Social Security Isn’t In Crisis – WE ALREADY PAID FOR IT!

Author: July 25, 2011 9:05 am

This is an article written by someone on Facebook and when I saw it I knew the message had to be sent out there! So this article is by David L. Rutledge, I am just the messenger. (I have permission to post just as an FYI).

Yes, I’m going off on a rant again. : ) I recently made the comment, “Social Security isn’t in crisis, didn’t and won’t add one dime to the national debt, and isn’t a hand-out. WE ALREADY PAID FOR IT!” A friend, no doubt hoping to save me from the embarrassment of having to eat my words, sent me this.

A rebuke from used to carry a lot of weight with me, but not any more. The article is misleading at best. The truth is that buying back securities sold to the Social Security Trust Fund will increase the budget deficit, if the government doesn’t raise taxes to pay its own bills, BUT THAT IS NOT RED INK ON THE PART OF SOCIAL SECURITY!

Because past payments into Social Security exceeded benefits paid out, the fund currently has a surplus of something like $2.6 trillion (money already paid by American workers and their employers). The “deficit” to which the fact-check article refers, then refers to current Social Security payroll tax revenues falling short of benefits being paid out. The government has to buy back Treasury securities sold to the Social Security Trust Fund in order to cover current benefits. If the US government doesn’t have the revenues to buy them back, this creates a deficit, but that is not a deficit in Social Security. That is a deficit in the general budget. And by law, Social Security operates entirely outside the general budget. They are two completely separate entities.

Because of the Republican tax cuts for the richest Americans, two Bush wars they never funded, and the economic crisis they created, the government will have to borrow money in order to buy back Treasury securities sold to the Social Security Trust Fund. This does indeed create a deficit, but blaming Social Security for the current red ink is more than a little disingenuous – like the enormous deficits run up by Republican administrations, it is a political trick intended to create a fiscal crisis that can be used to attack one of the most successful programs the Democrats ever created to benefit middle-class and poor Americans.

Just to clarify, the problem isn’t that the government is using the Social Security Trust Fund money. This is how our money earns interest. That’s a good thing. The problem is when Republicans try to scare people who don’t understand the mechanics of the operation into thinking the Trust Fund doesn’t exist or is “full of worthless IOUs” so that they can use this as a political tool to destroy the program.

Having a surplus, it’s better to invest that money than to let it sit around losing value because of inflation. You’re private savings account is just as much an IOU as the Social Security trust fund, except it doesn’t earn as much interest. You don’t think they have your money sitting in a vault somewhere, do you? That money is loaned out to generate interest. If these IOUs were worthless, why would governments around the world be buying them?

Because of the interest owed on those Treasury securities in the Social Security Trust Fund, even while the republicans scream that it’s losing money, the Trust Fund will continue to grow for some years to come, even while expenditures exceed payroll tax revenues.

The Social Security Trust Fund surplus is currently projected to cover benefits paid out until 2037, with no changes to the current structure. If we don’t do anything, in 2037, the Social Security fund would be forbidden by law from taking money from the general budget; therefore, Social Security benefits would simply decrease. In the meantime, we can do several things to prevent that from happening, like raising the retirement age, raising the ceiling for taxable income, means testing, etc.

The current shortfall in Social Security revenues is largely a factor of the economy – less people making money, therefore, less taxable income. Also, the Republicans recently negotiated a payroll tax holiday, starving Social Security revenues ever further, which I assume they did for exactly the same reasons they ran up the national debt – in order to gin up a fiscal crisis, which they could use politically to attack Social Security.

To sum up, the “deficit” comes from the fact that the government now must borrow money to buy back bonds in order to cover current Social Security expenditures. BUT THAT IS NOT A PROBLEM CAUSED BY SOCIAL SECURITY!

Republican Propaganda Talking Points:

1. “The Trust Fund/surplus doesn’t exist.”
The Social Security Trust Fund is as real as your government insured savings account (if you still have one).

2. “It’s full of worthless IOUs.”
Those so-called “worthless IOUs” are special issue securities from the United States Treasury – the most trusted investment instruments in the world – backed by the full faith and credit of the United States Government.

Despite derision from the likes of Ron Paul and his Republican friends, who are using every trick they can think of to try and undermine it, the full faith and credit of the U.S. Government still carries a lot of clout around the world. This is why, in the wake of the global financial crisis (we created), with the US mired in two wars, with bailouts and ballooning debt, countries and corporations around the world began hoarding US dollars. For all the griping, nobody’s about to replace the US dollar as the global currency any time soon.

