Repeat after me: Modifying Social Security WON'T reduce the deficit or debt.

I am not the smartest dog in the world, by a long shot.  So here's an admission: several years ago, I actually believed in the myth that social security spending contributed to the federal deficit.  That's because I took the news at face value.  The internet changed everything.  Now, information directly from the source, was readily available.

So let me say this as loud as possible: The media doesn't know what the heck they're talking about.

I'm going to lay it all out in simple bullet points:

• Social Security has a trust fund.
• The trust fund does not receive money from the general budget.
• The trust fund receives its money solely from that portion of your FICA / SE tax that is dedicated to Social Security.
• The trust fund does not spend money from the general budget. 
• If you cut a dollar of SS spending, it only saves the trust fund $1, not the general budget.
• If you cut $1M in SS spending, it only saves the trust fund $1M, not the general budget.
• If you cut $1B in SS spending, it only saves the trust fund $1B, not the general budget.
• If you cut $1T in SS spending, it only saves the trust fund $1T, not the general budget.
• The trust fund, by law, invests its money into special, non-marketable bonds from the Treasury. 
• Those non-marketable bonds are IOUs for the general budget's debt.
• If you completely eliminated Social Secuity, the Treasury would have to sell the equivalent of the trust fund's current bond holdings, to the general public, otherwise known as "debt held by the public".
• Eliminating Social Security would not help to reduce the US debt or the deficits adding to that debt.
• Without investing its money, the trust fund money would not keep pace with inflation.
• If the federal debt reached below the amount that the trust fund buys, in the form of bonds, it would start to fall behind inflation faster, if it was not allowed to invest in public securities (stocks and bonds).
• For this very reason, when, after several years of shrinking public debt, former Fed Chairman Alan Greenspan worried that having no debt would result in the Social Security trust fund having to invest in public securities.
• If you disliked the idea of Government Motors, you should understand therefore, why Alan Greenspan gave the green light to those Bush tax cuts: too little debt was a worse problem.
• Which is why George Bush pushed for the privatization of Social Security: If the debt were to shrink or eventually disappear, then the only way to alleviate this problem of Social Security come Government Motors, is to privatize the system to allow individuals to invest their Social Security into public securities.
• The problem, of course, with privatization of Social Security, was made all too clear when the stock markets crashed between 2008 and 2009, halving most people's 401K accounts.
• When "experts" tell you that the debt is smaller because of the Social Security surplus, it is a misunderstanding.  What IS smaller because of the surplus, is federal debt held by the public.  In this regard, the Bush Administration was able to hide the true cost of two wars.

Why conflate entitlement spending with general budget spending?  Because it gives you a more accurate picture of the total size of government, relative to total GDP, and some other metrics.  It does NOT give you something to cut, if you're trying to reduce the deficit and debt!

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I should add, that some might point to the debt ceiling showdown in 2011, asking, "If Social Security wasn't part of the deficit problem, then why did Treasury Secretary Geithner say that he would divert SS payments to fund the federal government operations?"

The answer is, that the Treasury, which holds all government accounts, was positioning itself to put off payments on matured bonds held by the trust fund, thereby allowing the Treasury to divert money to general borrowing.  If there was no Social Security program, the Treasury would not be able to put off payments to matured bonds holders, without going into default.

Of course that seems silly because by not paying out on trust fund held bonds, it was a technical default, but the markets don't care because they were not affected by that.  The publicly held bonds holders were at the top of the priority list, not at the bottom or even in the middle, and for good reason: if they weren't paid in full, markets would have crashed as the US borrowing rate exploded, a la Greece.