The Scam Known as Social Security Trust Funds

The Scam Known as Social Security Trust Funds

A couple reports by the Congressional Research Service...

"Maintaining financial balance after trust fund insolvency would require substantial reductions in Social Security benefits, substantial increases in income, or some combination of the two. The trustees project that following insolvency of the combined funds in 2034, Congress could restore balance by reducing scheduled benefits by about 23%; the required reduction would grow gradually to 27% by 2091. Alternatively, Congress could raise the Social Security payroll tax rate from 12.4% to 16.0% following insolvency in 2034, then gradually increase it to 16.9% by 2091."

Social Security: What Would Happen If the Trust Funds Ran Out?

https://fas.org/sgp/crs/misc/RL33514.pdf

Social Security: The Trust Funds

https://fas.org/sgp/crs/misc/RL33028.pdf

https://www.garynorth.com/members/forum/openthread.cfm?forum=1&ThreadID=244306#244307

There is no trust fund. There is only a pile of IOU's issued by the government.

Social Security is now running a deficit. So, the Social Security Administration cashes in some of these IOU's to send money to recipients.

This is known as "'looting the trust fund." That is silly. There is no fund to be looted.

This has always been true. John Attarian explains.

Much of the public is convinced that a perfidious Congress is rifling a “trust fund” where our Social Security taxes are “held in trust” to pay future benefits, that this is why Social Security is headed for trouble, and that all Congress has to do to fix Social Security is put this stolen money back. These beliefs crop up perennially in letters to editors.

In July 1998, Carolyn Lukensmeyer, director of the Americans Discuss Social Security project, told the Senate Special Committee on Aging that this alleged raiding of the trust fund to finance other spending is “the real focus of the public’s concern.” Her poll found that 79 percent of respondents believe that this is one reason why Social Security might experience financial crisis, and 45 percent believe it is the main reason. (Just 26 percent answered, correctly, that the main reason is that the elderly population is growing faster than the number of workers financing the program.)3 Obstacle to Reform 

This mentality is a serious obstacle to Social Security reform. If a looted trust fund is the problem, why bother overhauling Social Security? Just make Congress return the money.

Yet this popular belief is utterly mistaken. There is no trust fund, and Congress is doing nothing wrong. What’s more, the source of this misunderstanding is the government’s own public-relations efforts to create support for Social Security.

The Social Security Act of 1935 created an “Old-Aged Reserve Account” in the Treasury and required that every year an amount determined sufficient to pay that year’s benefits was to be appropriated to it. Any of this money not needed for benefits was to be invested in federal debt (including unmarketable debt issued for this purpose) earning 3 percent interest, or other government-guaranteed debt.

He then provides a documented history of the debate over the trust fund. It was recognized early as a public relations scam. He then concludes.

But as we have seen, there is no trust fund to be looted, only a Treasury account. And Congress is only doing what the Social Security law requires.

In adopting trust language to cure a Social Security public-relations problem 60 years ago, the federal government sowed the seeds of today’s grave misunderstanding over the Trust Fund. This dishonest and misleading language should be abandoned immediately, the better to clear our minds of cant and false issues and enable us to see Social Security as it really is, grasp its real problems, and do what needs to be done.

The two articles that were produced by the Congressional Research Service are simply extensions of the original scam. The varied titles are part of the scam.

We see these figures, which are always arising, about what the government needs to do to make Social Security solvent. They never admit the unpleasant truth, namely, that the present value of the unfunded liabilities of Social Security and Medicare are in excess of $200 trillion. That's not the future unfunded liability. That is the present value of the future unfunded liability. Prof. Laurence Kotlikoff of Boston University has been complaining about this for a decade. Congress of course pays no attention.

Instead of dealing with the problem, Congress kicks the can down the road. So, every time Congress kicks the can, the net unfunded liability gets larger. This means that the taxes that would have to be raised, as well as the reductions of expenditures that would have to be imposed, both get larger. As they get larger, they become even less likely to be dealt with by Congress. The public will not accept the tax increases. The public will not accept the reduction in expenditures. The public will not let Congress take action. Congress understands this. So, the unfunded liability gets larger. 

This means that the so-called trust fund will melt away over the next few years. The money will have to come out of the general fund. This means that the federal deficit will get larger. The public does not care about that, either. Congress pays no attention.

We can see where this is headed: the great default. It is inevitable. The numbers do not lie.

The trust fund will be depleted soon enough. Then, and only then, will all the talk about losing the trust fund end. Then, statistical reality will begin to intrude. It is being concealed by all the talk about looting the trust fund. Such talk indicates that there is a trust fund, and that there are marketable assets in the trust fund. On the contrary, the IOU's in the trust fund are legally non-marketable.

It is all a gigantic scam. It has always been a scam. Eventually, the chickens will come home to roost. Then the voters will claim that they have been deceived. Yes, they have. They have been deceived because any attempt by any politician to undeceive them always led to the defeat of that politician at the next election. The public wants to be deceived. The public insists that they be deceived. They get what they want.

The voters are not going to like what they get when the trust fund is gone, the federal deficit is astronomical, interest rates are rising, and the government can no longer send out checks to the geezers on schedule.

The government is going to redefine what it takes to become a geezer. It is going to raise the retirement age. It is going to raise the age of eligibility for Medicare. This will be disguised default. The people already in the programs will demand that they be paid. Their votes will count. So, the government will simply provide default by salami slicing. Up, up, up will go the age of eligibility. The government will not cut payments to most oldsters, although it will probably impose some form of wealth test to get paid. But for those hoping to cash in on the scam at the age promised to them, the gravy train is going to leave the station later than they had hoped.