long copy about 1935 vs 1968 laws.. We got *&*&& Again...Sorry but I do not know how else to put it.. Moon Help me please!!!
THE FINANCING PROCEDURES
In the Social Security Act of 1935 the income from the payroll tax was to be credited to a Social Security "account." Benefits were to be paid against this account, but there was no formal trust fund as such. Taxes began to be collected in January 1937, and monthly benefits were to be paid starting in January 1942 (later pushed forward to January 1940). So the payroll taxes were just credits in the Social Security account on the Treasury's ledger under the initial law.
The investment rules governing payroll tax income were also established in the 1935, and are essentially the same ones in use today. Specifically, the 1935 Act stated: "It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the Account as is not, in his judgment, required to meet current withdrawals. Such investment may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States." (See Title II, Section 201of the 1935 law)
In the 1939 Amendments, a formal trust fund was established and a requirement was put in place for annual reports on the actuarial status of the fund. Specifically, the law provided: "There is hereby created on the books of the Treasury of the United States a trust fund to be known as the 'Federal Old-Age and Survivors Insurance Trust Fund'. . . . The Trust Fund shall consist of the securities held by the Secretary of the Treasury for the Old Age Reserve Account on the books of the Treasury on January 1, 1940, which securities and amount the Secretary of the Treasury is authorized and directed to transfer to the Trust Fund, and, in addition, such amounts as may be appropriated to the Trust Fund as herein under provided." (Title II, Section 201a)
In other words, a formal trust fund was established for the Social Security program and the credits already on the Treasury's books for the Social Security program were to be transferred to this Fund, along with all future revenues raised for the program.
The investment procedures adopted in 1939 were modified only slightly from those in the original Act of 1935. Basically, changes were made in the interest rate rules governing the investments, and the Managing Trustee was designated as the investing official (who happens to be the Secretary of the Treasury in any case), but in most other respects the language was similar to that in the original law. (See the text of the 1939 Amendments for more details.)
Both the 1935 and the 1939 laws specified three types of purchases that might be made: 1) securities on original issue at par; 2) by purchase of outstanding obligations at the market price; and 3) via the issuance of "special obligation bonds" that could be issued only to the Social Security Trust Fund. These special obligation bonds were not to be marketable, although the other two forms of securities could be. The idea of special obligation bonds was not new nor unique to the Social Security program. Similar bonds were used during World War I and World War II, and it was in fact the Second Liberty Bond Act that was the law amended in 1939 to allow the Social Security program to make use of this type of government bond.
Consequently, over time the Social Security Trust Funds have included a mix of marketable and non-marketable Treasury securities. Over the years, the proportion has shifted heavily in favor of special obligation bonds as the main asset held by the Social Security Trust Funds. Prior to 1960, the Treasury's policy was to invest primarily in marketable securities, although this policy was not always followed. Since 1960, the policy has been to invest principally in special obligation bonds, unless the Managing Trustee of the funds (i.e., the Secretary of the Treasury) determines that investment in marketable securities would be "in the public interest." In fact, since 1980 no marketable securities have been added to the Trust Funds. (For a more detailed explanation see the Office of the Actuary's Actuarial Note #142.)
Since the assets in the Social Security trust funds consists of Treasury securities, this means that the taxes collected under the Social Security payroll tax are in effect being lent to the federal government to be expended for whatever present purposes the government requires. In this indirect sense, one could say that the Social Security trust funds are being spent for non-Social Security purposes. However, all this really means is that the trust funds hold their assets in the form of Treasury securities.
These financing procedures have not changed in any fundamental way since payroll taxes were first collected in 1937. What has changed, however, is the accounting procedures used in federal budgeting when it comes to the Social Security Trust Funds.
