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While skimming through today's Drudge Report, I found an article stating that Social Security (SS) will operate in the red for the next couple years. SS will pay more out to retirees than it collects in payroll taxes. This is due to the recession. It seems many more older workers are opting for early SS retirement in this lousy job market, thereby raising SS payouts.
But that part of the story isn't what caught my attention. The interesting part was how the author reiterated an enduring myth about Social Security. Here it is:
The [SS] deficits - $10 billion in 2010 and $9 billion in 2011 - won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.
What a bizarre and nonsensical statement.
The obvious question here is, if SS has surpluses of $2.5 trillion, how can payments (of $19 billion) to retirees ADD TO THE OVERALL FEDERAL DEFICIT ?
The obvious answer is, if SS did have $2.5 trillion in surpluses, nothing would be added to the federal deficit. Payments to retirees would be paid from the SS surpluses. No problem.
Yet, the $19 billion in projected SS deficits for 2010-2011 WILL add to the overall federal deficits. Why ? Because THERE IS NO $2.5 TRILLION SOCIAL SECURITY SURPLUS, except in a bookkeeping sense. There is a file cabinet of IOU's saying that the U.S. Treasury owes the Social Security Administration $2.5 trillion, but those are not real assets. They are just IOU's. This is merely one branch of the federal government saying that it owes money to another branch of the federal government. Big deal. No branch of the federal government actually has that money. That's why the projected SS deficits for 2010-2011 will add to the overall federal deficits. Social Security is bankrupt. There is no Social Security Trust Fund, like so many of us have been led to believe. That is a fiction, an accounting trick. SS has no real assets beyond what are collected in payroll taxes each year. That makes SS a ponzi scheme.
Here's how the US Office of Management and Budget (OMB) described it, which is as close as I've heard the government come to telling the truth about SS:
"These (Trust Fund) balances are available to finance future benefit payments and other Trust Fund expenditures — but only in a bookkeeping sense… They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government's ability to pay benefits." (from FY 2000 Budget, Analytical Perspectives, p. 337).
There's the OMB telling us that the SS Trust Fund doesn't exist. This raises the next question. What happened to the SS Trust Fund money ? After all, revenue flowing into the SS system has been far greater than payouts to retirees for most of the history of SS. We SHOULD have that $2.5 trillion in SS surpluses. Where did it go ?
The answer to this question should make your head explode in anger. Quite simply, Congress spent your SS Trust Fund money. When you pay those FICA payroll taxes, Congress pays the retirees, and then puts the rest of the SS money into the general fund and spends it, just like that. At that point, poof, the money is gone. The IOU's that are written back to the SS Administration for that spent money are meaningless, because the money has been spent. It's gone. What this means is that your FICA payroll taxes, which you thought were going to fund your own retirement, are in reality nothing more than a hidden income tax, and Social Security is nothing more than a straight welfare program. Take whatever income tax rate you thought you were paying and add 15.3% (employer SS tax rate + employee SS tax rate + Medicare) to it. That's your REAL federal income tax rate.
To add insult to injury, when it comes time to redeem those SS IOU's, which are in the form of Treasury Bonds, guess who gets to pay that $2.5 trillion in, lol, "Social Security surpluses" ? Why, YOU do, Mr. and Mrs. Taxpayer. You get to fund SS all over again, after you already funded it the first time with your payroll taxes, which the government STOLE (there really isn't a better word for it). In the private sector, this is known as a CRIME. Bernie Madoff just went to jail for this same crime. He was properly vilified, but the government uses some fancy language to cover up it's crime. The government says things like, "Social Security is backed by the full faith and credit of the United States government," as if that is anything different than saying "we can just force the taxpayers to pay for it. AGAIN." It isn't any different, not one bit.
In conclusion, the next time you hear certain politicians (you know which ones) telling you what a great program Social Security is, just laugh in their faces, but resist the urge to cuss them out, especially if you're at one of those townhall meetings. You don't want the media to start calling you an extremist or something.