Social Security Surplus Scam

You will often times hear about the Social Security Trust Fund. Four words that each have a definite meaning, but when combined together and attached to our current situation are probably the worst four words to use to define the surplus in our government-mandated retirement system. [Note, the last sentence should have 'surplus' and 'retirement' in quotes to denote their ironic character, but to be consistent I'd have to do that a lot in this article and it may look weird. When in doubt, assume it's there.]
First, let's explore how Social Security works at a fairly high level. A certain percentage of your labor value - the amount of money an employer is willing to pay you, based on your expected utility - is taxed by the government for the purpose of paying Social Security. Half of which comes directly out of your paycheck, the other half comes out of the salary your employer intends to pay you. Huh? what does that mean, what's the difference? There is none, but you will often hear it expressed as a 6.2% tax, or 12.4% for self-employed. The truth is that if you are not self-employed, your employer must also pay in 6.2%. The employer is not going to eat this additional cost, and so your effective salary is reduced to pay for this. [Note that technically it is possible the employer splits the cost between reducing your salary and increasing their product/service cost. But if products on the market have inflated prices to cover this tax, then the value of a consumers dollar is reduced by an equal amount, and hence they end up paying that other 6.2% one way or the other]. The point being, if you make $50,000 a year you will end up paying $6,200 in Social Security tax, even though your W-2 may not show this.

Currently Social Security takes in more than it has to give out in benefits. The extra is commonly called a surplus, and is frequently used to discount any worries of there being a crisis. So where is this surplus, are there millions of lock boxes at Fort Knox?

Alas, the surplus does not just sit in a government warehouse. It takes an interesting journey from being the fruits of a Social Security tax, to being part of the mass of monies used to pay off the general budget. How this happens is that the surplus funds are used to purchase special treasury bonds (main feature being that they can be redeemed at any time). The money gained from selling the bonds is used for general budgeting. The surplus is thus a giant steaming pile - of treasury bonds, and the money is spent immediately for other things. That's ok, you may be thinking, lots of people invest in bonds, they provide a secure way of yielding interest, what makes this not a true surplus? I'm glad you asked.

In effect, the government is giving money to itself for immediate use in return for an IOU (promise to pay later). When the Social Security surplus bonds need to be redeemed the government will have to pay itself back. Unlike a business that produces goods/services people willingly pay for, the government does not have profits, nor has to rely on the fickle nature of the market. Government's means of obtaining revenue is through taxation. Since death and taxes are both guaranteed, this is why government bonds are considered less risky than stocks - Microsoft will go out of business before government ends taxation. If the government has to pay back the treasury bonds, this is another way of saying that taxes will be needed to pay for this.

Analysts have shown that in 2018, Social Security will stop taking in more than it has to give out in benefits. This means that the trust fund will need to be dipped into, or more accurately some of the bonds (or interest earned on the bonds) will need to be redeemed, or more accurately, taxes will have to be increased to pay for this. Various shell games can be played, such as saying that part of the budget already goes to cover regular bond payments. But the surplus that currently goes into the general budget will no longer exist - that shortfall will have to be made up, and it won't come from Congressmen selling lemonade.

Hey wait, taxes don't have to be increased - government could reduce spending in other areas, cut down on its budget, to cover this extra cost. To that I can only laugh. Or I would laugh if this wouldn't be affecting both my present and future economic outlook.

Information on Government Bonds
Information on Bonds in general
Information on Social Security

The surplus as explained by the government
Note this gem: "Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government."

Yes, they aren't worthless IOUs, because government will make damn sure the taxpayers are fleeced to pay all those special bonds back. A classic case of missing the point. The issue isn't that the bonds are not secure*, but that the cost to pay them will bleed the taxpayers dry.

* - However, while the bonds themselves may be secure, there is no guarantee on the benefits SS pays out; this has changed in the past and can change again - and most likely will, as the politicians will probably come up with a scheme that both raises taxes and reduces benefits (or increases the retirement age for receiving benefits).

P.S. The above should not be taken to read: "I agree 100% with Bush's plan for personal accounts". Although I will say that anyone who claims Bush's plan is privatizing Social Security, is probably the same kind of person who thinks that Social Security runs a real surplus.

Apology

First off, I apologize for the delay; this blog was created with the expectation that the designated writer would contribute rigorous, relevant, and regular posts. The blog's creator and editor (me) had given the recalcitrant writer plenty of time to come up with a new entry - promised to be on Kyoto and the limits the Constitution places on the federal government. Alas, there is no new entry and this blog languishes like Toni Basil, Tommy Tutone, or Dexy's Midnight Runners, full of promise but only able to come through one time.

I hope to change this by getting some things off my chest concerning popular misonceptions that bother me every time I hear them.

Note: Let's give credit where credit is due. The post on the Filibuster was prophetic - see Sen. Byrd's recent controversial speech. A speech that the wacky right blew up as equating Bush with Hitler, a tactic known as "You are saying something that I do not want to fully acknowledge - HEY, WHEN YOU MOVED YOUR HAND IT LOOKED LIKE YOU GAVE ME THE FINGER - HEY EVERYBODY, COME LOOK AT THIS PERSON WHO GAVE ME THE FINGER!". Avoidance and deflection, brilliant. Of course, one should also take Byrd's speech with a critical eye; one can only wonder if he would have given this speech if his party was curently king of the hill.

Full text of Senator Byrd's speech

For the curious, here is info on Byrd's KKK Konnection.