Social Security Trust Fund Bonds Will Be The ‘21st Century Version of Confederate Banknotes’

by Frank Hill, Telemachus

If you really want it hammered home into your head just how ephemeral the Social Security Trust Fund really and truly is, take a look at what one of the most colorful and nearly-unintelligible US senators ever, Senator Ernest 'Fritz' Hollings of South Carolina, had to say about it on October 13, 1989, 22 years ago:

(We used to have to translate Senator Hollings' old school Charleston, South Carolinian dialect to some of our Northern friends in Congress even though we hardly could understand what he was saying most of the time either)

"The public fully supported enactment of hefty new Social Security taxes in 1983 to ensure the retirement program’s long-term solvency and credibility. The promise was that today’s huge surpluses would be set safely aside in a trust fund to provide for baby-boomer retirees in the next century.

Well, look again. The Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the government…

(T)he most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund...

The hard fact is that in the next century…the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate banknotes.”

‘Confederate banknotes’. You know what they were worth at the end of the War Between the States, The War of Northern Aggression or The Civil War, whatever you choose to call it?

Nothing. Zero. The rebels lost the war and with it, their currency and assets.

Here’s what we think needs to happen BEFORE we can make any progress on correcting this and many other problems we face: People need to be told the truth in a mature, adult manner so they can consume the information, digest it and then listen to a real leader who will level with them and not try to molly-coddle them or make them feel like Santa Claus is about to come down their chimney and leave more money on their table.

If you hear a politician tell you that everything is OK with SS and Medicare and Medicaid in their current forms, run away from them and don’t ever consider voting for them. They are flat-out lying to you. Politicians of either party, Republican or Democrat; Independent, Libertarian or Tea Party…if they say all we gotta do is have better economic growth or ‘tweak’ these programs ‘just a tiny bit’, they are lying through their teeth and they know it.

The Social Security Surplus Trust Fund and any interest accruing to it simply did not exist prior to passage of the 1983 SS Act! The 'surplus' was always just an accounting entry to cover up the fact that the entire surplus was spent along the way on everything from defense to education to sending men into outer space. It is represented by an IOU on the official federal accounting ledger sheets which will never be paid back. Ever.

The only thing that will happen with the accounting for the SS Surplus will be that anytime expenses in SS payments going out exceed the SS payroll taxes coming in each year, the stated trust fund balance will be reduced by the difference between the two. That is it...and it already has happened for most of 2010-2011 due to this massive recession we have experienced.

Here's another example of how politicians ‘lie’ about the Social Security Trust Fund: 'It is being used to disguise the true amount of deficit spending we have been engaging for the past 28 years'. Honest to God.

Did you know that when the vaunted 1983 Social Security Act was passed, most of the ‘reforms’ were essentially a massive tax hike on the American people unlike any before or since then? (To their credit, they did put in the delayed fuse of raising the retirement age to 66 which is the law today and to age 67 in 2026)

Ronald Reagan signed it (yes, THAT Ronald Reagan!); NY Democrat Daniel Patrick Moynihan in the Senate pushed it; and Senator Bob Dole and other GOP leaders in both houses of Congress supported it. It accelerated an increase in the SS payroll tax for both employee and corporation and dramatically escalated the percentage of income that the self-employed have to pay to support the SS system (which is one main reason why we don't think 'everyone' supported the 1983 Act as Senator Hollings asserted)

SS and Medicare payroll taxes are now the largest tax that 75% or so of the population pay to Washington each year, mainly because it is the only tax paid by 50%+ of the workers in America.

Do you know what the accumulated tax increase has been so far just from the 1983 SS Act alone? Close to $2.6 trillion. That is the amount of ‘surplus’ money Washington has taken out of your paycheck since 1984 when the 1983 bill took effect and is now running close to $200 billion per year.

That roughly $200 billion annual surplus has basically ‘masked’ or made the deficit look ‘smaller’ than it really is each year. Without the SS surplus taxes this year, the deficit would be more like $1.7 trillion instead of $1.5 as projected.

So to those who want to argue that the historic level of taxation in America has been around 18.5% of GDP, they need to separate payroll from income taxes in order to be totally ‘honest’ about it. Income and other non-SS ‘surplus’ taxes paid have been about 16.5% of GDP while the SS surplus taxes alone are now approaching 2% of GDP.

The Good Senator from the Great State of South Carolina was correct way back in 1989 when he compared the SS Surplus IOUs to the worthless Confederate dollar way back when. The only way to address the problem is by telling the truth to the America people first to educate them as to what can be done next to ‘fix it’ for the next generations to come.

The Boomers? Well, you had your chance to fix SS and Medicare but you didn’t so let’s do something noble and fix it for our kids. You always knew Social Security wasn't going to be there in full when you retired anyway. Polls show that more people believe that aliens have landed on earth than believe Social Security will be there for them in full.

(For further reading Google 'Chile’s Social Security System’ and see what they did 30 years ago and how it is working out far better for every Chilean worker than the current US SS system is doing for the average American worker, also read Grant Davies' piece about the Chilean system)

(Editor's Note: Frank Hill's resumé includes working as chief of staff for Senator Elizabeth Dole and Congressman Alex McMillan, serving on the House Budget Committee and serving on the Commission on Entitlement and Tax Reform. He takes on politics from a fiercely independent perspective at the blog Telemachus).

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