"I place economy among the first and most important virtues and public debt as the greatest dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt. If we can prevent the government from wasting the labor of the people, under the pretense of caring for them they will be happy." Thomas Jefferson
US Debt is the Greatest Threat to National Security
Systemic defects in government accounting, law and economic policies are insidiously bankrupting the country. When the US GOVERNMENT DEBT BUBBLE inevitably bursts it will make the tech and housing bubbles look like pea shooters compared to a 105mm howitzer and the Great Depression will look like the good old days. Laws that incentivize debt and punish savings must be changed or an economic and social disaster is certain.
The United States of America’s economic structure is crumbling under the unsustainable weight of unredeemable debt. The untenable position the country finds itself is neither by accident nor unintended consequences of flawed legislation. It is by devious design of fundamental laws that reach back to the last Great Depression. The fundamental flaws in tax and welfare laws and policies have been concealed within complex laws that are almost undecipherable. Neither individuals nor businesses should require the services of a CPA or tax attorney to determine their tax liabilities. Tax and welfare laws should be scrapped and replaced with transparent, easy to understand common sense language so defective laws can be recognized and corrected. See Principles of a Fair Tax System
Our national debt is accelerating; it took 205 years (1776 – 1981) for the US government to break the $1 trillion mark. It took only 27 years to break the $10 trillion level and in less than 2 years over $3 trillion has been added. Systemic defects in US Law and Accounting have created this exponential debt explosion.
The National Debt is just the tip of the ice berg. Various Government guarantees (i.e. Pension Benefit Guaranty Corporation) and unfunded US government social insurance obligations (Social Security, Medicare, Medicaid, etc.) are over $60 trillion and may be more than $100 trillion. The unpredictable costs of Obama Care render accurate estimates problematic.
The constructive US economic model of laissez-faire capitalism is insidiously evolving into a destructive economic force that is hardly recognizable, but may be identified as Debtism. This generation's buy now, pay later consumers realize and have accepted the notion that painless means of correcting flawed economic policies is impossible. The practice of debtism was created when the US government began to ignore Constitutional restraints on its power. Responsible citizenship was gradually replaced by consumers who, for the first time, were able to spend without benefit of savings; such was the power of the new plastic redeemable for goods and services worldwide. With this evolved the new American debt-slave. Buying things we don't need with money we don't have has become the American way of life.
The federal government has become the master, not the servant, of the people. Income that could be saved and invested for retirement and medical care (so the individual could provide for his own needs) is confiscated by self-serving politicians who believe they can administer personal welfare better than the individual. A review of government's and the Federal Reserve Bank's records of fiscal and monetary policies indicates a chimpanzee could probably do a better job and most certainly would be more entertaining. The coordinated efforts between these bodies and corporate America have promoted massive debt and government dependency while diminishing personal savings, equity, personal responsibility and the motivation for self-sufficiency to provide for one's own personal needs.
The injustice created by a tax system erected on fiat money is difficult to quantify and almost impossible to correct. Part I, Getting Ready for Hard Times, July 4, 2006 describes the problems and the challenges. US government accounting defects, flawed tax and welfare laws and mismanagement of bogus trust funds make finding solutions to the national debt problem impractical if not impossible.
Debtism n 1. A uniquely American socio-economic, fiat currency, tax and welfare arrangement created by unconstitutional law. 2. A fraudulent monetary system based on a fiat currency and fractional reserve banking that creates corruptive resource imbalances between equity and debt; and between owners, lenders and borrowers. 3. A US government tax system that encourages debt with tax incentives and devastates savings by taxing the inflation produced by a depreciating currency. 4. A practice of perpetual government borrowing to sustain an indebted consumerist driven economy until the currency and the economy collapses. John T Koraska
Trillion Dollar+ annual deficits are currently pushing the US National Debt to levels that threaten National Security. New US debt issues are flooding the markets toward a threshold, beyond which the US Sovereign credit rating may suffer greatly. Once breached, the US threshold of marketable debt may cause interest rates to skyrocket beyond control of the government and the Federal Reserve. Printing money is becoming the alternative of last resort to printing debt upon which interest must be paid.
