SOCIAL SECURITY 101 -- Published by the Orange County Register

            The federal government recently announced that the Social Security trust fund will be exhausted in 2033 instead of in 2036 as previously projected. As disconcerting as this announcement may seem, it is highly misleading because the situation is actually far worst--the so called “trust fund” has no assets to exhaust. Social Security is flat broke and is hereafter fully reliant upon increased government borrowing or higher taxes to back the program’s growing annual deficit. The trust fund consists only of government IOUs for which the federal government has no resources to repay.

            Until recently, Social Security tax receipts and interest income had been more than sufficient to cover annual outlays and the excess receipts went into the trust fund. However, as long anticipated, the program’s cash flow has fell into the red and the annual deficit is projected to grow in future years as ever more “boomers” retire. Had the trust fund monies been saved by the government for their intended use there would have been no need for new taxes or borrowing to sustain Social Security—at least until 2033. However, what actually occurred was that the money was passed right through the fund and handed over to the federal government and immediately spent on general expenditures. The trust fund money is gone and all that is left behind are IOUs for which the federal government has no current means of repayment since it is already running a trillion dollar annual deficit without even considering its obligations to repay Social Security.

            The utter bankruptcy of the Social Security fund is no revelation, rather it is well understood by federal government. Both the Bush and Clinton administrations acknowledged in writing that the fund has no assets that can be used to fund Social Security payments, that the size of the fund has no impact on the government’s ability to pay benefits, and that future Social Security deficits must be fully financed by tax increases or additional government borrowing—above and beyond current tax and borrowing requirements. The only effective purpose of having the trust fund has been to enable politicians to argue that the program’s finances are sound, at least until 2033 when even the IOUs will be gone. Their obvious purpose is to avoid making the necessary tough choices—i.e., cutting benefits or raising payroll taxes, or both--which are certain to rile voters. However, the longer they delay, the greater will be the sacrifices that tax payers must eventually make.

            Ultimately, the problem is not one of politicians but of the voting public. Being rational persons, politicians will avoid doing the things that cause voter disapproval. It is we the voters who are motivating politicians to delay the necessary Social Security reform because either we do not comprehend the scope of the problem, or we are unwilling to forgo any portion of our “promised” benefits even if means that our children will receive far less than we will. How much easier and personally beneficial it is to accept the politicians false assurances and simply let the swelling problem pass to future generations than to accept the financial hardship that comes with taking responsibility. As for our “promised” benefits, Social Security has never made a promise to pay benefits, nor does it view its current schedule of payments as any sort of promised commitment. The payments are, and will continue to be, fully arbitrary amounting to whatever politicians determine they ought to be.

            Promised or not, the government cannot disburse benefits for which it has no means of payment. Will we voters come to be upheld for our prudence and foresight, or reviled for our selfishness? Present circumstances suggest the latter.