Posted on 09/14/2011 9:04:12 AM PDT by Kaslin
At the Republican presidential debate in Tampa, Fla., on Monday night, Mitt Romney said Rick Perry has needlessly "scared seniors" by calling Social Security "a Ponzi scheme." Romney, more sensitive to the anxieties of retirees, prefers to say "the American people have been effectively defrauded out of their Social Security" (as he puts it in his 2010 book "No Apology") because Congress has spent the program's surplus revenue instead of saving it to pay for future benefits -- the sort of crime for which bankers "would go to jail."
See the difference? Neither do I. Both the former Massachusetts governor and the current Texas governor understand that Social Security is a transfer program disguised as a retirement plan and that its frequently mentioned "trust fund" does not actually exist. Their spat over how exactly to characterize that situation is illuminating not because it reveals substantive differences between the candidates but because it shows how often these simple truths are overlooked.
The day of the debate, for instance, USA Today opined that "Social Security is most certainly not a Ponzi scheme" because Ponzi schemes "are criminal enterprises, which Social Security is not." Fact-checking Perry after the debate, CNN declared that "Social Security is not a fraudulent criminal enterprise designed only to benefit current participants in the program." Rather, "It is a legitimate government program meant to serve both current and future generations of retirees."
Digging a bit deeper, my colleague Shikha Dalmia observed that Social Security is in some respects worse than a Ponzi scheme, since participation is mandatory, money is diverted not only to earlier investors and the fund manager but also to various "programs for politically favored groups," and the con goes on and on, even after it is revealed. I might add that Ponzi schemes offer much better returns (initially).
At Monday's debate, Perry pointed out that Social Security "has been called a Ponzi scheme by many people long before me." It's true! And what did they mean by that?
As CNN helpfully notes, "The Securities and Exchange Commission defines such a scheme as 'an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.'" Social Security benefits likewise are funded not by returns on money that current retirees "paid into the system" but by payroll taxes collected from current workers. Yet the government misleadingly portrays Social Security as a pension program, periodically informing us about the retirement benefits we've "earned," as if our money is being saved and invested for us.
Don't be embarrassed if you've fallen for this scam. So has The New York Times. Last week, it tried to set Perry straight by reporting that "economists of all stripes agree" Social Security won't "exhaust the money in the trust fund" until 2037.
But as the Times itself conceded last year, this trust fund is no more than "an accounting device" that represents how much the government owes itself -- or, in other words, how much must be extracted from taxpayers to cover all the surplus Social Security money Congress has squandered over the years. The surpluses themselves are long gone, replaced by Treasury bonds that can be redeemed only through higher taxes or further borrowing (which eventually translates into higher taxes).
"This trust fund is an elaborate illusion cooked up by government magicians," Perry observes in his 2010 book "Fed Up!" In "No Apology," Romney agrees, calling the trust fund a "fiction that's often used to obscure the extent of the crisis."
Social Security's benefits already have begun to exceed its annual revenue, meaning the program is contributing to the deficit instead of making it seem smaller. By the 2040s, payroll tax revenue is expected to cover only three-quarters of promised benefits.
All of the possible solutions ultimately involve raising taxes or cutting benefits. But in settling on a particular fix, it is helpful to understand the true nature of the system we are reforming.
Cut off SSA taxes, and where do you think that "trust fund" money comes from? Bonds? Where does the money for cashing bonds come from? Taxpayers! but we've already spent all federal revenues and put almost as much on the credit card! I'm not suggesting the Treasury gets no more taxes, I'm observing that it already spends twice what it takes in, so there's nothing left to cash out the "SSA trust fund" bonds.
http://www.treasury.gov/connect/blog/Documents/20110516%20CSRDF%20and%20G-FUND%20FAQ.pdf
Can’t find the one on SS - but geithner pulled the same trick. SSA bonds matured, he refused to redeem them.
But in a sense you’re right. If there isn’t enough actual revenue to pay the SSA trust fund bonds, then the Federal Reserve will just write “+$700,000,000,000” in their checkbook, and then write a check for that amount payable to SSA.
That’s how “Quantitative Easing” works. Need more money, and you can’t tax any more and can’t get any from any other source or technique? The gov’t won’t default, ever. They’ll just declare enough money and write the checks. Easier than printing cash.
Exactly! And that's the real problem. The real problem is not that SSA invests in Treasuries. The real problem is congressional overspending and over-borrowing. The real problem has nothing to do with SSA or the SSA trust fund.
SSA could invest in China, and Congress would just borrow from China instead of SSA. It would clear up the silly claims of "No SSA trust fund exists". I'm sure China would be happy to stand in the middle for a small percentage. But then you'd be forced to focus on the one really big problem which is congressional overspending and over-borrowing.
Now there is a secondary problem in that the SSA trust fund is not nearly big enough to fund all the future claims against it. But it's nothing but fear mongering to say the trust fund doesn't exist. It does and there is almost 0 chance that Congress will ever refuse to honor the SSA trust fund claims. At best their might be a temporary delay when we hit a debt ceiling and congress can't agree.
If there ever was a cash fund, it was stupid. To sit on cash and let inflation eat it up is insane. You invest it. And the logical place for SSA to invest is U.S. Treasuries. I'm not bothered at all by the fact that that's where they invest.
I am bothered by the total amount of Congressional spending and borrowing. I'd love to see SSA have to invest somewhere other than treasuries, because Congress is no longer authorizing that much borrowing.
But make no mistake the real issues are total congressional borrowing and that the amount of treasuries held by the SSA trust fund are insufficient to meet SSA's commitment. That SSA invests in treasuries is a non-issue important only to the confused or the scaremongers.
The Social Security trust fund holds $2.7 trillion dollars of government IOUs.
Fixed it for you.
If by "Treasury bonds" you mean IOUs, then we agree. SS is broke because Congress spent all the money and allowed people who have never paid a dime into the system to draw from it. If we go back to the original plan, there was supposed be a trust fund but, if there were truly a trust fund, they wouldn't have had to raise SS withholding 3 times in the past 40 years.
No, the U.S. Treasury owes the American people several trillion dollars. The money has been spent and everyone is waiting for the other shoe to drop before Congress runs for the hills in hopes of beating the lynch mobs.
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