The Trust Fund Is A Fraud

The trust fund is really an accounting/legal/political fiction

The central problem that you don't address correctly (IMHO) is that the trust fund is really an accounting/legal/political fiction. Yes, something called the SS trust fund collects FICA taxes, pays benefits and until last year took the surplus and bought bonds from the Treasury. But the Treasury did not save or invest any of that money, it just spent it on government programs. The unified budget (ie, other revenue and expense categories unified with SS and Medicare trust funds) nets those two flows out. So you can create all the Treasury bonds you want to, but it doesn't mean that the Treasury or the country is any wealthier. It is future tax revenues that have to pay future benefits, there is no pool of capital invested.

From that standpoint, the Treasury could pay 50% interest to the SS trust fund on the moneys "invested" (handed over) to the Treasury. That would make SS look like a better deal, but it would make the rest of the government look worse and the unified budget would be the same.

Our Response

We acknowledge the difference of opinion, but maintain our position. We do not believe that the unified budget is a valid measure of Social Security for two reasons.

First, Social Security is not an obligation of the federal government, nor should it ever become an obligation of the general fund because Social Security serves a small percentage of the country. Currently it serves 70 million people; less than 25% of the population. Even if you include covered workers in this system, there remains millions of Americans who are not entitled to receive benefits. These taxpayers should not be burdened with failed pension system when they have no ability to collect. Social Security needs to survive or fail on its own.

Second, while the government maintains a unified budget, these figures are not very useful information because it brings together revenue and expenses which are not the same. Social Security is a legislated benefit that is dependent upon the support of future voters not a financial obligation. For example, under the current government estimates, if the voters do not increase their support for the system, benefits will automatically be cut in 2036. If we as a country ever let Social Security’s obligations bleed into the general fund, we would agree with your statement.

We disagree with the statement that the Treasury can pay 50% interest without hurting the country. Again, rightly or wrongly, we see Social Security and the US government as distinct entities. Over paying interest is little more than a subsidy from those who do not collect to those who do.

We Acknowledge

The tax-holiday negotiations and recent debt ceiling discussions bring into question the independence of the Social Security Trust Fund. We are very critical of any suggestion that the bonds held by the Social Security Trust Fund ever be given lower ranking in the capital structure of the country – or we would have to concede this point.