social Security program must continue to borrow from the U.S. goverment and in turn, raise taxes or cut benefits in order to remain balanced. Because it continues to do both, the argument goes, American families are required to pay more and more in Employment Taxes.
In examining the data that relate to this argument the paper has the following findings:
The Social Security Administration is required, by law, to invest its funds in the most secure form of investment. In financial terms, this means that the Social Security must invest its funds in Long Term U.S. Obligations(4), also known as "U.S. Bonds". The Bush proposal labels these as "IOU": a debt that the Social Security owes to the U.S. goverment. There is no evidence that the Social Security fund borrows from the U.S. goverment in order to finance its activity. Therefore, this purchase of U.S. bonds is the investment instrument, not a debt instrument(5).
From 1969 (the earliest year available from the I.R.S.) to 1997, Federal taxes (Payroll, Income) grew in parallel. This growth is (6) contradictory with Bush assertion; The data shows that since 1969, Income Taxes always have been higher than Payroll taxes. Also, since 1995 payroll taxes have grown at a constant rate while income taxes grow at accelerated rate(7). See exhibit "VII".
Employment Tax, also known as F.I.C.A. is in aggregate 12.5%. However, only one half of this percentage, 6.25%, is the rate of employment taxes that the employee must pay. The other half of the F.I.C.A. employment tax is paid by the employer. Thus, the assertion in paragraph M that "despite [employees] paying over 12 percent of their income into the Social Security system" might be provocative, but is incorrect.
In examining the levels of Average Income Tax the data suggests that the average tax rate declined, while actual Income Tax received by the Goverment increased because of income levels (especially for the poor)(8). Exhibit "IIX" shows the latter assertion but in fact, the average rate per family decreased as the marginal and average tax collected decreased from a marginal of 70% in 1982 to 39% in 1997 (although absolute dollars collected increased). This data also weakens the argument that Employment Taxes are higher than Income Taxes because in absolute dollar, Employment Taxes were always less than Income Taxes (exhibit "VII").
The data shows only insiginficant correlation between Income Taxes and Employment Taxes. Exhibit "IX" relates the two types of taxes collected since 1937 and then focuses on the more active period, since 1979 to 1999. Exhibit "IX" plots the percentage change in the benefits paid and contributions received to the Social Security fund. It also shows the percentage of change to the Income Tax collected at the same period. As can be gleaned from exhibit "IX", there is no corrolation between the two types of taxes. This data, too, weakens the argument that the Employment Taxes were raised in order to support the borrowing of the Social Security from the U.S. goverment; if the argument was correct, then indeed Employment Taxes would have to be increasing faster, or in absolute dollars - higher than Income Taxes. However, the data shows no indication of such a trend.
Through a set of five viewpoints(9), this paper tried review the argument in the Bush proposal that claims that the Social Security fund is borrowing from the U.S. goverment and in turn, in order to pay its debt raises employment taxes. Through these five view points, the Bush argument No. 2 can be at best classified as weak. There is little data to show that any of the assumptions, assertions and arguments in this segment of the Bush proposal has merit. Therefore, they are rendered invalid and unsubstantiated.
Next, the paper will examine the segment of the Bush proposal that is labeled here the "Fund-Transfer structure leads to no accumiliation of wealth" argument (No. 3, above.) This argument has fewer weak points (exhibit "V") except for the possible question of productivity. If it can be shown that an increased productivity is such that the assumed ratio of contributors to recipients falls below 1:1, then this weakens the Bush proposal's conclusion that the Social Security fund will be "insolvent" by 2037.
Overall, there is little debate that the rate of recipients of benefits from the Social Security is increasing (Exhibit "X") . Although the increase from 1933-1995 has not accelerated, it has started to accelerate from 1995-1997. Thus, the demographic belief that "the Baby Boomers are coming" (or retiring, depending on the view point) might be appropriate. The increase of benefits distributed (in absolute dollar and in the number of recipients) has been on the rise since 1983.
