Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Protecting the rights of even the least individual among us is basically the only excuse the government has for even existing.”     Ronald Reagan

December 1, 2006

The Social Security “Trust Fund”

by Brad Warbiany

Catallarchy has a good post on the Social Security Trust Fund. They point out, in several ways, why the Social Security “Trust Fund” is nothing more than an accounting trick:

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.

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7 Comments

  1. Take a look at your money or your bank accounts; they are all backed by promissory notes. Banks go under. Treasury bonds are backed by the full faith and credit of the US, which is why the Chinese and everone else loves our bonds. If you think the bonds in the SSTF are going to be worthless, would you give me some?

    Comment by saul friedman — December 2, 2006 @ 6:12 pm
  2. Saul,

    SSTF monies are nothing like Treasury bonds sold on the open market. There are no bonds that I can access in the SSTF, so I cannot possibly get a hold of any to give to you.

    Besides, all bonds are government debt. Government debt inevitably has to be paid for by someone. Who’s going to pay for it? Taxpayers.

    Read up on the SSTF a bit more, you’ll be surprised at what you find.

    Comment by Brad Warbiany — December 2, 2006 @ 7:49 pm
  3. Considering the fact the rich got a huge tax cut, and millionaires turned into billionaires, while they used our trust fund from Social Security to pay part of the country’s expenses, then they should be the ones that pay it back.

    Considering the fact that the reason Social Security is going to be hard to pay back is because of the tax cut during a war which the average working person doesn’t want, then let those who have proffited from the war pay back the bonds.

    The amount of the ceiling of Social Security should be deducted from any taxes to pay Social Security back.

    Those bonds are special because FDR knew even then there were those who would try to destroy Social Security. The SS bonds cannot be bought by anyone but the government so they can’t be sold to people who wouldn’t pay them back. The government can borrow the money to pay those bonds off. Debt doesn’t bother the government, now does it?

    The reason that there is going to be a problem at all in the future is because the cold hearted, cheap conservatives are shipping our jobs overseas, so there won’t be enough good paying jobs.

    If business succeeds in screwing any generation out of Social Security, I promise you I will never buy American products again.

    Part of this push is so insurance companies can sell annuities. It is already written in a bill that people with private accounts in lieu of Social Security will have to put above poverty level money in annuities. That costs about $300,000 to draw $10,000 and that is not inheritable.

    Another part is to privatize it and throw everyone on to the stock market forces. It has done okay the last 3 years, but I lost half of my money in the bubble crash in 2001. Some lost 75%. It was 6 trillion dollars lost. That money didn’t disappear, it went in the pockets of the same people that want all our Social Security. Forget that idea.

    Comment by Jo — December 3, 2006 @ 5:11 am
  4. “The SS bonds cannot be bought by anyone but the government so they can’t be sold to people who wouldn’t pay them back.”

    Bonds don’t get paid back by the people who bought them. They get paid back by the people who sold them (the government). In this case, the SS administration uses its surplus to buy bonds from the general treasury. The only question is whether the money to pay off those bonds comes from higher SS taxes or higher taxes elsewhere (income, cap gains, etc)?

    “Debt doesn’t bother the government, now does it?”

    Nope. But the taxpayers pay back that debt, so the fact that they’re hiding deficit spending by “borrowing” from social security surpluses should make us all upset.

    “Another part is to privatize it and throw everyone on to the stock market forces. It has done okay the last 3 years, but I lost half of my money in the bubble crash in 2001. Some lost 75%. It was 6 trillion dollars lost. That money didn’t disappear, it went in the pockets of the same people that want all our Social Security. Forget that idea.”

    Forget privatization. Why don’t we just means-test the program? That way you can get your class-warfare jabs in at rich people (i.e. they don’t get SS benefits) and I don’t get my taxes raised. And neither of us have to watch the government stick their grubby, over-regulating hands deep into the heart of the stock market. How’s that for a happy medium?

    Comment by Brad Warbiany — December 3, 2006 @ 6:17 am
  5. The dot com crash was obvious to anyone with a mind to see it as early as 1999. Sorry you lost 50% in the crash, but it’s your fault, not the eeeevul conservatives.

    Comment by Eric — December 3, 2006 @ 9:01 am
  6. You know they threw out the baby with the bath water in 1999. Some stock prices I couldn’t fathom why they dropped. Not an expert, just saying.

    Comment by VRB — December 3, 2006 @ 11:33 am
  7. Investor and consumer confidence, among other things. An economy that was shrinking. Companies that were over valued. A whole lot of things. But, the belief that the Internet fundamentally changed business models was the real problem. Economics doesn’t change because of new technology, yet a whole lot of smart people seemed to buy in to the idea that the Internet and e-commerce changed economics.

    Comment by Eric — December 3, 2006 @ 11:55 am

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