1999 No. 4
Table of Contents
Posted on 01/26/2008 6:04:41 PM PST by K-oneTexas
SOCIAL SECURITY:
What Trust Fund?
Hoover fellow Thomas Sowell exposes the accounting sleight-of-hand known as the Social Security trust fund.
 Illustration by Taylor Jones for the Hoover Digest |
In response to those economists, including Senator Phil Gramm, who have been saying that the Social Security “trust fund” is a myth, Kiplinger’s magazine sent a reporter down to Parkersburg, West Virginia, to photograph the trust fund. He came back with a picture of the securities in that trust fund, as well as a diagram of the safe in which these securities are kept and a picture of the computer that keeps track of the Social Security trust fund.
The March issue of Kiplinger’s even gave us the latitude and longitude of Parkersburg, in case we want to go there and check it out. Yes, Virginia, there is a trust fund—or is there?
Let us think the unthinkable, that there is no Social Security trust fund. Where would the baby boomers’ pensions come from? From money that will arrive in Washington after they retire.
However, since we have photographic proof that there is so a trust fund, where will the baby boomers’ pensions come from? From money that will arrive in Washington after they retire. It seems that the distinction between a trust fund and no trust fund is one of those “distinctions without a difference” that lawyers talk about.
As a purely formal paper transaction there is a trust fund. Money comes in from the millions of paychecks from which there has been withholding under the Federal Insurance Contributions Act—the FICA listed on paycheck stubs. The Social Security system then uses this money to buy interest-bearing securities from the Treasury Department. When cash is needed to pay retirees, some of these securities are sold to get the money to pay them their Social Security pensions.
Still looking at form, rather than substance, this system has the further political advantage that the securities held by the Social Security system are not counted as part of the national debt, because it is one government agency owing money to another. What that means is that, when the government spends more money than it receives in taxes— which it is still doing, despite the official budget “surplus”—it spends money from FICA to cover the difference and gives the Social Security trust fund an IOU that does not count as an IOU in figuring the annual deficit or the accumulated national debt.
If only we could all make our debts disappear so conveniently!
Turning from form to substance, what the government is doing is spending the Social Security money for current outlays, not only for pensions to retirees, but also for everything from congressional junkets to nuclear missiles. What is left in the trust fund for future retirees, including the large and much-feared baby boomer generation whose pensions are scheduled to cost trillions in the twenty-first century?
What is left is a promise to pay them. That is precisely what would be left if there were no Social Security trust fund. Treasury securities are nothing more than claims against future revenues from general taxation. Social Security can of course also draw against the continuing inflow of FICA from workers, but everybody knows that this source will be completely inadequate to pay what will be owed to the baby boomers.
The staggering amounts needed to make up the difference—greater than the costs of financing a major war—will have to come from somewhere. Either there will be huge increases in tax rates on those still working or some form of welshing on the promises made to retirees. No doubt there will be creative compromisers who will come up with some judicious blend of higher taxes and partial defaults, whether by inflation to reduce the real value of the pensions, an older retirement age, or higher taxes on Social Security income, in order to take back with one hand part of what was given to retirees with the other.
No matter how it is done, it will always be possible to photograph the checks that Social Security recipients receive, thereby “proving” that there has been no default. The question is how much comfort and reassurance that will be to a generation that knows it has been cheated of what they were promised and paid for, even if they cannot follow the accounting sleight-of-hand by which it was done.
No, Virginia, there really is no Social Security trust fund. Politicians have already spent it, behind their smoke and mirrors.
New from the Hoover Press is Barbarians inside the Gates and Other Controversial Essays and the Hoover Essay Race, Culture, and Equality, by Thomas Sowell. Also available are Personal Saving, Personal Choice and Facing the Age Wave, both edited by David Wise. To order, call 800-935-2882.
Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution.
Thomas Sowell, Walter Williams, and Clarence Thomas are the brightest black minds in America today!!!
This itself is rather disingenuous. "Sell" implies that there is a market for them, but there isn't. The only buyer they can sell them to is....guess who?... the US Government.
He has repeatedly introduced legislation to forbid the FedGov from spending SS money in the general fund.
And they do.
Too bad Americans don’t care.
Two more words, Ron Paul.
He has repeatedly introduced legislation to forbid the FedGov from spending SS money in the general fund.
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That could make a difference as far as cutting current expenditures, but would do nothing to relieve the economic pressures that future social security recipients will present. You’ll still have millions of retirees not working, and the remaining people working to produce the goods and services for everyone to consume, working or not working.
The only real solution to the problem is to grow the economy’s productivity so it does not represent such a burden for those working in the future.
Alan Keyes may not entirely agree.
Fixed it.
WRONG WRONG WRONG
There was NEVER any investment made with FICA funds from Day One. The money would have to have been transferred to a private investment portfolio to meet any realistic definition of an asset. Instead, it was “invested” in (very) low “interest-bearing” Government Bonds, which this article points out are simply IOU’s.
FICA has always been, and will always be, meaningless numbers on the Social Security ledger. Any thinking human has known this from the beginning, and the real criminals are every elected official that voted for increases in benefits.
The only justifiable application of a Social Security program is to prevent starvation. Any payout above the poverty level is theft from taxpayers. Any tax collected to pay more than benefits is a National Debt Time Bomb.
BTTT!
We now have other countries who are investing their real Trust Funds in our banks, companies, US Bonds and Realestate and being paid real interest.
This has got to be one the biggest Ponzi scheme ever invented.
Most of our kids today don’t believe they will ever get Social Security, but they are all so dumbed down that they think there is nothing they can do about it.
SS has raised the income level for seniors while lowering it for the young. Someday they’ll (the young) notice. To think Medicare is even worse, and Bush added the drugbenefit, and now both parties will eventually push for nationalized healthcare. The Repubs will do it to one up the Dems. This nation will collapse upon it itself because of the tyranny of democracy.
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