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This simple fix could help save Social Security

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PurpleSkyz

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This simple fix could help save Social Security
By Brenton Smith


Social Security Trust Funds have squandered billions of dollars on an antiquated investment policy. 
That loss tells us a lot about the financial crisis coming to Social Security.
In 2019, Social Security lost roughly $1 billion because the system invests the excess reserves on exactly the wrong minute of the year. Any other day or any minute early in the day, saves the program money.
It is 2023, and the beat goes on. Over the course of 2022, Social Security redeemed more than $100 billion in high-yield debt, and lost nearly $5 billion in interest earnings in the process. The program just gave it away. 
Here is the problem: Social Security generally needs cash to pay its bills in the back half of the year. Unfortunately, the program locks up all its loose cash on June 30. So, starting July 1, the program needs to redeem bonds, and the Treasury Department picks the wrong bonds for redemption based on a policy that literally dates back to the era of black-and-white TV.

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To illustrate, in November, Social Security needed extra cash to pay the bills, and redeemed nearly $100 billion in bonds at par, which earned 4 percent interest. At the same time, it kept bonds that pay less than 1 percent on the books. Given the process, the program lost nearly $2 billion in interest.  
For those so inclined to look at the loss in terms of math: 95.7B * (4-.075) * 7/12 months = a lot of money that has been simply thrown away. This is not terribly different from someone spending $1,000 on ATM fees.

This underlying problem was identified more than 20 years ago. Yet, nothing has been done about it since then. The solution is not terribly difficult. For example, the government could change the day on which the money is invested -- it really is that simple.
Interest that flows into the system is vital because this revenue is free cash flow. In contrast, when the program collects a dollar of revenue from the payroll tax, the worker in some fashion is given a promise of benefits in the future.
In this case, “free” means interest income adds to the life expectancy of the program on a dollar for dollar plus interest basis. Of the current $2.8 trillion reserve, the payment of interest from the government and interest on interest accounts for more than 90 percent of the Trust Fund.


To gauge the impact of lost or missing interest, we can look back a few years. In 2017, the experts believed that interest would contribute about $100 billion for 2022 to the reserve, which would finish the year valued slightly below $3 trillion.
As it happens, interest came up $80 billion light over that period, and the reserve finished the year about $150 billion short of the goal.

While I may think the reserve is vital to the program’s prospects, critics of the Trust Fund call it an accounting gimmick. The label somewhat implies that benefits would have been paid whether the Trust Fund existed or not. It is a speculative judgment at best. 
For those currently collecting benefits, the distinction is pretty important. The Supreme Court has already ruled that the federal government does not owe anyone benefits. The Social Security program owes benefits based on whatever schedule Congress has in place. With these bonds in place, the government at least owes the program money with which to pay benefits. 
Without the Trust Fund today, benefits would have been reduced this year by more than $100 billion without congressional intervention. If you believe that benefits would have been paid in full, you have more faith in politicians than most do.
This takes us back to the lost interest issue. The program lost nearly $5 billion because it invests the money at the wrong minute of the year. How is it possible to lose that much money in this fashion?
Well, it isn’t that Social Security Trust Funds are “an accounting gimmick.” The fact is that voters allow them to be treated like one, where earnings are really beside the point.
Brenton Smith (think@heartland.org) is a policy advisor with The Heartland Institute.


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THANKS TO: https://www.americanthinker.com/blog/2023/01/this_simple_fix_could_help_save_social_security.html



  

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