When social security was first set up, it was not supposed to be retired people's only form of income, it was supposed to be a safety net.
There are a lot of people in this country, all paying in to social security, and if all the money they paid in to social security was left in that fund, with only the interest being taken out to fund other programs, we'd be just fine now.
But for several decades the social security money has been taken out and spent. And that's why the program is bankrupt.
Here's an article from CBS Money Watch from Feb 1, 2011
The Social Security Trust Fund Myth
by Steve Vernon
Worried about your Social Security benefits? You should just forget about the debate regarding when the Social Security trust fund will be drained. At least that’s the conclusion of an excellent post from earlier this week from CBS MoneyWatch editor-in-chief Eric Schurenberg. I agree with Eric’s recommendation — this post just adds my two cents worth about the Social Security trust fund.
Our political leaders continue a long tradition of using words to describe Social Security that give you an impression that is different from reality. Normally, when you hear the words “trust fund,” you think of an arrangement where money and investments have been set aside that are dedicated to a specific purpose, such as providing retirement benefits. And typically, the money and investments in a trust fund are separate from the entity that sponsors the trust fund. The trust funds supporting your 401k and pension benefits operate this way. [Or at least - it's supposed to!]
But the Social Security “trust fund” is invested in special government bonds issued by the federal government. Principal and interest on these bonds must be repaid by future generations, according to law. The bonds in the Social Security trust fund are counted both as an asset of the trust fund and as a liability, since they are part of the total federal debt. Basically, one hand of the government owes the other hand, and the investments in the “trust fund” are not separate from the entity that sponsors the trust fund.
In the distant past, Social Security was a “pay-as-you-go” system, where current tax collections paid for current benefits. The Social Security trust fund idea gave us the illusion that we were advance funding Social Security benefits, in a manner similar to the private pension system. In reality, though, Social Security is still pay-as-you-go, with the difference being that future generations will pay for both the benefits outlay and the repayment of principal and interest on the special government bonds in the trust fund.
Some people are outraged by the operation of the Social Security trust fund, using inflammatory language to describe our politicians as having “raided” the trust fund. I don’t happen to be outraged. I realize and accept that the government has a variety of revenue sources, including FICA taxes, and a variety of expenditures, including Social Security benefits. There is — and never has been — any real link between our Social Security benefits and the FICA taxes that we pay. What the Social Security trust fund does represent is a legal obligation for our government to repay the principal and interest on the special bonds in the trust fund. I have faith that these bonds will be honored — provided that future generations can afford to repay the bonds.
The debate on the Social Security trust fund is really a distraction from the real debate, which is how much can we and our children afford to pay, considering all the taxes we currently pay? When does the total federal debt get too big, including the part of the federal debt that represents the Social Security trust fund?
When you think about it, the real Social Security trust fund is the trust that our children and grandchildren will be willing and able to pay all their taxes, including FICA taxes, and that they will be willing and able to pay interest and principal on all the federal debt, including the special government bonds in the Social Security trust fund. If this happens, our Social Security benefits will be secure.
If you read the tea leaves of President Obama’s State of the Union address, it appears that Social Security’s financing and benefit provisions won’t be addressed until after the 2012 election. According to his speech, there are more important issues to be dealt with immediately, including kick-starting the economy, creating jobs, and the wars in Iraq and Afghanistan. That may be.
But please, Mr. President, don’t kick the can much farther down the road. We need focused leadership from you — endorsements of specific recommendations on how to improve Social Security’s funding and the benefit changes that need to be made. The recommendations from your bipartisan Deficit Commission were a good place to start. The security of our Social Security benefits depends on effective and responsible leadership.
But - some responses to Vernon's article...
RE: The Social Security Trust Fund Myth
I want to commend Steve Vernon and Eric Schurenberg for their contributions toward educating the American public as to the true status of the trust fund. I first stumbled onto the fact that our government was systematically diverting Social Security revenue into the general fund and using it for non-Social Security purposes more than a decade ago. Unlike Steve Vernon, I was outraged as soon as I found out what was going on, and I wanted to tell the whole world so everyone would be outraged. But I soon learned that nobody believed me and nobody even wanted to listen to what I had to say.