THE ACCOUNTING PROCEDURES
"Off-Budget"-
The Constitution (Article 1, section 9, clause 7) describes a very general federal budgeting process, requiring only that: "a regular Statement and account of Receipts and Expenditures of all public Money shall be published from time to time." Over the nation's history, the procedures involved in federal budgeting have varied a great deal, with a few major changes. (For a highlight summary of some important milestones see the excerpt from the Senate Budget Committee's report on the budget process.)
Modern federal budgeting has its origins in The Budget and Accounting Act of 1921. This law formalized the budget process. It regularized the process of the President producing an annual budget and submitting it to Congress in a specified procedure; it also created the Bureau of the Budget within the Office of the President (later renamed the Office of Management and Budget); and it created the General Accounting Office within the Congress to oversee the administrative branch's budget execution. From that point on, the President and his budget office controlled the presentation and content of the federal budget, and the appropriations committees in the Congress received the President's budget and acted upon it.
Trust funds are not exclusive to the Social Security program, nor were they new with its passage. At the present time, there are somewhere in excess of 150 different trust funds managed by the federal government. At the time of the passage of the Social Security Act in 1935 there were already in existence two major trust funds--those involved in the Civil Service Retirement System and the Government Life Insurance Fund established to insure World War I soldiers and their families. Trust funds have often been displayed separately in the federal budget, although their precise treatment has varied over time.
(For a detailed explanation of the federal budget process--with historical background--see the Senate Budget Committee's publication The Congressional Budget Process.)
From the beginning of the Social Security program its transactions were reported by the administration as a separate function in the budget. This is sometimes described in present usage by saying that the Social Security program was "off-budget." This was the budget representation of the Social Security program from its creation in 1935 until 1968.
"On-Budget"-
In early 1968 President Lyndon Johnson made a change in the budget presentation by including Social Security and all other trust funds in a"unified budget." This is likewise sometimes described by saying that Social Security was placed "on-budget."
This 1968 change grew out of the recommendations of a presidential commission appointed by President Johnson in 1967, and known as the President's Commission on Budget Concepts. The concern of this Commission was not specifically with the Social Security Trust Funds, but rather it was an effort to rationalize what the Commission viewed as a confusing budget presentation. At that time, the federal budget consisted of three separate and inconsistent sets of measures, and often budget debates became bogged-down in arguments over which of the three to use. As an illustration of the problem, the projected fiscal 1968 budget was either in deficit by $2.1 billion, $4.3 billion, or $8.1 billion, depending upon which measure one chose to use. Consequently, the Commission's central recommendation was for a single, unified, measure of the federal budget--a measure in which every function and activity of government was added together to assess the government's fiscal position.
This change took effect for the first time in the President's budget proposal for fiscal year 1969, which President Johnson presented to Congress in January 1968. This change in accounting practices did not initially put the President's budget proposal into surplus--it was still projecting an $8 billion deficit. However, it is clear that the budget deficit would have been somewhat larger without this change (it is difficult to say how much larger because this change was mixed-in with the other legislative, budgetary and fiscal policies the President was urging Congress to adopt). In early 1969--just five days before leaving office--President Johnson sent his 1970 budget message to Congress, also using the revised accounting procedures. At this point, a year later than his initial estimate, he was projecting the budget for 1969 to be in a net balance of $2.4 billion. (The fiscal year 1969 began on January 1, 1969, even though the President had released his FY 1969 budget almost a year earlier.)
The FY 1969 budget would not be implemented by President Johnson; it would instead be presided over by President Nixon, who took office on January 20,1969. This was 20 days into the 1969 fiscal year. When President Nixon took office, he too adopted the unified budget approach, and it was used by all Presidents thereafter until 1986.
One way to estimate the immediate impact of this accounting change is to look at the government's actual expenditures for FY 1969. Under the current unified budget rules, the government reported a surplus of $3.2 billion for FY 1969. Removing the "off-budget" items from the calculation would result in a net deficit of $507 million.
Source: Historical Tables: Budget of the U.S. Government, Fiscal Year 2006, Table 1.1, pg. 22.
www.ssa.gov/history/BudgetTreatment.html
