Two important sources have “explained” this drop. Both the SSTF and the CBO have confirmed that somehow there was a miscount over at Treasury for $25-29 billion.
The explanation from the CBO yesterday:
The explanation from the SSTF in their August report to Congress:
Receipts from social insurance taxes are also expected to decline this year—by $29 billion (3.2 percent) from last year, mostly because of an adjustment by the Treasury to correct for the allocation of receipts in earlier years.
Some thoughts on this:
The estimated decline in trust fund income from 2009 to 2010 is due to the economic recession and to an expected $25billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the Trust Funds in earlier years.
- This is not supposed to happen. In the monster numbers the government tosses around this is not a big deal. But $25b is still a lot of dough. It is equal to the GDP of Vermont.
- There is not an adequate explanation of what has happened. What the hell does “earlier years” mean? (Note the common language by both CBO and SSTF).
- By the rules of the TF this money was invested in Special Issue Treasury securities. It earned interest on those securities. So Treasury created the $25b and gave it to the TF in cash, then the TF invested it back with Treasury. But there was no money. It was a double count. One would have thought that Treasury actually balances and confirms its cash accounts from time to time. This gets back to the question how long this error has been going on.
- In my opinion the SSTF has misrepresented its financial condition to the public and to Congress for more than eleven months. Faced with an embarrassing $25 billion restatement what do they do? They bury the loss. They have artificially reduced reported monthly payroll tax receipts by approximately $2b per month for all of 2010.
If a public company played fast and loose with top line earnings to obfuscate a bottom line loss there would be hell to pay. The market would take the stock out in the woods and shoot it. The SEC would fine them 10% of what they hid. The press would have a field day and anyone near the cover up would be forced to resign. But this is D.C.
I am now assuming that the SS top line number will make a $2b YoY jump in October. That would have been the tip off for me and others who watch this puzzle. It would have implied a few million new workers in the month. As that will not happen the increase would have been a red flag. So disclosure on this was necessary before 9/30 (they pre-release solid estimates on PR receipts). Disclosure was made in the recent TF report. Here’s the link (pdf). If you’re not looking for the quote from above, the disclosure is not so obvious, nor is it complete.