Productivity is a "soft statistic" and one can be hard pressed to define it and further to find substantial data to measure productivity in an economy of scale such as a United States. The measure of productivity was obtained as reported by the United States Department of Labor (10). Overall, output per hour is influnced by many factors, even if its measurement is consistent. Thus, it is hard to rely on. Nontheless, this paper attempts to use this data to show if productivity can possibly be a factor in the future of the Social Security program.
In Exhibit "XI", Output-per-hour is plotted against the rate of contribution to the Social Security program, and a correlation of the latter was computed with the index of output per hour. There is very low correlation (Adjusted R-square = 0.02) between the rate of contributions to the Social Security fund to the Productivity. Therefore, increased productivity (since 1992) can not weaken the Bush proposal that claims that a reduced ratio of contributors to recepients will ultimatly render the Social Security fund bankrupt.
The Bush proposal, as presented in President Bush's speech in May 2000, supports in general a privatization of the Social Security program. It does not specify the method in which a transition can be made, nor is it specific on amounts, percentages or regulatory guidelines for the privitization process. In a sense, it is an abstract argument for the privatization of the Social Security program (or parts of it). As such, this paper has used the abstract argument for two purposes: to show the points in which it claims a valid and substantiated argument, and the points where it has failed to do so.
By arguing that the Social Security program requires borrowing from the U.S. goverment and in turn, Employment taxes are raised, the Bush proposal failed to show a clear and valid argument for the privatization. The argument is flawed on several points and is not supported by the data found by this paper.
By arguing that the Social Security fund is in a "fund-transfer" structure that inhibits a higher yield on investment and curbs accumulation of wealth, the Bush proposal succeeded in showing a valid and substantiated argument for the privatization of the Social Security program. This paper found no flaws in the latter nor did it found any data to contradict the proposal's assumptions.
In a sense, the Bush proposal can be seen as valid on the one hand and invalid on the other. However, because the two segments (referred above as Nos. 2 and 3) are really not related, there is no reason to invalidate the entire proposal just because argument No. 2 failed. Had argument No. 2 been the premise of argument No. 3, then the failure of the former would have meant a failure of both. However, this is not the case and the argument for privatizationof the Social Security program, as presented from the view point of segment No. 3, is valid.
In conclusion, referring back to the definition of the question -- "will privitizing the Social Security program enhance (or maintain) the benefits and reduce or maintain the employment taxes?" -- the answer from the Bush proposal seems to be affirmative. Referring to Exhibit "V", which outlines the valid segment of the Bush proposal, a valid argument can be made that the increase in the population of retirees, combined with an increase of life expectancy in the U.S., will cause the ratio of contributors to recipientsto decline. This ratio, once below the ability of the Social Security program to support the recipients enrolled, will force the Administration to either reduce benefits, increase employment taxation, or both. This argument is both valid and substantiated.
In going about considering practical implementations of the (now validated and subtantiated) change, caution and consideration to additional factors is required. The Bush proposal tells little of possible alternatives other than to describe the positive in these alternatives, without delving into much detail. Some suggestions and concerns are discussed in the preceeding paragraphs.
Seeing that the cause for impeding crisis in the Social Security program is with decreasing rate of contributors to recipients is not replaced, i.e. the fund-transfer structure is replaced by a personal-account structure. Thus, it is reasonable to argue that the bankruptcy of the Social Security program is eminent. Although some statistical data suggest that the increase in the population of retiriees is complemented by an increase of a second wave of new employees, which will extend the livelihood of the Social Security fund, herein lies the risk in discussing these matter in absolute terms: the diminishing ratio of contributors to recepient is only based on actuarial tables. Becauase the insolvancy of the Social Security fund is projected into the future, such a projection is based on certein assumptions. Thus, the insolvancy of the Social Security fund is predicted anywhere from 2020 to 2042(11). Attempting to predict the timing of these events can only result in tentative results, and they should be accepted with caution.
