The Social Security “Trust Fund”
If my bond could only be redeemed at a bank on a Sunday, and no bank was ever open on a Sunday, my bond wouldn’t have any economic significance either.
If every future year were to produce a non-negative surplus of payroll taxes over payout mandates, then the quantity of bonds in the SSTF would continue to grow, even to infinity, without having any effect whatever.
A given shortfall in a given year produces the exact same amount of financing difficulty whether a SSTF bond remains to be redeemed or not.
From the Treasury’s point of view, the exhaustion of the SSTF is like making the last payment on an auto lease, the discharging of a liability. This benefit is of course offset by the need to enter into a new agreement if one wishes to continue driving.
I’ve always thought of it a different way.
Let’s say that I’m working two jobs. I make $500/week at Job #1, and $300 a week at Job #2. The income from Job #1 goes in my left pocket, and the income from Job #2 goes in my right pocket. I pay my household fixed bills out of the left pocket, and my groceries and day-to-day expenses out of my right pocket.
So let’s say that my day-to-day expense are only $100 a week, but my fixed bills are $750 a week. What’s going on? My right pocket is loaning my left pocket $200 a week to cover the shortfall, and my left pocket has to take that shortfall, then put $50 on my credit card, to cover my expenses.
The loan means very little if the whole being (me) is losing money. And in this scenario, the day will come (due to kids, etc) where my day-to-day expenses are well above the $100 a week posited here (i.e. Social Security expenditures exceed payroll tax revenue). At that point, my right pocket can’t keep loaning the money to the left pocket. What happens to the left pocket? Well, since the fixed bills aren’t decreasing, the left pocket has to either come up with some way to increase income (taxes) or put more on the credit card (nat’l debt).
Social Security is “loaning” money to the General Treasury, but both entities are part of the same government with the same revenue stream— our tax dollars. If the right pocket is feeding the left pocket money, it means nothing if the whole entity is losing money. The “trust fund” is nothing more than an accounting trick to dupe the masses. It sounds good, but when the Social Security Administration starts to draw on it, you know the money will come from one place: our pockets.