Tag archives: Social Security

Two paths diverge in a partisan town

by Family Research Council

April 11, 2012

The poet Robert Frost once wrote of two paths diverging in a yellow wood. After pondering the merits of each way, he makes a choice.

While our Federal city isnt much of a yellow wood, there are two fiscal paths that diverge in front of our lawmakers. Based on projections from the Congressional Budget Office, President Obama’s budgetary path would substantially increase Federal social benefits as a share of GDPfrom about 16.7 in 2010 to 23.1 percent of GDP in 2085.

In contrast, the path proposed by House Budget Chairman Paul Ryan (R-WI) would prevent such an increase by fundamentally reforming Federal health care programs.

In a recent interview with the Christian Broadcasting Networks David Brody, Chairman Ryan articulated the differences:

We want to restore the American dream for everybody in American society so that every person has a chance at equal opportunity to make the most of their lives. The presidents vision, I believe, is to equalize the outcome of peoples lives - not to promote natural rights and equal opportunity, but new government granted rights and equality of outcome. Its a very different vision of what it used to be, and I really think thats where the president is trying to take this country.

While we can assume that the President intends no personal malice towards the American dream, his budget threatens to curtail and redefine it.

Economist and author, John D. Mueller has crunched the numbers on the Presidents budget and compared it to Chairman Ryans alternative. He projects that the U.S. birth rate will fall significantly under current law, from about 2.1 to about 1.75 children per couple in 2085. He further projects that would remain almost exactly at the replacement rate of 2.1 under the proposed Ryan budget, approximating the Social Security Trustees’ Intermediate Assumptions.

Join us today for a lunchtime lecture as Mueller releases his original research and why these birthrate projections even matter.

Two budgetary paths diverge in a partisan town. Taking the one less traveled by might make all the difference.

Register here for the live event, or to attend by webcast.

Deficit Deception: Don’t Bank on Social Security: A Primer in the Manifest Phoniness of the Social Security System

by Rob Schwarzwalder

April 12, 2011

According to the Congressional Budget Office (CBO), the fiscal year 2010 deficit was $1.3 trillion. If the roughly $700 billion from Social Security had been kept in its own so-called Trust Fund and, as a result, subtracted from federal general revenues, the deficit would have been more than $2 trillion.

Instead, as economics writer James Pethokoukis observes, monies supposedly dedicated to Social Security are used as part of a fiduciary shell game” to “mask the true depth of the budget deficit.

How can Social Security and the federal government get away with this?

To answer that, a few foundational facts are needed.

For one thing, there is no Social Security Trust Fund. The Fund is an accounting device that’s used to hide the true size of the federal deficit.

The monies collected from taxpayers are, in an act of accounting sleight-of-hand, put into the Trust Fund for about a millisecond and are then replaced by “special-issue securities,” Treasury notes that the Social Security Administration (SSA) itself admits are “available only to the trust funds.”

In other words, the federal government takes money out of Social Security to pay for all kinds of things, including payments to retirees. It issues itself Treasury bonds to repay its loan from the Social Security Trust Fund but they are bonds only Social Security itself can buy. This is known, in stuffy bureaucracy-speak, as an intragovernmental loan.

SSA itself clarifies, “Tax income is deposited on a daily basis and is invested in ‘special-issue’ securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.” Invested, indeed keep reading.

So, the money that the federal treasury siphons-out of the erstwhile “trust fund goes to cover general revenues of all kinds: From the common federal budget pot, the monies are used to pay for freeway projects in Iowa and aircraft carriers to U.S. Postal System delivery trucks. Oh, yes, and payments to Social Security recipients, or beneficiaries, as well.

Here’s how Stephen Ohlemacher of the Associated Press explains it:

The money in the trust funds has been spent over the years to help fund other government programs. In return, the Treasury Department issued bonds to Social Security, which earn interest and are backed by the government, just like bonds sold in public debt markets. When Social Security runs a deficit, it redeems its bonds with the Treasury Department to cover the red ink. But Treasury gets the money to pay Social Security the same places the government gets all its money: either from taxes and other revenues or by borrowing it. Last year, the government borrowed 37 cents of every dollar it spent. This year it’s borrowing 43 cents of every dollar.”

