JUNE 2005 

In thinking about Social Security, we forget that it is a money collector (via special taxes and the interest from their investment), and a LENDER to the government (which was not part of its original intent).

It is not a spender of the government’s money. It spends only its own money, which was collected for the purpose of pension and survivor insurance, and is supposed to be held and invested for that purpose. The Trustees have made sure that it collects more than it spends, and it always has a large surplus. Currently, the fund can pay full benefits until 2042, or 2052 with no fixing (because there’s nothing wrong with it). It could continue indefinitely paying full benefits with just a little tweaking, such as raising the cap on income taxed (currently at $90,000) or raising the retirement age a bit.

The problem is with the U.S. budget, an entirely separate thing. For decades, the U.S. Congress has borrowed money from the Social Security Fund to help meet its own deficits. The amount has skyrocketed since the Bush ascendancy—almost $1 trillion.

The Social Security Fund holds those IOU’s in the form of U.S. Treasury bonds, which do come due. U.S. Treasury bonds are the gold coin of investments. The only way they would not be paid is if the government defaults. Which is currently unthinkable. (Also, that is the only way Social Security could go broke.)

The amount by which Social Security taxes exceed benefits is beginning to shrink. By 2018, the flow reverses—much sooner if private accounts are created. This won’t be a problem for Social Security, but it will be a big one for the GOVERNMENT. Instead of spending the Social Security surplus, the government will need to begin paying off IOU’s. Repaying Social Security will become a huge drain on a government already under fiscal stress. Deficits will skyrocket. Confidence in the U.S. will further diminish.

The U.S. budget IS in crisis. And Bush does not want to admit this to the public, especially since his tax cuts, his war, and his spending on expanding government have contributed mightily to it.

Instead, we have, as Jim Hightower says, as with Saddam and WMD’s, the Big Lie of the Looming Crisis, and the demand that Congress authorize the Big Rush into the ideological abyss where the Big Mess awaits.

If this country is rushing into bankruptcy, it has nothing to do with Social Security. The government’s financial policies are the problem. Next time we’ll look at Social Security’s solvency, and the threat of “private” accounts to that solvency.