Fiscal Sleight of Hand

Los Angeles Times – Column – Sen. Rubio tells a secret: After giving a tax cut to the rich, GOP will cut Social Security and Medicare
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A painfully earnest Sen. Marco Rubio, right, explains to Jake Sherman and Anna Palmer of Politico why cutting taxes for the 1% is good, but preserving Social Security and Medicare benefits for the working class is bad. (Politico)

Paul Ryan – Social Security
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“Social Security is Going Broke”

Marco Rubio and Paul Ryan, much like the rest of Congress, are playing a shell game. Social Security, had it been left alone as intended, would be viable pretty much forever. From its inception, it was a basic pay-in pay-out system and surpluses were supposed to go back into the trust fund in order to offset future higher withdrawals.

“Well, either Obama and Geithner are lying to us now, or they and all defenders of the Social Security status quo have been lying to us for decades.  It must be one or the other.”
Forbes – What Happened to the $2.6 Trillion Social Security Trust Fund?

However, Executive administrations and Congresses, looking for a means to hide revenue loss from mismanagement and kickbacks, started robbing the surpluses before they went into the fund. They used this money to supplement lost revenue from corruption, inefficiency, tax cuts, and tax avoidance by the very wealthy. The mechanism used to perpetuate this fraud on the American public was the swap out of cold hard cash for Treasury bonds and securities (basically IOUs to the trust fund).

“The Social Security Administration openly admits that ‘Money flowing into the trust funds is invested in U. S. Government securities. Because the government spends this borrowed cash, some people see the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future. Without legislation to restore long-range solvency of the trust funds, redemption of long-term securities prior to maturity would be necessary.'”
Social Security Administration – Trust Fund FAQs

Now, here is where the language gets interesting. The SSA makes the claim that “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.” This is a fascinating way to characterize the issue and relies on perception rather than an understanding of reality. “Backed by the full faith and credit of the U.S. Government,” simply means that, much like the Wall Street bailout following the 2007/2008 crash, the taxpayer will cover any repayment of the bonds and securities. After all, this is where all of the government’s money comes from: us. Once this clear connection is understood, the shell game becomes fairly clear: we are all on the hook for repayment of the bonds/securities IOUs that the Treasury issued to the Social Security trust fund as it took and spent the money we, the taxpayers, were paying into said trust fund each and every year through our payroll taxes. This is robbing Peter to pay Paul, who was supposed to hold Peter’s money, but spent it instead.

The Republicans, loudly, and the Democrats, quietly, are playing this ‘the boomers will destroy SS!’ game right now because those bonds and securities are going to begin coming due in the next few years and there are nowhere near enough potential payroll taxes left to cover the boomer retirement wave. The fund should be brimming, not half empty and stuffed with meaningless IOUs underwritten by the same taxpayers who paid in to create the surpluses in the first place.

“The Social Security trust fund is merely an accounting device filled with IOUs that future taxpayers must repay. Far too soon, payroll taxes will be insufficient to pay all of the promised benefits. Unless Congress promptly takes action, taxpayers will have to pump hundreds of billions of additional tax dollars into Social Security to pay the promised benefits.”
The Heritage Foundation – Misleading the Public: How the Social Security Trust Fund Really Works

The Federal government, under either major party, will soon have to use tax revenue to pay back those bonds, which is not supposed to happen. My guess is option B will be to hack away at SS until the current pool of money coming into the fund can cover the bond repayments; then they’ll drain the fund, say it was proof the system never worked in the first place, and eliminate SS. I believe that this is the reason Obama spent the last year of his second term advocating for cuts to SS. If the shortsighted incompetent managers in Washington D.C. don’t kill the program, people will realize what they have been doing for a long time: stealing Americans’ retirement money.

Neither party will step up to fix this problem, as they are the exact people responsible for the problem existing in the first place. A solution to this impending budget crunch must come from the American people and must be pushed through the government with a wave of grassroots energy and honest political candidates. Nothing less will suffice.

– SoO

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