The Social Security System is Bankrupt

Social Security cannot go into bankruptcy because it does not have debt. The politicians, who use the term bankruptcy, are simply trying to frighten people. Social Security can go into insolvency. Understand the difference, as long as the American voters continue to support payroll taxes, Social Security will be solvent. Benefits may be cut, but the system will continue to the level of support of the American people.

The Social Security Is an Obligation of the Federal Government

Social Security is a legislated obligation, not a financial one. When you hear people talk about unfunded liabilities, keep in mind that the next Congress has the power to change the benefit levels. Social Security benefits are unfunded only to the extent that the future voters agree that they are obligations.

Everyone Is Covered By Social Security

Today Social Security covers something closer to 180 million workers of the United States 300 million people. There are still industries which are not covered by Social Security, roughly 6 million people.

The Trust Fund Consists Of Worthless IOUs

The Social Security Trust Fund holds debt(IOUs) which is backed by the full, faith and credit of the United States Government. All debt is an IOU, and the debt held by the Trust Fund is not worthless. Comparable assets are selling at historic highs – not zero. The assets held by the Trust Fund maybe worthless at some point in the future. It simply isn’t the case today.

It is possible to say that the fund is very poorly invested – in fact we demonstrate that fact. Unfortunately, this concern is lost in the hyperbole of “worthless IOUs”.

Politicians Stole / Raided the Assets of the Trust Fund

This myth varies. Some suggest that LBJ stole the money. Some suggest that Carter stole it. Some suggest that Reagan stole it. These are all the same flavor of myth.

Here are the facts. First, the system hasn’t changed since its inception. Since the start of the Social Security system, any excess cash paid into the system was invested in government securities. That has never changed.

Second, the Social Security Trust Fund was fairly small until 1983 when FICA taxes were increased. The total lending from the Trust Fund to the government was immaterial until the 1990s, and it has grown to roughly 2.5 trillion dollars at present. To give you some idea of how much we are talking about: in 1965, LBJ borrowed about 1 billion dollars in surplus payroll taxes. In 2011, that would be worth about 7 billion or roughly 1/10th the amount the government spent on just the Dept of Education alone.

Third, the money is borrowed from the Trust Fund. If it were not borrowed from the Trust Fund, it would have been borrowed from the public.