The stagnant US Economy is precariously positioned between hyperinflation and depression. Because of the acceleration in unsustainable debt loads and unfunded obligations, choices of how to correct the situation become increasingly more limited. Any sudden shock could send real interest rates and inflation soaring or instill sufficient fear into the public consciousness to cause markets and sentiment to plummet into depression. Absent immediate proactive actions to drastically reform tax and welfare laws that are bankrupting the country, the social and economic future of the United States become significantly more problematic.
Response by the majority in the US Congress and President Obama to the US debt explosion is to spend and borrow trillions more dollars. US fiscal policy is a misnomer. To call something a policy would imply a real plan or carefully considered strategies.
The massive increases in deficit spending and the national debt and the explosion of unfunded liabilities of social insurance obligations of the federal government (Social Security, Medicare & Medicaid) pose the greatest economic challenge in US history. Automatic cost of living allowances (COLAs) for retirees and health care cost inflation further exacerbate the US government cash flow problems.
The “Quantitative Easing (QE) recently announced by the Federal Reserve is revealing. The creation of an additional $600 billion in real money to buy government debt was likely necessitated to cover inadequate public interest in buying an excessive amount of debt at historical low rates of return. This is in addition to the $1.7 trillion created in 2008.
While QE is proclaimed to stimulate the economy and lower interest rates; it may also be a necessary response to a maxing out of the US government’s credit card. That is if you overload the debt market which may cause interest rates to spike and harm the economic recovery, printing massive amounts of cash may be the only option. Rapid increases in precious metal prices may be signaling future inflation like that experienced in the late 1970’s, early 1980’s. Hyperinflation cannot be ruled out if significant tax and welfare reforms cannot be quickly enacted.
While QE is beneficial to the banks because they get virtually free money to purchase government debt, it is NOT without long term costs to the US government because interest must be paid to the Fed on the new debt issues. Under current law exponential growth of US debt is definite and is certainly not reversible unless systemic legal and accounting imperfections are removed.
How to Save the US from Self Destruction!
The destructive course the US is headed cannot be reversed
absent simple but drastic changes in fundamental tax and welfare law.
Complexity of tax and welfare law precludes a short essay of identifying the problems and possible solutions. I have therefore singled out the Federal Insurance Contributions Act (FICA) that provides primary funding of the Old Age and Survivors Insurance (OASI) Social Security Retirement program to exemplify problems and present alternative solutions. Also, I have inserted hyperlinks to other articles to facilitate better understanding of complex subject matter.
Having said that, if I could pass ONE irrevocable US Constitutional Amendment to convert the current path toward Debtism back to Capitalism it would read: “All corporations, individuals and any other entity subject to US tax laws are prohibited from deducting interest and other taxes from their Federal Tax returns. This law goes into effect January 1, 2012”.
Fixing Social Security Permanently
The Social Security Old-Age, Survivors Insurance (OASI) public retirement program is broken. It is representative of other systemically flawed US Public Policies that have resulted from the insidious encroachment by the federal government on powers granted to the people and the states. A reversal of this usurpation is an imperative if this country is to alter the course from perpetual debt toward perpetual prosperity.
The Social Security Trust fund has no marketable assets. It is not a valid Trust Fund as described in Black’s Law Dictionary. It has no marketable assets to pay claims. It is simply a ledger for US government debt and an accounting means for determining benefits. See Social Security Reform OR Perpetual Debt? You Choose!
The Federal Insurance and Contributions Act (FICA) is a misnomer. It is not a contribution. It is a second federal, direct tax placed exclusively on wage income dedicated to fund Social Security benefits. Further, individuals must pay Federal Income Taxes (FIT) on the FICA tax. If anyone truly believes that FICA is not an income tax, tell your employer and your representatives you no longer wish to contribute.
Transparency and simple explanations of all aspects of the Old Age and Survivors Insurance (OASI) public retirement program will lead to public understanding. Outraged taxpayers will not ask, but demand the sweeping, comprehensive reforms that are essential for future Social Security retirement sustainability. Politicians should be allowed sufficient time to fix social security or face irate voters in the next election.
Successful reform of the system requires analysis and clarification of all program deficiencies; so the public can comprehend how surplus, Federal Insurance Contributions Act (FICA) taxes dedicated to fund the Old Age, Survivor Insurance (OASI) Trust Fund have been embezzled, squandered, misappropriated, misrepresented, and mismanaged. The Social Security retirement program unjustifiable penalizes middle class workers, provides for the poor, and subsidizes the wealthy with a labyrinth of conflicting laws. See Tyranny of the Middle Class
The unfunded liabilities of the OASI retirement Trust Fund is over $5 trillion. That is the minimum amount needed today to make up for estimated FICA tax revenues that fall short of funding promised benefits.