On September 27, 2000, I appeared on CNN with anchor Lou Waters to discuss my newly published book, "The Alleged Budget Surplus, Social Security and Voodoo Economics."
I was so naive back then that I thought by exposing what I considered to be the Social Security fraud in a book, and then discussing that book on national TV, I would launch the beginning of the end of the looting of the trust fund. But Lou Waters seemed more amused than interested in what I was saying. He finally asked me, "Are you a voice crying in the wilderness?" As it turned out I was a voice crying in the wilderness in 2000, and I am still such a voice a decade, and three books, later.
If I had been taken seriously, and the government had ended the looting and begun investing the surplus in pre-existing marketable Treasury bonds, purchased in the open market, at that time, Social Security would today have $1.5 trillion in "good-as-gold" default-proof assets in the trust fund instead of it being empty. Harry Markopolos tried to warn the SEC about Bernie Madoff's giant Ponzi fraud for nine years before Madoff was arrested. If the SEC had taken Markopolis seriously, thousands of individuals and charitable organizations would have been sparred being swindled out of billions of dollars. I have been trying to warn about the Social Security fraud for even longer than Markopolis tried to warn the SEC. I believe failure to heed my warnings has cost the American people $1.5 trillion.
Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
Website: www.thebiglie.net
RE: The Social Security Trust Fund Myth
Again, I want to commend and thank Steve Vernon for his contribution to educating the public about the Social Security "trust fund."
I speak from personal experience when I say that the looting of the Social Security trust fund has been a taboo subject that the media were not supposed to report for many years. I call it the "Dan Rather syndrone." We all know what happened to Dan Rather when he reported a story that the White House did not want reported. I think it was a sad day in American history when an anchor of a major network could be fired for simply trying to do his job. In an article by Dan Froomkin, in the February 28, 2005 issue of the Washington Post, Froomkin writes, "In an odd exchange during the private meeting...a defensive Putin reportedly expressed his belief that Bush fired CBS News anchor Dan Rather." Now we all know that the president does not have the power to fire someone in the private sector. But the very fact that Russian President Vladimir Putin thought so is scary. I just don't think that, in recent years, the media has had the same degree of freedom of speech and freedom of the press to report stories that reflect badly on the federal government that they have had in the past. They must be cautious about what they report. During the first nine years of my crusade to expose the looting, my message was received about the same as it would have been if I were claiming to have taken a ride in a purple UFO with little green men. The media seemed to think I was a "crazy man saying crazy things." Even though I have a Ph.D. degree in economics, and am the author of seven books on economics and Social Security, to use the words of Rodney Dangerfield, "I didn't get no respect."
That all changed when Fortune Magazine Senior Editor at Large, Allan Sloan, quoted me and referred to one of my books in his Washington Post column in August 10, 2010. Since then the media have been more receptive to at least listening to what I have to say.
Steve Vernon has framed this column in such a way that I have a lot to say about it. I agree with much of it, but I want to point out the parts where I disagree. I am hoping that the moderators of this forum and Steve will not mind my making numerous posts on this blog to express my views. For most of my decade- long crusade, my voice has been effectively muzzled for lack of a forum. I hope I can freely express my views on this forum. As I said in my earlier post, more than $1.5 trillion in Social Security money has been looted and spent since 2001. If the looting had been stopped in 2000, when I first launched my campaign, Social Security would now have that $1.5 trillion in the trust fund today.
In addition to my time, I have borrowed and spent more than $30,000 in my effort to publicize this issue that the mainstream media refused to touch with a ten-foot pole. Most of the money has been spent on PR Newswire releases. My latest release, entitled, "Social Security Day of Reckoning Has Come," was released two day ago.
I want to thank in advance, Steve and others for allowing me to speak my mind.
Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
www.thebiglie.net
_________________
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