The interest earned is merely a designed percentage payment Uncle Sam adds onto the amount of the loan derived not from any kind of profitable investment itself, but from the printing presses of the federal treasury. The interest is merely added out of fiat-drenched thin air.

Why does the government do this? Very simply: If Social Security designated funds - the money that comes out of all of our paychecks to pay Social Security income to seniors were not used for general revenue, the deficit would be shown to be even more gigantic than it is, as noted above.

How much money are we talking about? As indicated in the first graph of this piece, the CBO says that Social Security contributed $706 billion to the federal budget in FY 2010. Thats about one-fifth of the total budget.

Some argue that since beneficiaries are getting paid, whats the big deal?

Last year, the pay-out total to retirees was $41 billion more than what was taken in through Social Security taxes. For the first time in roughly 30 years, the SSA ran a deficit one larger, in itself, that all but a handful of the countries in the world.

Second, the false assurance that the trust funds dollars are invested is a lie pure and simple. This investment is actually nothing more than a credit slip that says, in as many words, that the money will be put back in by the Treasury with a certain percentage of interest, interest not derived from anywhere but balance side of a phony federal ledger.

Third, were the money actually invested in interest-bearing accounts, using historic rates of return, the SSA would not be facing the historic crisis it faces in the next quarter-century. Consider: Over the course of its history, the stock market with all the dips, depressions, recessions, wars, etc. we have faced has had an inflation adjusted return of between six and seven percent.

Given the monies poured into the Social Security system since its inception in the 1930s, such a return would have prevented the current, and future, profound shortfalls we are facing.

Fourth, and perhaps most ominously, is the dearth of workers who pay into the system. That number has shrunk from 16 employees per beneficiary to slightly under 3 workers per beneficiary today. As Americas population ages, that ratio will shrink, to our profound fiscal danger, more and more.

Charles Krauthammer notes that should the debt continue to build like a throbbing volcano, the full faith and credit of the federal government wont mean much and not just Social Security, but the whole economy, will be at grave risk:

In judging the creditworthiness of the United States, the world doesnt care what the left hand owes the right. Its all one entity. It cares only what that one entity owes the world … (W)hat would happen to financial markets if the Treasury stopped honoring the special issue bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing. This default would simply be the Treasury telling the Social Security Administration that henceforth it would have to fend for itself in covering its annual shortfall.

The other alternative: Treasury tells SSA no such thing and simply pays back, using not real assets but accredited and/or printed monies from Treasurys printing presses, what it owes SSA: The money will, at some point, stop holding much, if any, value. At that point, the world will care a lot, because it will indicate the Weimar-esque quality of the U.S. greenback.

There are a number of ways to correct the problem before Social Security runs completely out of money in about 26 years.

Former FRC scholar and current Howard Center director Alan Carlson argues convincingly, as Americans have more children, we will remedy at least much of the crisis by having more workers to pay into the Social Security system itself. House Speaker John Boehner and others argue for raising the full retirement age from 65 to, say 67 or even 70, which more accurately reflects growing longevity and work patterns and would save large amounts annually.

House Budget Committee Chairman Paul Ryan is among the leading advocates of allowing younger income-earners to invest at least a graduated/growing portion of their Social Security dollars into private retirement accounts, not unlike the federal employees Thrift Savings Plan (TSP).

This could be done directly, from the employees paycheck, and be directed into one or more of several fund-types managed independently, just as TSP funds are.

What is clear is that the current system is neither sustainable nor honest. While no one expects President Obama to advance the reforms necessary, the next President should.

If Social Security is not just to survive but refrain from being a fiscal anvil around the national neck, the next President must.

Formerly chief of staff to two Members of Congress and a presidential appointee in the George W. Bush Administration, Schwarzwalder is senior vice-president of the Family Research Council.

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