The Social Security Administration (SSA) Actuaries estimate that the OASI Trust Fund of $2.4 trillion (9/30/2010), invested in non-marketable, special government debt instruments will grow to $3.94 trillion in 2019. These estimates are based on defective accounting of net income and expense.
Additionally, the $2.4 Trillion ((9/30/2010), of OASI Trust Fund assets are 100% invested in non-marketable US Treasury IOU’s. Since the trust fund does not have any actual assets it can sell and tax revenues are currently less than benefit payments with which to pay Social Security benefits, the US Treasury must come up with the cash to redeem the IOUs which it is legally liable to do. Treasury is being forced to sell new securities on the open market to raise the cash to alleviate temporary negative cash-flow.
Chronic high employment will likely continue to keep OASI FICA tax revenues low while Baby Boomers are retiring in increasing numbers. Negative cash-flow is very likely to extend much longer than the one or two year time frame postulated by the Congressional Budget Office (CBO).
Also, the OASI employment tax revenues reported by the Social Security Administration are significantly over stated. These gross revenues dedicated to fund the retirement system have not been adjusted for Business wage expense deductions. Approximately 35% of that income reported to SSA is refunded to Corporations by the US Treasury due to the Business Wage Expense Deduction. SSA’s failure to adjust OASI accounts for tax refunds and approximately $50 billion, annually in Earned Income Tax Credits (EITC) leads Social Security Trustees to believe the OASI Trust Fund receives significantly higher income than the facts determine. Factually, the fund has been cash flow negative (net tax revenue less than total expenses) every year since the massive 1984 Social Security reform.
If the law permitted investing surplus FICA taxes dedicated to funding a valid OASI Trust Fund, no redemption of government debt would be necessary. During down turns portions of the marketable assets could be sold or used as collateral to fund temporary cash flow shortages and paid back during economic recovery. Instead, surplus cash was spent on other government (political) priorities and non-marketable Treasury IOUs were put in the Fund. The politicians’ cash cow of surplus FICA taxes has disappeared, and the proverbial excrement has hit the fan. Right now, today the US Treasury has to redeem some of the IOUs to meet beneficiary payroll.
If the Trust Fund owned real marketable assets the politicians and bankers wouldn’t have to scramble to solve a Social Security funding problem created by decades of embezzlement. Real assets can be sold on the open market. During a cash flow crisis, Trust Fund accounting entries for non-marketable IOUs are about as useless as tits on a bore hog.
The public (especially Baby Boomers) should gain little comfort in learning OASI Trust Fund assets will grow for several more years; when they learn the OASI Trust Fund is not a real Trust Fund professionally managed by fiduciaries. It is a ledger of Debt (IOU’s) that the US Treasury is legally obligated to redeem when Trust Fund expenses exceed tax revenues. To redeem the IOUs, in the Trust Funds, government will be required to raise taxes, cut benefits, print or borrow more money, further increase the retirement age, and/or means test Social Security and Medicare.
Baby Boomers should be irate that the surplus taxes confiscated from their paychecks has been squandered. Instead of $2.4 trillion in marketable assets to fund their retirement they are left with $2.4 trillion of government debt that must be redeemed.
They should be further outraged that the legalized embezzlement continues. The Social Security Administration projects that OASI Trust Fund assets will grow to $3.9 trillion in 2019. The question for our political leaders is this. If this was your money to be used to fund your retirement, would you prefer a basket of non-marketable IOUs or tangible, marketable assets? If the answer is the former, change the LAW. It’s not rocket science. Pyramiding debt or profit making investments? CHOOSE!
At this juncture, one might ask how the trust fund can grow at the same time there is cash deficit between FICA OASI income and beneficiary expense. The short answer is the US treasury pays interest on the $2.4 trillion with non-marketable IOU’s. Interest payment IOU’s in 2009 was $107.9 billion. These non-cash, non-marketable interest payments exceed the cash flow negative (estimated to be $44 billion in 2010) and so therefore it appears the trust fund is healthy when it is in fact a ledger of exponential debt.
