|
Social Security Old-Age Trust Fund Myth
Congress established the trust funds in the U.S. Treasury to account for all program income and disbursements. Social Security and Medicare taxes, premiums, and other income are credited to the funds. Disbursements from the funds can be made only to pay benefits and program administrative costs. The Social Security Act of 1935 requires all surplus contribution amounts be placed in a “Trust Fund” and invested only in US government securities or Securities guaranteed by the US government. The Department of the Treasury invests program revenues not needed in the current year to pay benefits and administrative costs in special non-marketable securities of the U.S. Government on which a market rate of interest is credited. Thus, the trust funds represent the accumulated value, including interest, of all prior program annual surpluses and deficits, and provide automatic authority to pay benefits.
A true Trust Fund owns marketable assets that may only be used to discharge fiduciary responsibilities. The Social Security Old-Age and Survivors Insurance (OASI) trust is funded by US government non-marketable, special issues of debt. Wages, upon which gross OASI FICA taxes are based, are recorded at the Social Security Administration (SSA) by individual social security numbers, so benefits can be estimated based on indexed wages.
By restricting the surplus cash to investment only in special government securities, means government can only loan money to itself. This is the same as spending money and calling the same money, savings. An analogy to private savings is placing IOUs in a container and spending the cash, instead of putting the cash in the container or putting it in a bank. To achieve the objective for the savings, at some point the IOUs must be redeemed. Since the cash intended for deposit in the Social Security Trust Funds has already been spent on other government operations or given to corporations (via the tax code), it is the redemption of the IOUs that is the problem. 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.
In February 2005, President Bush, in several speeches to arouse supports for Social Security, Private Retirements Accounts (PRA); said this:
"As a matter of fact, in 2018, the system goes into the red. And by the way, there's not a Social Security trust. In other words, people think your money goes into the trust and it's held for your account and then you get it out. That's not the way it works. It's pay as you go. It goes in and it goes out. And to the extent that there's money more than the retirees receive, like it is today, it goes to other programs. And so, what you've got is an IOU, kind of a bank of IOUs. It's an important concept."
President Clinton said this:
"Trust Fund balances are available to finance future benefits...but only in a bookkeeping sense...they do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes or borrowing." --President Bill Clinton in his Analytical Perspectives section of the 2000 budget.
June O'Neill, former Director of the Congressional Budget Office (CBO) at the CATO Institute's Conference for Women and Social Security: "It holds no real assets. Consequently, it does not generate funds to pay future benefits. These so-called trust fund 'assets' simply reflect the accumulated sum of funds transferred from Social Security over the years to finance other government operations," ...
|
The gross amounts of FICA OASI taxable wages reported to the SSA do not reflect the net OASI FICA revenues collected by the US Treasury. Every dollar in the OASI trust fund is off-set by commensurate levels of government debt. See Chart
|
The above two charts misrepresent the true state of IRS FICA revenues and SSA OASI trust fund accounting . From a net, cash flow perspective there is no surplus FICA (OASI) taxes to invest. Trillions of dollars have magically disappeared because of business wage expensing of FICA OASI income taxes and questionable government accounting practices. Measure by actual cash FICA/OASI collections and SSA trust fund expenses, Treasury net revenue is less than SSA retirement benefits paid.
Social Security Pay Go
The Social Security Administrations answer in its Frequently Asked Questions about Social Security’s Future (FAQs) responded to this question: “Is there really a Social Security Trust Fund?” with this answer:
“Yes. Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security. These bonds totaled $1.9 trillion at the beginning of 2006. Social Security received $94 billion in interest from bonds in 2005. However, Social Security is still basically a "pay-as-you-go" system as the $1.9 trillion is a small percent of benefit obligations.” Social Security Answers
The politicians refer to the “pay as you go” Social Security system as “Pay Go”. They are reluctant to talk about who pays the lion’s share and who receives the best benefits. An expose of government accounting of FICA taxes that provides the monthly cash sent to beneficiaries provides the “answer” to “Why the politicians don’t want to talk about it”. It is difficult to explain legalized public theft and embezzlement that has been going on for decades; unless one has a “Get out of Jail Free card”. As the public learns what has happened, it will not be a pleasant time for politicians. The good news is Social Security can be fixed. It is not the fiscal nightmare or train wreck that “Think Tank” inspired mass-media disinformation makes it out to be.
|
|
