As I have listened to and watched the hand wringing about the social security trust fund and how social security needs to be saved, I can’t help but ponder how we got into this position. I know it’s not me receiving exorbitant benefits because I am only 61 years old and when I become eligible to receive benefits they will certainly not cover my living expenses.
I know it was not my dad who retired at age 65 because he died at age 68. I know it is not my mom who worked full time until age 65 and continued working part time until she was 74. My siblings and I make sure she can live a decent retirement because her social security benefits don’t provide that assurance.
What happened to the money that was taken out of my parents very small paychecks and put into the social security trust fund? Well, just a little research reveals that all the money taken from working people’s paychecks since 1937 have been used to pay social security benefits on a pay-as-you-go basis.
If the amount of cash taken from paychecks in a given year exceeded benefit payments, the excess cash was spent by the federal government on other things. The social security trust fund was issued a “special” government bond in place of the cash. No cash ever went into the trust fund.
This has been going on for the last 75 years. Currently, the trust fund includes assets of $2.7 trillion in “special” government bonds. That is $2.7 trillion was taken out of American workers paychecks, many of whom were working poor people like my parents, on the promise that the money would be used to pay future benefits.
The reason for the hand ringing is because, as Reverend Jeremiah Wright said, “the chickens are coming home to roost!”. Some current projections of the cash flowing into the social security trust fund forecast that there will not be enough cash flowing in to fully pay for benefit costs flowing out of the fund as soon as 2017.
Thereafter, the “special” bonds must be called (cashed in) to cover the additional cash needed to meet benefit payment obligations. Therein lay the problem. In order to cash the special bonds, the treasury department would have to borrow money from China to raise the cash necessary to pay benefits. This will increase the current federal deficit of $14 trillion.
The deficit will increase because the assets on the social security trust fund books offset the liabilities on the treasury department’s books so the current federal deficit impact is zero. That’s a fraud! The promise was false from the beginning. The social security trust fund scheme was just a way for the politicians to use the excess cash from social security taxes to fund earmarks, special tax breaks for corporations, tax cuts for wealthy individuals, wars and foreign adventures and yes a few crumbs for the masses to keep them quiet.
Now that the fraud has reached its logical conclusion, “the chickens coming home to roost”,
it’s the working people who are being prevailed upon to accept higher taxes and lower benefits since they can’t get their money back. That is the opposite of what we should be doing to get back to a pay-as-you-go system where incoming cash pays for current benefits. Increase cash flow into the system.
The easiest way to do that is to tax all income, regardless of source and regardless of the amount. Allow changes to defined benefit pension systems that will bring all workers who are currently outside of the social security system into the system. Benefits should be frozen at current levels for at least a generation and cost of living adjustments limited to a percentage of an appropriate CPI index.
This is a much more honest approach. Everybody contributes, they pay what it costs, and everybody benefits. That’s not fraud, its fundamentals.