There is no valid reason that the Social Security retirement program cannot be converted to an equity-based entitlement program whereby participants are insured to receive a guaranteed return on their investment, an asset that may pay for final arrangements or be passed on to heirs. To do that, the phony Old Age & Survivors Insurance (OASI) Trust Fund, loaded with IOU’s would need to be replaced with a real Trust Fund, with real assets one that comprises sound economic principles of compounding asset value instead of compounding government debt.
Power must be returned to the people before the economy falls into a bottomless pit. Flawed laws and policies must be identified and corrected so the opportunity for citizens to freely act in their own interest may be reasserted. Regardless of intentions, no government can serve public interests better than an individual taking care of his own wants and needs. Governments’ jobs are to promote the general welfare not act as wealth transfer agents. The Social Security retirement program was selected as an example to illustrate systemic flaws in government tax and welfare laws and to facilitate public understanding of very complex US Public Policy issues.
Absent immediate reform, the Social Security Retirement/Disability Trust Fund (US Treasury IOUs) must be redeemed by continuing to PRINT NEW MONEY and/or DEBT sold to the public. The pressure on Congress and President Obama to find solutions will continue to mount before the general public becomes aware of a potential disaster in the Social Security scam that make Ponzi and Madoff look like choir boys. The Day of Reckoning has arrived. The politicians will be forced to reform the system, that is - raise taxes and/or cut benefits OR CHANGE THE LAWS!
Establish Valid Social Security Trust Funds
By setting up real Trust Funds with legally enforceable fiduciary responsibilities, the government can be held to the same accounting standards imposed on the public. During the transition from Ponzi scheme to establishment of valid trust funds and to avoid falling into a national economic abyss; I propose the following:
Replace existing pseudo Trust Funds with real Trust Funds managed by fiduciary responsible financial experts with the authority to make investments without political interference. I propose transferring the authority for Social Security Trust Fund oversight from the federal government to the states. Note: Presidents and Congresses have already demonstrated they cannot be trusted to police themselves.
Replace the law that requires Surplus OASI revenues to be used only to buy special, non-marketable US Treasury debt with a law that authorizes investments only in marketable assets. Gradually replace the special issue US government Notes and Bonds with marketable issues, other high grade investment alternatives and newly printed cash.
The politicians’ prerogatives on spending OASI surplus taxes on other than their dedicated purposes must be removed.
The legal but dubious accounting practice of allowing Employee Federal Incomes Taxes (FIT) and Federal Insurance Compensation Act (FICA) taxes to be deducted as Wage Expenses by their employers must be discontinued. This is the one valid means of reconciling US Treasury accounts of FICA taxes with those of the Social Security Administration. Note: Discontinuation of business wage expense deductions of individual income taxes and FICA taxes will increase US government revenues by $100s of billions. The corporate tax rate can be adjusted lower to moderately compensate for the loss of the deductions.
Print cash instead of IOU’s to temporarily fill the cash flow gap.
Pay interest (currently over $100 billion, annually on alleged $2.5 trillion in OASI assets) to the new Trust Funds in cash and/or marketable securities so real assets can grow and gradually replace the special issue unmarketable debt.
Consider replacing the Corporate Income tax with a 2 or 3 percent tax on total Business receipts. See Eliminate or Modify Corporate Income Tax - (Art#4) Annual US Business receipts are approximately $30 trillion with corporations representing an estimated 85% of the total.
(Note: Current accounting practices misrepresent Gross Trust Fund Income and the actual net cash received by the US Treasury after corporate deductions of employee wages that include both taxes. After adjusting gross trust fund revenues for the wage expense deduction there is no surplus to place in the trust fund. The fact is the OASI trust funds have been running cash flow deficits for years because of accounting deficiencies.) If an individual or business employed government accounting, they would be hastily thrown in jail. And if, they set up a trust fund modeled from the federal government’s trust funds, they would be shot or given a life sentence with no Get Out of Jail Free Card.
Economic Overview & Background
A preliminary release of President Obama’s bipartisan deficit/debt commission findings offer many proposals that have already been tried and failed. For example, in the mid 1980s’, following recommendations by the Greenspan commission, the Reagan administration raised Federal Insurance Contributions Act (FICA) tax rates and increased the ceiling on Old Age, Survivors, Disability & Health Insurance (OASDHI) wages subject to the FICA tax. The retirement age was raised from 65 to 67 and phased in over a 22 year period.