3. “Social Security is a ticking time bomb.”
?”Ticking time bomb” is not just hyperbole but a Republican fear-mongering talking point. If we do absolutely nothing, in around 2037, benefits will simply decrease. Is that equivalent to a bomb blowing up?

Meanwhile, in order to prevent a future shortfall because of our aging population, we can make any of a number of adjustments to prevent that from ever happening. I would favor increasing the ceiling on taxable income. As income inequality in the US has increased, more income is going to the top, and only a fraction of that income is taxable to Social Security. The current cap on taxable income is around $106,000.

Growing income inequality has caused the share of earnings above the cap to nearly double over the last three decades. This is because incomes for the rich have increased massively while the rest of us, whose incomes are fully taxable, are getting less. The Social Security Administration estimates that eliminating the cap on taxable earnings would close the projected shortfall.

4. “Social Security is not a 401K – it’s a shell game, an illusion.”

Do you have a savings account? Do you have any investments? Are these also a “shell game” or an “illusion”? No, Social Security is not a 401K – you can lose money with a 401K (especially with Republicans running the show). The Social Security Trust Fund buys special issue US Treasury Bonds, which can be redeemed at face value. They cannot lose money.

5. “Social Security is a Ponzi Scheme – paying benefits from revenues coming in.”

True, SS pays benefits mostly from current revenues. We all pay our bills mostly from current revenues. When you get a paycheck, do you sell stock to pay your bills and then buy more stock with the money from your paycheck? I’m guessing not.

Until 2010, with revenues depleted by the economic catastrophe wrought upon America by Bush & Co., SS not only paid benefits from current revenues, but it also purchased US Treasury bonds for the future, earning interest. Those Treasury Bonds are now worth in excess of $2.6 trillion and still earning interest. That’s no “Ponzi scheme.” That’s a sound investment – an investment Republicans and their Wall Street cronies would love to get their hands on.

Republicans claiming Social Security adds to the deficit is a lot like wayward youngster, to whom you loaned a couple trillion bucks on Friday, coming to you on Monday, all hung over, and griping that if he gives you twenty bucks for lunch, he’ll have to borrow from the credit card to pay his mortgage.

The problem isn’t caused by Social Security. It’s caused by the behavior of the errant child. We don’t have a deficit in the Social Security Trust Fund. What we are witnessing is a deficit in the integrity of the Republican Party.


facebook comments:


  • Cynthia Whitford

    Why is social security even on the table. Who do the republicans think they are even considering doing anything to it. First they “borrowed” all kinds of money from it without asking and now they think its theirs. Maybe they should be indicted for larceny.

  • Simple Liver

    As of June 2011, the trust fund is just under 2.5T$. See, page 9, table III, halfway down the page.

    The “Social Security Crisis” is the rampant fear of having to raise taxes (or cut benefits to campaign financiers, whichever way you want to think about it) to pay off the promises of previous generations of Congress. Note however, that to fund the Viet Nam war and The Great Society, Johnson and his cohorts in that Congress (Democrats) engineered the law mandating any Social Security Surplus be “invested” solely in nonmarketable Treasury bonds. This has the effect of moving the money from the Trust Fund to the general fund, so Congress could spend it. Every Congress since then has gone along with the charade. Every party and person ever in Congress is equally guilty of continuing this fraud on US citizens.

    Since a Treasury bond is nothing more than a tax future (you hope it’ll be paid and get paid interest for the risk it won’t be), there is a strong flavor of “worthless paper IOU” about a Treasury bond, particularly a nonmarketable one. This is especially true if you have no intention of ever taxing *someone* to pay off that future, as this Congress has all but stated publicly.

    I think it would be worthwhile to look at who has financed the last round of elections and see where their money currently is. I strongly doubt it is in US$ denominated assets. The lowest 98% are about to be crashed out because the upper 2% have cashed out…

    • David L. Rutledge

      Raising the cap on income taxable to SS ought to stave off any projected future shortfall. We won’t need to either raise taxes or cut benefits. The “crisis,” much like the Republican debt crisis, is entirely manufactured for political ends.

      These special issue Treasury Bonds are better than the marketable variety. The government is obligated to buy them back, and these securities can’t lose money based upon fluctuations in the market. (In other words, we got an infinitely better deal than China, and China is buying them by the container vessel full.)

      The whole “worthless paper IOU” thing is beyond ridiculous. These are the most sought after investment vehicles in the world, and for good reason – they are the safest investment vehicles in the world.

