Now citing Donald Luskin. I think someone set him up.

It's what both Luskin & David do with it.

I for one am of the LuisAlegria school -- it's all accounting. It wouldn't make a bit of difference to the arguments about whether to "save" Soc Sec on either side if those bloody bonds didn't exist.

It's all a matter of cash flows. It's a pay-as-you-go system - we just go thru the exercise of paying current benefits out of a checking account we've labelled Trust Fund.

If we each had personal claims against the Trust Fund itself, rather than an entitlement that can be modified by legislation, then the bonds would mean something.

The bonds "purchased" with SocSec collections can be viewed as notional amounts that the government would have had to go to the bond markets to raise if there had not been an excess of collections over benefit payments. So the real effect of the Trust Fund is that it saved the government from either raising other taxes or flogging bonds.

Perfectly reasonable people can differ as to whether not havng to include the bonds in the auction markets along the way has or will make any difference to the market pricing from time to time of government debt. The dsquared acrhive you pointed me today that had the essay on yield curves and supply and demand in debt markets is instructive.

I think it's a mistake to focus on the reality of the Trust Fund in this debate, as it plays into the hands of the privatizers. Yes, by saying it's real, it says there's no crisis. But there's no crisis from a cash-flow standpoint either. We'll eventually have to either 1. increase collections from the payroll tax, 2. reduce benefits, or 3. top up benefits with revenues or borrowings from other sources.

As a way of framing public discussion, "the Trust Fund is real" argument reinforces the pernicious notion that government "holds my savings" and I just want a part of them to manage myself at higher returns than what government bonds pay. I reiterate. The government doesn't hold your savings. Quite the contrary, to put you into a position so that you can earn on a portfolio what you would receive in government benefits, the government has to go borrow a big chunck of money to fund those portfolios.

What sends me round the bend is the total confusion in the mind of an otherwise apparently intelligent person like David Adesnik who pouts that he doesn't like Laura Tyson's scheme because she would limit what he could do with his money.

I really have a hard time knowing where to start, since it means he doesn't understand investment products, markets or regulation.That, in of itself, ought to be a pretty good indicator that he shouldn't be allowed to play with the funds that the government is forcing him to set aside for his old age so the government won't have to care for him.

But just to make it simple, I'd recommend he read the pages of a newspaper or magazine that ought to be readily available to an OxBlogger -- the FT or the Economist. The history of the UK pension misselling fiasco is more than mildly instructive. The insurance and annuity misselling was the primary -- though not exclusive -- reason why the Uk system is in shambles (see Am Prospect article).

There were lots of reasons, but the main one was not that people went to Vegas with the money, but the financial services industry itself sold them one bill of goods after another. It took awhile for the dimensions of the disaster to become apparent, and the FSA's regulatory agenda will remain dominated by that fiasco for years to come.

So here are my bottom lines -- until the next time you goad me into writing about soc sec -- there is no crisis, there is no trust fund, and there is no free lunch. So there.

Why is the tax expense reported on the income statement comprised of current and deferred tax?

Thanks,
Life Insurance