Also, the Reagan administration renounced all previous political promises not to tax Social Security benefits. (Income taxes had already been collected on the Contributions so that Benefits could remain tax free.) Lacking the political courage to means test or cut benefits directly; retirement checks were placed under the ax of the tax man; but, only on high income beneficiaries. The tax was limited to 50% of Social Security income. To avoid political backlash only the top one or two percent were initially subjected to the new tax. The thresholds for provisional income taxation were set at $25k for single taxpayers and $32k for married taxpayers filing jointly. The taxation thresholds were not indexed for inflation.
In 1993, during the Clinton administration, Social Security benefits were again diminished by adding new provisional tax thresholds of $34k and $44k, single and married taxpayers, respectively that authorized additional taxes on benefits up to 85% on high income beneficiaries. These thresholds and the previous ones were not indexed to inflation so that wage inflation would mandate that an increasing number of middle class beneficiaries would pay income taxes on their benefits in future years.
Not surprisingly the combination of increased FICA income taxes on workers and the new Income tax on beneficiaries caused reported OASI Trust Fund tax income to outpace expenses over the past quarter century. These alleged surpluses (according to SS Trustees) were planned to offset the increased costs of funding “Baby Boomer” retirement. The only thing wrong with the plan is the surpluses were not invested in real assets and allowed to grow. Current law prevents fiduciary investments of Trust Fund surpluses in marketable assets by US government Trustees.
ALL earnings and surplus tax revenues were used to purchase US Treasury special issue, non-marketable debt issues as mandated by law. US Treasury IOU’s were placed in the OASI Trust Funds and the politicians spent the CASH, which was predictable and by design. This embezzlement by your elected leaders will be referred to as an oversight or as an “Unintended Consequence” by government and media spin masters. Members of both political parties should be put in jail instead of seeking new terms of office.
It's like writing an IOU to yourself; no matter how many or how large the IOUs, it doesn’t change your net worth one cent. In addition to the $2.6 trillion need to repay the special issue bonds, another $5.4 trillion is needed to fulfill current Social Security Retirement and Disability Trust Fund commitments. Social Security currently owes $8 trillion more in benefits than it will receive in tax revenues over the next 75 years.
Since the United States Supreme court has established the principle that entitlement to Social Security benefits is not a contractual right; what is the legal argument to support two direct federal income taxes (FIT & FICA) exclusively on wages? Anyone who naively believes the FICA “contribution” is not an income tax try stopping your employer and your government from collecting it.
Many Americans continue to believe that the Social Security retirement and disability trust funds contains pots of money that is sitting somewhere earning interest to pay their benefits when they retire or become disabled. It is also a common belief that unsustainable liability problems of US government pension plans and the Social Security program are because they haven’t been properly funded. These naive beliefs have been fostered because the wide dissemination of misinformation and disinformation by media and the government.
The Greenspan Commission’s failure to solve Social Security’s funding problems was not a lack of awareness that people are living longer nor was it a lack of tax revenues to adequately fund the programs. His commission’s inability or unwillingness to recognize that enabling and subsequent Social Security legislation was systemically defective and that all the new revenues resulting from his recommendations would be misappropriated, embezzled and/or not properly accounted. These same systemic legal flaws have doomed Social Security from the outset.
The law dictates that all surplus tax revenues and all earnings shall be invested only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States. This law enables politicians to spend dedicated surplus FICA revenues on other priorities and put IOUs in the various trust funds, to be redeemed later by taxpayers or printing presses. This money laundering scam must be brought to a screeching halt.
Why would anyone believe any new reforms would achieve different results without changing fundamental laws on how surplus revenues are to be saved and invested? The Social Security OASDI Trust Funds under current construct (or destruct) is a ledger of compounding US internal debt. The only way to achieve compound Trust Fund asset growth without creating equivalent US Treasury liabilities is to change the law.
The politicians of both parties loathe acknowledging or solving the problems. To do so, they must first confess to Baby Boomers that their retirement and disability nest eggs have been squandered. And, then admit they don’t have a clue on how to pay it back except to confiscate even more taxes from ill fated victims who seem powerless to do anything about it. Or, government can print the money to redeem Trust Fund IOU’s, which appears to be the only alternative to doing nothing. The bottom line is money can be saved and invested or it can be spent. It cannot do both. What part of that is difficult to understand?
