When you were working, your government didn’t trust you to save for your retirement. So it took money out of your paycheck, took the same amount from your employer, and deposited it into a Social Security Trust Fund. The implication was that it would be held there for your retirement. But your drunken Uncle Sam, in the Treasury Department, saw it as an opportunity to feed his addiction, which is spending money wherever he finds a source. Sam raided the Trust Fund and spent all your money. In order to demonstrate some semblance of honesty he left IOUs, promising to pay the money back.
The scheme worked well for many years because few people had retired and many workers were paying in. But a few years back the flow reversed, and more money is now being paid to retirees than is coming in.
IRS publishes two simple pie charts every year. One chart shows the five different sources of money. The other shows the six general categories of spending. Social Security accounts for 19% of inflow, but 29% of outflow. So for Social Security to be self-funded, benefits need to be cut one-third. At present this imbalance is covered with money Sam borrows from others and gives to Social Security. When that happens he redeems some of those IOUs and the “Trust Fund” holds fewer notes. Social Security’s annual report on the health of the system states this Fund is expected to be “depleted” by 2033. So what? It’s all a bookkeeping trick.
“60 Minutes” aired an episode a few years back on the nature and location of the Trust Fund. It consists of the IOUs, which are stored in a series of filing cabinets in an unimpressive building in West Virginia. The building is unguarded, reflecting the absence of anything valuable within.
The source pie chart shows that the biggest source of government money is “borrowing,” a staggering 41%. That far exceeds personal and corporate income taxes combined. In borrowing this way year after year we have now amassed a debt of $35 trillion.
The number of personal income tax filings is $100 million. If we call each filing a “family,” then the average family now owes $350,000. Extracting this from the public is clearly impossible, so Uncle Sam will default on the debt. But even before that happens, lenders will probably awaken to the fact that our government is insolvent and irresponsible and they will stop lending to us.
As for your retirement checks, various gimmicks are suggested for balancing Social Security’s inflow and outflow. Congress can do this, but the process will involve much discussion and strong objections from the system’s contributors and recipients.
Jerry Clements is a longtime Los Altos resident.
