The trust fund fraud

It is easy to understand why so many of the elderly, and even some of the younger generations, have a vehement and often emotional reaction to any proposal to reduce their promised benefits.
Much of the political and media “elite” persists in describing the Social Security system as a “trust fund,” where their contributions have been squirreled away for their ultimate use in their golden years.
Thus the often heard and vehemently voiced sentiment “Hands off Social Security.”

But let’s look at what actually happened to those contributions, typically around 6 percent of the first $100K or so of their reported income, which was matched by their employer.
Until the Greenspan Commission reforms of the 1980s, the money paid into the SSS (Social Security System) was used to pay the benefits for current beneficiaries.
I.e., it was a pay-as-you-go system.
In the 1980s it was noticed that the demographic bulge of the baby boom was going to produce problems when they started retiring in the 2010s.
So the Greenspan Commission recommended, and the political system implemented, an increase in contributions above and beyond what was needed at that time to pay the then current beneficiaries, with the excess “invested” in U.S. government bonds.
And that arrangement was dignified with the term “trust fund.”

But let’s see what that actually meant, both for the then-active contributors and for future generations.
The “investment” of the SSS into Treasury bonds meant that the contributors were loaning their contributions to the U.S. government.
And what did the U.S. government do with those loaned funds?
Why, of course, it spent them on whatever the USG was spending money on.
I.e., it benefited none other than the “investors.”
If the SSS had not been loaning Treasury all that money, then Treasury would have had to raise the money in some other way, either by raising taxes on the taxpayers at that time, or by borrowing money from other sources, presumably at a higher interest rate (generally, if Treasury wants to increase its borrowing, it must increase the interest rate it offers, to attract the additional loans).
As mentioned above, what actually happened was that the SSS loaned Treasury the contributions.
This kept taxes down for the then-current wage earners, gave them the goods and services that those loans purchased, but passed the responsibility for repaying those loans to the next generation.
Such a deal!

In effect, those 1980 and 1990-vintage contributions benefited those making the contributions twice.
For each dollar of their SSS contributions, they received immediate benefits, either paying the SS benefit of those then drawing SS, or flowing into the general treasury, reducing the taxes they would otherwise have had to pay.
But wait: each dollar of their contribution also was credited to their “account”, which would be used to figure out their eventual benefits.
So each dollar was spent twice: once then and once when they retire.
Such a deal.

The article A balance-sheet fix to Social Security by Jim Roumell
seems not to notice this arrangement.
This is surprising because he seems sharp.

A balance-sheet fix to Social Security
By Jim Roumell
Washington Post, 2013-05-15


Some will say, “That’s my money; I paid into Social Security.”
There are at least three reasons they ought to reconsider.
First, it is a gift to be fortunate enough to give back to your country.
When confronted with an existential threat from a foe, our troops step up;
the looming shortfall between Social Security’s revenue and obligations
represents a serious threat to our future.
Second, wealthy people have benefited greatly from
the rise in general asset values over the decades,
and the worldwide easing of monetary policy by central banks
is sending the balance sheets of the wealthy further skyward.
Third, entitlement spending on Social Security
will increasingly crowd out public investments necessary to maintain
a growing economy and stable society for future generations.