Archive for the 'Social Security' Category


The Elephant in the Room

exfordyOr should I say in the rear view mirror? Because no matter how fast they try to run, it’s coming … and it ain’t gonna be pretty.

As the three leading candidates McCain, Obama, and Clinton continue to campaign on, promising anything and everything to everyone… there’s an elephant in the room, and not only do they refuse to talk about it, nobody in the media even bothers to ask.

Meet Mr. Elephant, his name is Social Security.

Yeah, once and awhile, a politician brings up Social Security, but mostly they just hang their hat on the mythical year 2017. This is the year they believe Social Security will simply tap into the trust fund and keep paying out those benefits. From there, they would have you believe the “money” in the “trust fund” will carry us until somewhere in the neighborhood of 2042. Well, I’ve got news for you: Either they’re selling us a bunch of snake oil, or they’re too naive to understand the truth. In either case, they then shouldn’t be in office at all.

A trust fund is real property – money, securities, real estate, etc. – held “in trust” by one party (the trustee) for the benefit of another (the beneficiary). The problem with Social Security… is that there is no real property in the Social Security Trust Fund, and there NEVER HAS BEEN!

The Social Security Trust Fund is nothing but an accounting gimmick. Here’s how it works: Workers and employers pay social security taxes to the government. The Treasury receives this money and credits the Social Security Trust Fund with that amount. It then pays out benefits to current beneficiary’s, and subtracts these payouts from the account. All monies remaining in the “trust fund” is then immediately SPENT on other government expenditures. NO MONEY goes into the “trust fund”. Instead, the “trust fund” ledger gets IOU credits for the amount of Social Security receipts used to pay for the general budget. The Treasury then “pays interest” on these IOUs by crediting the “trust fund” account with additional IOUs making the “trust fund” appear to grow. No money ever changes hands, this is done only in an accounting ledger.

If this sounds like an Enron shell corporation to you, that’s because it is!

According to the Congressional Research Service on May 5, 1998:

When the government issues a bond to one of its own accounts, it hasn’t purchased anything or established a claim against another entity or person. It is simply creating a form of IOU from one of its accounts to another.

And the Office of Management and Budget in 1999:

These [trust fund] balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. (emphasis added by me)

What does this mean?

It means that when these “trust fund” IOUs are “redeemed”, they will have to be paid for by raising taxes, reducing benefits, borrowing from the public, and/or cutting other government expenditures.

Now stop and think with me for a moment. Let’s use our imagination and pretend. Let’s pretend that there isn’t a Social Security Trust Fund. Let’s pretend for a moment that it never existed. Okay? You with me? Now, when the time comes that social security receipts are not enough to pay current beneficiary’s, what would we have to do to keep paying out everyone’s full benefits? (Remember, we’re pretending the “trust fund” doesn’t exist.)

Exactly! We’d have to raise taxes, reduce benefits, borrow from the public, and/or cut other government expenditures. The SAME THING that would have to be done IF there really was a “trust fund”!

This is a financial disaster waiting to happen. A disaster like this country’s never seen. The first “baby boomer” has already retired, and the benefits being paid out are increasing at a record rate. The governments rosy projection is that current receipts will cover current expenditures through the year 2017, but we all know about government “projections”. You and I both know the local weatherman is more accurate then they’ve ever been. My best guess is that current receipts are lower than benefits paid out by year 2012.

The bottom line is this: The politicians have been LYING to the public in claiming that Social Security is solvent through year 2042 or more. And the longer this problem keeps being swept under the rug, the worse this impending CRISES will become.