Now that actual cash flow between tax revenues and OASDI trust fund expenses has turned negative, Treasury must now sell notes and bonds to the public (and pay real interest to investors) to redeem special issue (internal government) debt and/or PRINT cash so all beneficiaries can be paid.
Current unfunded liabilities of the retirement and disability trust funds currently exceed $5 TRILLION. It is hardly comforting to note that the increased FICA taxes extracted from Baby Boomer paychecks for the past quarter century to fund their own retirement (while paying for their parents and grandparents) have been squandered by politicians from both parties who apparently place a higher priority on incumbency than on the best interest of those they are elected to serve.
The OASDI Trust Funds would be in excellent condition today if the surpluses had been placed in real Trusts and invested by fiduciary Trustees in various asset alternatives instead of exclusively buying special US Treasury debt. Instead, Congress and the Executive branch spent the surplus cash on other budget priorities and placed IOUs in the Trust Funds.
By setting up real Trust Funds with legally enforceable fiduciary accountability, politicians can be held accountable to the same standards imposed on businesses and citizens. During the transition from Ponzi like US government accounting to responsible financial policies and to avoid falling further into an economic abyss; I propose the following:
Endow governors of the 50 States with authority to both establish and oversee Old Age, Survivors, and Disability Insurance (OASDI) Trust Fund investments. The US Treasury would continue collect tax revenues and redeem existing OASDI trust fund special non-marketable issues with marketable assets and cash.
Investments of Trust Fund tax income and interest earned by existing “Special Issue” assets would be administered by the new trustees appointed by the governors. Past Presidents and Congresses have already demonstrated an inability to establish, oversee, and manage valid fiduciary trust funds. These actions would transfer significant economic power back to the states and closer to the watchful, suspicious eyes of Contributors and future Trust Fund beneficiaries (workers/voters).
Grant Trustees the authority to gradually replace “Special Issue” US Treasury Bonds and Notes with marketable US Treasury issues, high grade municipal, state, and corporate bonds, equities, other low risk investment alternatives, and cash.
Print cash instead of IOU’s to temporarily fill the cash flow gap (between trust fund tax income and expenses) until the US government administered OASDI Trust Funds can be replaced with real trust funds managed by accountable, independent fiduciaries with state governor oversight.
Discontinue the current practice of making annual interest payments (currently over $100 billion) to the Trust Funds with ‘Special Issue” notes and bonds. All future interest earned by the Trusts shall be made only with cash and/or high grade marketable investment securities. This will allow Trust Fund assets to experience compound asset growth instead of compounding US Treasury debt
Transition into a discontinuation of business wage expense deductions of individual income taxes and FICA taxes. This will increase US government revenues by $100s of billions and perhaps muffle the noise that US corporations are over taxed. The 35% US corporate tax rate doesn’t mean squat when the taxable amount is reduced by massive deductions, credits, etc. Note: More than ONE THIRD of the individual FICA and FIT taxes removed from paychecks stay in the pockets of employers. Corporate income tax in 2009 was only $138.2 Billion. From gross income, corporations deducted over $850 billion in FICA taxes, over $1 trillion individual income taxes, plus 100s of billions in interest, taxes and other miscellaneous deductions. Individual tax payers should be so lucky. What part of the US Constitution permits the federal government to grant privileges to corporations at the expense of citizens whose rights are guaranteed in that same document?
The current disinflationary, low interest rate environment may provide a rare opportunity for redeeming US Treasury ‘special issue’ liabilities to the OASDI trust funds with marketable assets and cash without igniting inflation. Note: Two years without Social Security COLA increases corroborate a period of low inflation. The overall economy may also benefit from moderate cash injections of new money instead of increasing debt and deficits.
* Government trust funds bear no meaningful comparison to those in the private sector. Whereas the beneficiary of a private trust fund legally owns the income from it, the same is not true of a government trust fund, which is really nothing but an accounting device. Federal trust funds represent one accounting mechanism used to link earmarked receipts with the expenditures of those receipts. The Office of Management and Budget (OMB) and the Department of the Treasury determine budgetary designation as a trust fund when a law both earmarks receipts to a program and identifies the account as a “trust fund” account.
The public discovers how underfunded and flawed the Social Security program really is they will blame the politicians and the politicians will point to each other. For many folks a more accurate culprit to blame may be a self-portrait or mirror image. Our country cannot tolerate federal spending of this enormity. Rather than argue over who to blame, we must work together to reverse this trend immediately!
