Social Security Overview

Promises, promises...

In March 2005, President Bush said in a speech that the Social Security Trust Fund is only IOUs, pieces of paper, “which may be worth something, and it may not be worth something”!
What he was talking about is the U.S Government bonds that represent the trust fund in which money is supposed to have accumulated for future Social Security payments.
Every year, U.S workers pay more in Social Security taxes that is actually needed to pay for the current year’s needs. The surplus goes into the Treasury General Fund in exchange for Government Bonds. These bonds are allocated to a Social Security Trust Fund. The surplus can then be spent for other things, and the government owes that money (secured in bonds) for the time when the U.S. workforce will not be able to sustain the retirement payments of the aging part of the population, which is estimated by the government’s own General Accounting Office (GAO) to happen around 2018.

That’s the way it was set-up in 1983 by Congress with the advice of then Chairman of the Federal Reserve Alan Greenspan, when Social Security taxes were raised to plan for future shortage.

In theory, the money is there. It is there in the form of government bonds.
Bonds are in fact IOUs in the form of paper, but they are presumably legal tenders with the same validity as the dollar bill or any other currency. In fact, most of our debt to the private sector or foreign entities like Japan or China is in the form of bonds.
So how did it come to be that a President of the United States declared in a public forum that his country’s government bonds have no value?
The problem doesn’t seem to be with the bonds, but with who holds the bonds.
Bonds representing the debt owed to foreign entities are held by these entities.
The Social Security Trust Fund bonds are owed by the U.S. government to the U.S. government. It’s called an intragovernmental debt. It is the most unsecured kind of debt because, as we know, the government has the power to change its own rules.

Do we need a hint as to what the government might do with this debt?
When the budget is drawn and presented, year after year, the funds coming from the Social Security surplus are not shown as being part of the budget. Nor are they included in the debts that are owed.
The reason given by the government is that this is money that is not really owed in the sense that it can be cancelled or reduced at the government’s will!!!

The problem is that the funds do not originally come from IOUs. This is real money that was deducted from American people’s paychecks and that they could have spent on something else. It became IOUs only after it went into the government’s coffers.
So when you are told that Social Security is not a viable system, don’t believe a word of it. The problem doesn’t lie with Social Security. It’s about mismanagement of the funds.

What can be deducted is that when the Social Security tax was raised in 1983, it was nothing more than a tax increase hidden in a more politically acceptable form. The money is gone. It was spent on other things. It was presented to the public as a way to save Social Security’s future, but the truth is that when the time comes, other means will have to be used: raising taxes, cutting benefits, taking money from other sectors…

And by the way, when the yearly Federal Budget is drawn and presented, the hundreds of billions of dollars that the Iraq and Afghanistan wars have cost over the last few years are also not included in the budget. I wonder where that money is coming from!