Monday, April 30, 2012

The Myth Of The Social Security Trust Fund Continues To Live On

Before going into details regarding the myth of the Social Security trust fund, let's review an Associated press article that appeared on April 27, 2012, "Social Security Approaching Insolvency Even Faster." The extensive article reviews the timing and detail behind the stated approaching insolvency of the Social Security trust fund:
  • Social Security's Trust Fund is now expected to run dry in 2033, three years earlier than previously estimated.
  • This earlier date is being driven by retiring Baby Boomers, a weak economy, higher energy prices that are suppressing wages, and politicians' inability and cowardice to take painful actions to fix both the Social Security retirement program and the Social Security disability program.
  • The 2033 date is a weighted date of both the retirement program and the disability program, which disguises the fact that the disability program will actually run out of its trust funds by 2016, less than four years from now.
  • If the retirement program runs out of its trust fund resources, Social Security would only be able to pay 75% of the benefits it promised to retirees.
Sounds like bad news all around. Three years closer to insolvency. Baby boomer impacts that will only get larger and more onerous. A disability fund that is less than four years away from burning through its trust fund.

But the news is much worse. There really is no trust fund. Although the article estimates that the trust funds contain $2.7 TRILLION, that $2.7 TRILLION is strictly an illusion. There is no pile of gold bars worth $2.7 TRILLION in the trust fund that could pay off Social Security's liabilities. There is no stack of Apple stock certificates that could be used to pay off this liabilities. Nothing.

All of the wealth that the Federal government, and the political class, has collected via Social Security taxes over the decades, has ended up being used in two ways, and two ways only. Some of taxes were used to pay Social Security benefits over the decades. All of the excess wealth, above the benefits paid, was spent and wasted by generations of our politicians on non-Social Security efforts and programs. The extra wealth never actually made it into the trust fund, it no longer exists.

In order to make it look like the Social Security trust fund was not being raided by politicians, the U.S. Treasury Department gave the Social Security administration an accounting IOU. These IOUs have no value at all since the politicians have already burned through the wealth that was collected in the form of Social Security taxes. In order for the Treasury Department to actually pay on those trust fund IOUs, it will have to issue more debt or collect more taxes to cover the debt.

Obviously, either option is not a good one. Issuing more debt will add to our almost $16 TRILLION national debt. Raising taxes will suppress economic growth, resulting in less wages and less Social Security taxes collected, further depressing Social Security's financial situation.  

How do we know there is nothing of value in the trust fund except some worthless IOUs given to one government agency by another government agency? The President said so back in August, 2011 when it looked like the Federal government might shut down unless the debt ceiling was raised. When asked if Social Security checks would still be paid out the President replied: ""I cannot guarantee that those [Social Security] checks go out on August 3rd if we haven't resolved this issue, because there may simply not be the money in the coffers to do it."

Not enough money in the coffers to do it. What about the $2.7 TRILLION in the trust fund, couldn't that money be used to fund the Social Security checks? No, because since 2010, Social Security has been in a negative cash flow situation, i.e. it pays out more money than it takes in. This requires it to go to the Treasury Department which makes up the shortfall by collecting more in taxes or issuing more debt.

There is no wealth left in the trust funds, we are already in 2033 and paying for the Social Security shortfall out of ordinary taxes. Now, there are some superfluous government accounting schemes being used to make it look like we are paying the negative cash flow out of the trust fund but that is merely a smoke screen. The real payments for the negative cash flow are being paid by the American taxpayer today, not in 2033.

However, by claiming there is this mythical, robust, and wealth filled trust fund, politicians can postpone the hard and difficult decisions for reforming Social Security for twenty years, allowing the problems with the program to get worse and worse. This is what our politicians do best, protect their own selfish political career and personal interests, delay making the courageous decisions, and allowing the country and its citizens and their wealth to suffer in the process.

We need to get beyond the myth and take at least five concrete steps to fix the situtation that is happening today, not twenty years from now, as outlined in "Love My Country, Loathe My Government:"
  • Step 10 - Reduce the size of the Social Security tax rate but upcap the amount that is subject to the tax and expand the tax from only wages to all forms of income in order to make the the tax's imposition fairer across all income ranges (see the details in Step 10 for the detailed rationale.)
  • Step 11 - Raise the retirement age to 70 with a hardship exception. When the Social Security system was implemented, very few Americans lived long enough to collect their benefits. Americans are living longer now so to keep the program solvent, the retirement age must rise.
  • Step 12 - Deny benefits to anyone whose net worth is over $3 million. Better to preserve limited resources for Americans who really need the Social Security program even if people like Warren Buffet, Bill Gates, and Donald Trump go without their monthly Social Security checks.
  • Government experts estimate that the Social Security system loses over $100 billion a year to waste and criminal fraud. If this abuse could be stopped, it could fund an additional 6.7 million retirees every year. Thus, an extensive and effective anti-fraud effort needs to take place NOW since the fraud is so widespread NOW.
  • Many times in this blog we have proven that the Social Security program is one of the absolute worst ways to save for retirement. In addition to the short term steps listed immediately above, a long term component of any plan has to be to get the government and political class out of the retirement program business and set up private savings retirement accounts that would provide much better retirement lives for future American retirees. Please go to the following post to see how Chile made life so much better for their citizens when they got out of their version of "Social Security:"

So let's review:
  • The Social Security Trust Fund is a myth. It became a myth in the 1960s when Demcoratic President Lyndon Johnson pushed to get Social Security funds intermingled with General Tax funds, giving the political class access to more of our money and wealth at the cost of a secure financial future for American retirees.
  • The Social Security system is in a negative cash flow situation today, not in 2033. The 2033 date is an accounting trick that our polticians use to create the illusion that the crisis is twenty years away, that there is no immediate crisis today.
  • But the crisis is TODAY and the short fall and negative cash flow is eating up more of our wealth TODAY via taxation and adding to more of our onerous national debt TODAY.
  • There are five steps that need to be taken to save the process in the short term and improve the process in the long term. Steps that our political class are likely to avoid altogher since implementing those steps would require leadership, courage, and selflessness, three qualities sorely lacking in Washington today.
Myths are only illusions. They are not solid, they do not make bad situations good. It you hear a politician telling you that Social Security is good and solid for at least another twenty years, remember that two possibilities are in play:
  1. They truly understand the myth and are lying to you to avoid making the difficult decisions required or
  2. They truly are ignorant of reality, making a solution from them highly unlikely.
The myth exists, the wealth to fulfill the promise of the myth does not exist, Lyndon and the rest of the political class spent that wealth long ago, possibly on GSA type conferences in Las Vegas.

We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
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