The US government is commingling and counting money it doesn’t receive, spending it on programs it can’t afford; and ingenuously converting the negative cash flow into imaginary government trust fund surpluses. Unwarranted Treasury debt is created with IOUs to Trust Funds that are really NOT Trust Funds, but defective accounting practices that conceal a “Shell Game” used to determine underfunded, future benefits. EXAMPLE: John Smith is a wealthy politician in the 35% nominal tax bracket that itemizes deductions. Smith pays the School District $10,000 in taxes. He then deducts the $10,000 from his FIT tax return. The deduction reduces Smith’s income tax liability by $3,500. The net result is the school gets the gross $10,000. But the US Treasury gets $3,500 less than it would have received if the tax deduction did not exist.
The gross amounts of the combined FICA taxes (OASDI) based on wage income are reported by businesses to the SS administration. SS uses the gross individual wages as part of a complex formula to determine future benefits. The net amount of FICA tax cash revenue to the Treasury is approximately 35% less than that reported to Social Security Trustees because of deficient tax accounting of individual FIT and FICA taxes created by this law:
Contributions are weighted to provide higher benefits to those with lower incomes. The formula ignores the fact that combined contributions of working couples are not combined to determine benefits. Provide examples of how this works to the advantage of sole producers with high incomes and to the disadvantage of working couples.
What it boils down to is the government has developed statutory, but constitutionally questionable means, whereby they can pick the pockets of taxpayers without them realizing that theft has occurred. Or, if they become aware of the legalized theft they are powerless to do anything about it. The primary purpose of this article and this website is to inform and warn taxpaying citizens of the dangers, so they can do something about it and/or find means of protecting themselves and their progeny against a government gone amok.
Personal survival requires an examination by each household to determine the extent of their financial dependency on government promises of entitlements. Individuals must become responsible for funding their anticipated future requirements with little reliance on government assurance. Government generosity should be viewed as a bonus beyond those assets held under personal control that may satisfy projected needs. Construction of the legal framework to permit individuals to act in the own self interest must begun ASAP. Confiscating from taxpaying Peter to pay welfare Mary must stop!
We no longer have to speculate what the US Treasury and the Federal Reserve will do when OASI beneficiary payments exceed actual tax revenues to the OASI Trust Fund. They are printing money to make up the shortages and selling marketable debt to the public. This reactive policy was made necessary because assets in the trust fund are not marketable, government spending has far exceeded the tax base, taxes cannot be raised because it will impede the consumer driven economic recovery and the government has no new victims to add to the Social Security Ponzi scheme.
To restrain the destructive forces of debtism, all laws that incentivizes debt and penalizes savings and investment must be changed permanently. A review of the following articles may facilitate fuller understanding of subject matter that follows:
As a minimum two things have to occur for SS to be made solvent:
1. AMEND the IRS tax code so that FICA taxes (including those contained within "wages") cannot be a business expense deduction on Corporate Income tax returns OR REPLACE the Corporate Income Tax with an excise tax on business receipts. Currently approximately 1/3 of the FICA (OASDI-HI) taxes withheld from employee paychecks and reported by corporations to the Social Security Administration is NOT collected by the IRS because of business expensing of wages (THAT CONTAIN BOTH FIT & FICA TAXES confiscated from employee paychecks).
AFTER enacting one of the above alternatives (that would produce surpluses instead of deficits), REPEAL the law that requires that SS and Medicare surpluses ONLY be invested in special government bonds. REPLACE with a law that requires the newly created surpluses SHALL be placed in REAL TRUST FUNDS invested in alternatives OTHER than unmarketable US Government debt. This is the ONLY way COMPOUNDING, unredeemable US DEBT can be replaced with COMPOUNDING real ASSETS.
None of these proposed actions will be acknowledged OR even discussed by politicians or mass media UNLESS there is a PUBLIC OUTRAGE to the ongoing FRAUD. There will be no public outrage until the public understands HOW the system really works. And, the public will not understand how the system works UNLESS they are informed.
The urgency for Social Security and tax reforms should be elevated to the HIGHEST POLITICAL PRIORITY (above the War on Terrorism and Illegal Immigration) before the federal government bankrupts the country.