      Our government has never failed in its obligation to either pay interest on or buy back these securities. If it ever did, our problems would be a whole lot bigger than Social Security. The economic catastrophe that would entail would reach every corner of the globe.

      The debt ceiling will be raised at the very last minute, as it always is, and the T-party loons in Congress to which you refer will be voted out in 2012.

  • Courtney Lynn,

    Re: your comment wondering if this is English class

    I assume that you want your ideas to be taken seriously, as you spent a lot of time writing them and working them out. If you are going to put your work out there and expect to be taken seriously as a journalist and not just some kid who’s writing a term paper, then, yes, it matters how you write. Your ideas will be taken more seriously by more people if what you’ve written has been well-edited and makes sense to your readers.

    I actually appreciated what you wrote and agreed with what you said. If you want to, you can just correct the typos, re-upload the page and delete my comment (or leave it). Most true writers appreciate it when someone cares enough about their writing to take it seriously.

    But, whatever.

    • Michelle, looks like someone didn’t read the whole thing

      “This is an article written by someone on Facebook and when I saw it I knew the message had to be sent out there! So this article is by David L. Rutledge, I am just the messenger. (I have permission to post just as an FYI).” – first paragraph

      And actually, since I am not the controller of the website, I cannot. So before you make comments make sure you have ALL your facts :)

  • Thanks for writing this article. I, too, favor raising the ceiling on taxable income. It is the most sensible and fairest way (in my opinion) to fund Social Security.

    I just wanted to point out a couple of typos.

    In the paragraph that starts:
    “Having a surplus, it’s better to invest that money than to let it sit around losing value because of inflation. You’re private savings account is…”

    In the paragraph that starts:
    “Republicans claiming Social Security adds to the deficit is a lot like wayward youngster…”
    You need the word “a” before “wayward.”

    I hope I don’t come across as “nitpicking,” but your writing will read better without these typos. Keep writing!
    **”You’re” should be “your.”

    In the paragraph that starts:
    “The current shortfall in Social Security revenues is largely a factor of the economy – less people making money….”
    **It should be “fewer” people.

  • Joel S Henderson

    I’m fairly politically/fiscally conservative and definitely agree with most of this (though I’m not sure if you’ve got Ron Paul’s message correct but that’s cool).

    For me, the ‘honesty’ litmus test with politicians on either ‘side’ is whether or not they speak about the REAL reasons for the deficit/monetary crisis (if you will).

    IMO, the REAL reasons are the never-ending state of war that this country has engaged in for decades (I know – W was a HORRIBLE president but he wasn’t all that different from most of the rest from a foreign policy standpoint) as well as the ‘shell games’ that the privately-run Federal Reserve plays with our currency (and by proxy, the global markets).

  • Why is it then that Obama said he couldn’t guarantee that Social Security checks would go out 3 Aug if the debt ceiling isn’t raised?

    Oh, that’s right, because the money ISN’T there!! It’s in IOUs payable on demand–if the US government is allowed to borrow the money to pay them….that’s not a PONZI scheme?? YGBSM.

    If your SS money had been a regular account, in your name, you wouldn’t have this problem. It would be paid out, on time, regardless of the governments inability to function keep borrowing.
    There are plenty of government and railroad employees who have opted out of SS for private accounts that are safer and pay better benefits. Why shouldn’t we all have that option?

    But, just like you accuse the “Republicans and their Wall Street cronies” of wanting to get their hands on all that juicy money, you could never wean the Fed off of all the money it gets it’s hands on every month, and spends wildly.

    In reality, though, even a regular account isn’t a guarantee. Think about your bank deposits. What do you think would happen if we all said we wanted our money, right now? You think the banks could pony up the cash? Not even close. That’s why there is FDIC. Just to make you feel like your money is safe.

    In reality, the Fed is practicing the same game, but we have no FDIC. They can just take your money from you. And keep taking it. Either by taxes or inflation. The more they print, the less your savings are worth.

    Nice, huh?

    Feel better?

    • You have some serious anger issues. ^_^

    • David L. Rutledge

      In the Social Security Trust Fund you have something better than money, which can lose value with inflation. You have special issue Treasury securities redeemable at face value and earning better interest than your savings account. This is not a “Ponzi Scheme” – This is a sound investment, backed by the full faith and credit of the US Government. If these were worthless IOUs, why would governments and corporations around the world be so eager to buy them? The only real threat to our Social Security Trust Fund comes not from the mechanics of the fund itself but from the political threat of too many like yourself buying into Republican fear mongering and allowing them and their Wall Street to get hold of it.

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