Several other proposals for privatization of the Social Security program call for the government, not individuals, to manage the fund in the private sector. These scenarios bring to the fore the possibility of substantial government intervention in the financial world and an active and interested participants in the economic scene. These two effects can seriously hinder the objective role that a sovereign government should take in the economy.
Compounded with the effects of reduced contributors to recipients ratio, at least in the intermediate range, yield from a privatized fund -- perhaps in an extended form of I.R.A. funds (which is classified as a pension, not a capital asset) -- will be higher than the two percent average yield of the Social Security fund.
Some other hurdles remain on the road to changing fund-transfer element in the Social Security structure: it is clear that on the one hand, low wage earners such as women, singles and low-income families will benefit the least from such a privatzation move(12). On the other hand, creation of capital through succession will be more readily available when a portion of the Social Security funds are invested rather then transferred to recipients.
It is also not clear how will a guaranteed level of payments be possible, if an entire "account" of an individual suffers a "doomsday breakage". Whether the responsibility in such a scenario lies with the goverment or the account holder is a moral question that is beyond the scope of this paper. One possible solution for a personal account portfolio can be a combined purchase of an annuity and other investments. The portion of invested monies that are earmarked towards annuities might be able to provide a minimum level of income to the recpient. Further, albeit skewed, some research suggests(13) that while investors are irresponsible especially in times of economic expansion, further research can be done to the effect of regulation on private investors and the possible pit-falls it might have in light of a personal retirement account.
Overall, any implementation of change must take into consideration social and financial factors, both quantified and ethical.
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1. History of the Social Security Program.
(2001). Available: HTTP: http://www.ssa.gov.
2. Bush, George W. Speech given in Rancho Cucamonga
(May 15, 2000). Available: HTTP: http://www.georgebush.com.
3. Unfortunatly, the pages are not numbered in the orginal.
4. Q&A About the National Debt. (1999-2001).
"The deficit is the fiscal year difference between what the Government takes in from taxes and other revenues, called receipts, and the amount of money the Government spends, called outlays. The items included in the deficit are considered either on-budget or off-budget. (The off-budget items are typically comprised of the two Social Security trust funds, old-age and survivors insurance and disability insurance, and the Postal-Service fund.) Generally, on-budget outlays tend to exceed on-budget receipts, while off-budget receipts tend to exceed off-budget outlays.
You can think of the total debt as accumulated deficits plus accumulated off-budget surpluses. The on-budget deficits require the Treasury to borrow money to raise cash needed to keep the Government operating. We borrow the money by selling Treasury securities like T-bills, notes, bonds and savings bonds to the public. Additionally, the Government Trust Funds are required by law to invest accumulated surpluses in Treasury securities. The Treasury securities issued to the public and to the Government Trust Funds (Intragovernmental Holdings) then become part of the total debt. "
Available: HTTP: http://www.publicdebt.treas.gov/opd/opdfaq.htm
5. United States Budget for the fiscal year 1999. (1999).
Chart 4-4: Interest Costs as a Precent of Income Tax Revenue.
6. Personal Income Part Capital 1990-1999 [Online]
(1999) Available: HTTP: http://www.irs.gov.
7. Federal Taxes Paid 1969-1998. (1998).
HTTP: http://Internet: www.irs.gov.
8. Internal Revenue Service: Income, Taxes and Tax Progressivity. Petksa and Strudler, authors. N.D.
9. Requirement to Invest in U.S. Bonds, Average Tax, Employment Tax rate for the employee, Income and Employment tax correlation.
10. Web printout: National Indicators Labor Productivty (2000).
11. The Bush proposal falls in to this pit when it uses inconsistant years for predicting the insolvency of the fund. These predictions are inconsisitant because they rely on different actuarial tables.
12. Weller, Christian E., Journal of Policy Analysis and Management, v19, n2 (Spring 2000), pp.263-273.
13. Journal of Accountancy, American Institute of Certified Public Accountants, (January 2001), Survey: Most American can not wisely invest their own money. p.21.