Albert Einstein has been quoted: “The most powerful force in the universe is compound interest.” The US government through the use of the IRS tax code attempts to challenge this truth. The US government is demonstrably attempting to prove that compounding debt is the most powerful. This graph is providing a powerful signal that compounding debt may be the most powerful force because the growing population of debtors far exceeds the number of prudent savers and investors willing to lend money.
Current tax law permits the deduction of interest as an expense on corporate, private businesses, and individual tax returns. Elimination of this deduction and the deduction of miscellaneous taxes on ALL tax returns will result in $100s of billions of new revenue to the US Treasury. Changing this one law, concurrent with the reduction in the size of government at all levels, will stimulate savings, hold down borrowing and increase federal revenues without raising tax FIT or FICA taxes. If the politicians can refrain from using the US government credit card, the federal government may be able to balance its books for the first time in decades. Discontinuance of Tax expense deductions of Wages (which include employee FIT & FICA taxes), interest expense deductions, and tax credits such as the Earned Income Tax Credit and tax credits will cause US Treasury income to soar by $100s of billions annually.
Albert Einstein made the observation that most inventions weren’t achieved by a single brilliant idea of genius; but, by exhaustive practice of trial and error. Multiples ideas and theories are tested until one is found that actually works. The most innovative inventions in the history of mankind were not discovered by geniuses; but, ordinary men and women attempting to find an easier way to do something.
The study of theoretical economics is no different. Keynesian economics may appear reasonable, but in practice it bankrupts countries. If provided a fair playing field, it can be documented that laissez-faire capitalism does work. It is time for government to get out of the way of free enterprise, and free markets and get back to their US Constitutional power of defending our country against an illegal invasion.
Since politicians under pressure from constituents, lobbyists, and political action committees apparently do not have the constitutional fortitude required to moderate spending, the only recourse is to increase revenues without adding new taxes or reducing promised Social Security benefits.
The exponential growth in debt poses the greatest threat to US national security I have seen in my lifetime. Solving that problem rises to the highest level of critical national security importance.
From an broad, objective perspective, the US Government is already BANKRUPT. The explicit National Debt is almost $14 TRILLION. The implicit social insurance obligations and other unfunded liabilities is a minimum of $65 TRILLION. These figures do not include the inestimable
costs of Obama Care. Nor does it include the inestimable BILLIONS of providing government sponsored Long Term Health Care that by law will begin in 2012 or 2013. Both the CBO and OMB are notorious for overstating estimated future income and understating costs of new social programs.
Lacking immediate, proactive political actions to solve these problems; Class Action Lawsuits filed in federal courts across the USA may be the last resort for the people and the states taking power (freedom) back from an errant federal government that is far exceeded its US Constitutional authority.
The face of America and what it means to be an American is evolving and unless the people and the states reassert their rights guaranteed by the US Constitution, this nation, the last great hope of free people governing themselves, may vanish forever. The USA was founded by uncommon men of uncommon wisdom, uncommon valor, and uncommon foresight who developed the US Constitution. They were not perfect and neither is the Constitution they chose to live by. But it is the closest thing to perfection ever achieved that preserves power for the people. The advents of socialism, loss of choice, and an illegal invasion can only be reversed by thoughtful actions by citizen patriots willing to put their country above all else.
If the framers of the US Constitution could see the mess we have made of that magnificent document they would be so appalled they may have as likely seceded from the union of their own making as revolting from England.
I do not expect that one person in a hundred to fully understand the defects in tax and welfare law that I have apparently been ineffectual to explain. What I do hope will happen is that one person will convey my message to the other ninety-nine in words and by example the fundamental facts I have attempted to convey. The hidden truth is stubborn. Buried beneath tons of misinformation, disinformation and obvious prevarications are documentable, hard facts (truth) that undeniably refute the fiction that has confused and confounded the public for generations.
What You Can Do to Improve America
If you find value on this website and particularly this article, please help spread the word by: Writing or E-Mailing your local newspaper, senators, representatives and those in your address book whom you think may be interested. Include the hyperlink to this article: http//www.uspublicpolicy/thelegacyofperpetualdebt/
Note: For over a quarter century I have attempted to identify fundamental defects in US tax and welfare laws so they may be replaced. It is has mostly been an exercise in futility. I need help! The destiny of the USA can be changed from perpetual debt to perpetual prosperity, but only with the wide spread support of those who love and are passionate about the future of this great country.
"The journey of a thousand miles begins with the first step." Confucius