Mon Mar 07, 2011
On paper, the Social Security trust fund holds $2.6 trillion. Where did the $2.6 trillion come from? Answer the question, and you expose Robert Samuelson's panoply of lies in the latest Newsweek. The title, "Social Security Is Middle-Class Welfare," says it all.
The $2.6 trillion was initially funded by America's workers and their employers. Since the early 1980s, when Social Security taxes were raised in order to address the demographic bubble of retiring baby boomers in the 21st century, Social Security has always generated a surplus, intended to accumulate over time. The surplus was supposed to be invested in U.S. Treasuries, which generate compound interest. For decades, FICA taxes and the FICA wage base, have been tailored to fund the future cash outflows of a defined benefit retirement plan.
There is absolutely no legitimate reason why the trust fund should not hold $2.6 trillion in bona fide U.S. Treasury bonds. Of course a real Treasury instrument is a legal promise to pay. But instead of exchanging the cash surplus for real Treasuries, the trust fund bought "Special Treasuries," which the government can change at will. The cash paid out by you, me and our employers into the Social Security "trust fund" were used to reduce the current operating deficits, which were mostly generated by the Bush tax cuts. USA Today said it best:
The Bush Administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.
Here's where Samuelson goes in for The Big Lie:
Let’s start with its $2.6 trillion trust fund. Doesn’t that prove that people’s payroll taxes were saved to pay for future benefits, disconnecting them from our larger budget problems? Well, no. Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today’s workers; in 2010, those taxes covered 91 percent of benefits. The trust fund’s $2.6 trillion would provide only 3.5 years of benefits, which totaled $700 billion in 2010. The trust fund serves mainly to funnel taxes to recipients, and today’s big surplus is an accident, as Charles Blahous shows in Social Security: The Unfinished Work. In 1983, when the trust fund was nearly exhausted, a presidential commission proposed fixes but underestimated their effects. The large surplus “just developed. It wasn’t planned,” the commission’s executive director said later. Even so, the surplus will disappear as the number of retirees rises.
It has always been true that most of the cash collected in FICA taxes has been used to pay out current benefits. But Samuelson conceals two critical facts: For a quarter century, the current cash surplus of Social Security has been used to reduce the current Federal operating deficit. And for a quarter century, the phantom "Special Securities" held by the Trust Fund have been accruing compound interest, so that the majority of the 2010 "surplus" represented non-cash "interest income." Consequently, 91 percent of the cash revenues in 2010 was used to pay out current benefits. Samuelson fraudulently asserts that the disconnect between actual cash and the reported surplus--used to fund Republican tax cuts--reflects the purported deisgn and intent of Social Security.
Samuelson's dishonesty is relentless: "In 1983, when the trust fund was nearly exhausted, a presidential commission proposed fixes but underestimated their effects. The large surplus 'just developed.'" He won't admit that the fixes, which were implemented, represented increases in payroll taxes. And if the surplus "just developed," why can't it be used to pay benefits?
But the issue of whether or not the $2.6 trillion nominally held by the trust fund is sufficient to pay out current benefits is entirely separate issue from the issue of whether that $2.6 trillion represents the cash contributions paid by you, me and our employers. Fraudsters like Samuelson want to conflate the two, in order to conceal the truth.
It's absolutely true that the $2.6 trillion is not available in ready cash, for one reason, and one reason only: In 1999, Republicans defeated Bill Clinton's efforts to impose a Social Security "lockbox."
If Tina Brown wants to upgrade the Newsweek brand, should might consider dumping scam artists like Samuelson.