Sunday, July 24, 2011

Social Security Trust Fund Theft

When the Social Security Act of 1935 was first created by the government, it was a well intended program. When you have politicians involved, even the best intentions often have disastrous consequences. From the beginning, social security took monthly contributions-taxes- and paid the recipients. By law, any excess revenues must be placed in special-issue, non-marketable Treasury bonds. Essentially, that is the federal government loaning itself money. The Treasury bonds go into Social Security and the actual money is spent in the general budget.

It is true that by being in the form of bonds, these assets-I use that word loosely- do gain interest, most often less than 2%. What even the most educated fail to tell you,  this is not truly an asset, but a debt. By turning those excess dollars into treasury bonds, the government can take Social Security funds and spend them any place they wish.

Over decades the Social Security trust has been shuffled around. For the sake of space, time, and understanding, I will reduce the movements to simply these:

1- Social Security was off-budget from 1935-1968;
2- On-budget from 1969-1985;
3- Off-budget from 1986-1990, for all purposes except computing the deficit.
4- Off-budget for all purposes since 1990 until 2011.

We often find treasury bills in the account used to show a surplus. It’s my belief that, in part, is how Clinton balanced the budget. When counting debt the Clinton, as well as past administrations, counted only publicly held debt. They use an accounting procedure that counts internal debt as assets, even though the government owes itself.

If you checked out the Clinton surplus on you would find it’s true, when in fact it’s false. I find it impossible to call loaning yourself money an asset. The only place in which to trade those bonds for US dollars is the government, itself.

We have heard people say for decades the Social Security trust fund is full of IOUs, which it is, since it’s filled with only debt, Treasury bonds. Obama essentially admitted this when he said, “If the debt ceiling isn’t raised, I can’t promise those social security checks will go out on the third.” Since there are the monthly receipts of Social Security, and other taxes, those payments can easily be made. If the trust fund was as full of money as the Democrats claim, paying recipients wouldn’t have even been mentioned. We continuously hear how Social Security is solvent until 2017-35, the date is constantly changing. I believe 2017 is the most likely date.

Currently, there is enough taxes coming into the Social Security fund to make monthly payments. As baby-boomers continue to retire, eventually those receipts won’t cover the payments and the Treasury will have to begin buying back those bonds. Unless current debt is resolved, and the economy improved so more tax revenue can be collected, the program will go down in flames on the backs of seniors. Taxing the so-called rich will not solve the problem.

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