Okay, since
@medinabuckeye1 brought this over here, I'll post the analogy to describe the SSTF and then explain why I talk about it the way I do...
Ok... Let me go on then...
Assume that I'm a new college grad in my early 20s. I decide that for the purposes of my life, I'm actually going to get two jobs instead of one, because I have a particularly interesting "side hustle" that I can do for fun in addition to my career.
So I get two jobs.
- The income from Job A goes into my left pocket. I define Job A as the one that pays the bills, i.e. my "mandatory spending".
- The income from Job B goes into my right pocket. That money becomes my "walking around money", i.e. all my discretionary spending.
Now, I'm a new college grad and can choose to live pretty spartan, and my mandatory bills don't consume all my spending. Prudently, I want to save that money and plan for the future. I may one day get married, have kids, and I'm sure my bills will go up significantly.
Now, where do I save it? I've got a great idea! My right pocket is offering savings bonds, and promises that if I lend the excess money from my right pocket to my left pocket, it'll promise to pay me back with interest when I need to draw down on those assets.
My right pocket is a bit of a spendthrift. And flush with not only the cash from Job B, but all the excess leftovers from Job A, it spends and spends and spends. It keeps creating bigger and bigger promises to the left pocket, but hey, I'm good for it, right? I have excellent credit!
Years and years go by. I get married, have kids, my conditions change and I find my left pocket needing to draw down those assets.
So what do I do? The way I look at it, I have four options:
- Work more hours at Job A. Obviously if my mandatory spending goes up, maybe I should be bringing in more money into left pocket. (This is akin to raising the payroll tax or removing the cap to allow the SSTF to keep growing).
- Work more at Job B, since you need to start paying back left pocket. (This is akin to raising income taxes to pay back the SSTF.)
- Quit spending excess money out of right pocket. It's time for some serious austerity measures! Now instead of having walking-around money, Job B can go pay back Job A. Sure, my standard of living goes down, but at least I'm being fiscally sound. (This is akin to Congress reducing discretionary spending, which we all know ain't happening.)
- Find some new source of money... Hey, maybe right pocket can borrow money from the Chinese to pay back left pocket. Maybe right pocket can max out its credit cards to pay back left pocket. I mean, this causes my overall debt load as a person to get much, much worse, but at least left pocket is getting paid back! (This is akin to the federal deficit increasing much more quickly than it would without a growing SSTF.)
But you're right... None of right pocket's spending is responsible for left pocket needing to draw down the assets it has built up.
But that doesn't change the fact that every one of #1 through #4 is a bad move for @bwarbiany -- who wears the damn pants.
Now, the other option would have been if left pocket had been loaning YOU the excess money over the years, @Cincydawg -- it would have meant that right pocket didn't have as much hidden income to overspend in the past, but it also would mean that it wouldn't require more earning power from @bwarbiany to pay back the assets to myself.
The American taxpayer thinks it has an asset to draw down on, in the SSTF. But that asset comes from our own tax dollars (or deficit borrowing), so it's not like "we" are helped by some magical trust fund that's full of money. The SSTF is a claim on future taxpayers. The only difference is that it has to be funded from income taxes rather than payroll taxes. If you want to call that an "asset", well as one of the non-retired guys paying those income taxes, it certainly seems like a burden to me.
So Congress has not "raided" the trust fund, or anything like that. But the money has been spent. It's been spent
by design. That's exactly how the system was set up.
The reason I think this is bad is because Americans like to believe that there's a meaningful relationship between our income and our spending. Naturally we have common prudent ideas about spending within our means, about making a budget, about avoiding debt, etc. We often try to apply the ideas that have to be followed for a household budget to the national budget. And sometimes when you have multiple sources of income and multiple avenues of spending, you treat them differently for very important reasons, such as my Job A / Job B and left pocket / right pocket comparisons above.
Social Security is a highly popular program with tons of political support. So even when Social Security was running a surplus, people didn't really mind it because they saw it as "ensuring the future stability of the program." And the very idea of a trust fund (and calling it that) makes it easy to support... "I'm putting extra money in there right now to be sure that social security is around when I retire--because it's saving that surplus."
Much of the rest of the government is up for debate. We hate spending [on other people, not on ourselves] and we hate income taxes [on ourselves, not on other people]. Congress knows that people like getting things from government and hate paying for it, so there is a natural inclination to try to spend as much as possible, and tax as little as possible.
So what did the social security surplus do?
It allowed Congress to spend money that was politically popular to spend without getting that money from income taxes which are unpopular. And the whole time, it looked like Social Security was being prudent by amassing a "trust fund", but all that trust fund contained was promises. Promises ARE assets, of course, to the Social Security program. But those promises are claims on the rest of us, not a big pile of money.
Money is fungible. So at the end of the day, it actually doesn't matter whether the federal government is getting it from the income tax, from the payroll tax, from capital gains taxes, etc. But politically it REALLY matters a lot.
Which is why those of us who understand the nature of the SSTF call it things like "an accounting fiction" despite the fact that those bonds are real and WILL get repaid. The money to repay those bonds has to come from somewhere, and it'll be our taxes.