Lying About Social Security: The 1990s Big Legacy
by Jerome F. Winzig
The greatest legacy of the Clinton-Gore era--with support from both major political parties--is a massive, years-long set of lies about social security. Because of these lies, the United States will face a terrible inter-generation crisis that will pit the young against the old. The crisis will begin to raise havoc in 2013. In that year, the Social Security Administration will have to begin using money from the Social Security Trust Fund to pay social security benefits.
After that, the crisis will worsen rapidly. In the year 2020, more than $200 billion in trust funds will be needed. In 2026, $500 billion in trust funds will be needed. By 2040, more than $1.1 trillion in trust funds will be needed each year, and the trust fund will be exhausted by 2054.
However, these forecasts mask the greatest lie of all, for in reality there is no Social Security Trust Fund. Not in the sense that most Americans believe. There is no money in the bank. None if it is invested somewhere. In fact, there is no "money" at all in the trust fund. Instead, as surplus social security taxes are collected each year, they are simply turned over to the federal treasury, which issues paper IOUs to the Social Security Administration.
If Ford Motor, Microsoft, General Electric, or IBM funded their pension plans in this manner, they would simply deposit all pension contributions into the corporate treasury. Instead of investing the money, the corporation would issue IOUs to the company pension plan, promising to pay back the money in the future but spending it on current operating costs or distributing it to its stockholders. There would be just one problem: such a corporation would find itself hauled into state and federal court for operating an illegal, unfunded pension plan.
But when the federal government does it, it's supposedly okay. This lie is too bold and astonishing to gloss over. The great disservice of Bill Clinton's administration has been to constantly state that we should keep our "hands off" of social security and save the surplus for social security. The powerful implication--one bought into by many Americans--is that money is being put in the bank for future social security recipients.
The truth, however, is quite different. In the 12 months ending in June 2000, for example, social security's total income was $551 billion and its total expenditures were only $403 billion. The $148 billion social security surplus was credited to the Social Security Trust Fund, raising its balance on paper to $988 billion. But this year's $148 billion surplus was not put into a bank or any other investment, but was simply turned over to the U.S. Treasury, which promised to pay it back and used the funds elsewhere.
Just how will the federal government pay back what it owes to the Social Security Trust Fund when, as is forecast, social security ceases running a surplus in 2013? It will have to increase taxes or borrow money. In other words, the trust fund will do nothing whatsoever to help pay future social security benefits.
Even worse, the current surplus continues to be spent on things other than social security while Americans are falsely told the money is being set aside. Some politicians use fear tactics to attack proposals that would let Americans invest two percentage points of their social security in private pension investments. These politicians claim that such proposals would "take" money away from social security. The truth, however, is that the federal government is already stealing the surplus. It can hardly do otherwise, for governments make poor investors. The temptation to spend the investments or use them for political purposes is far too great.
The great truth that has been intentionally hidden from the American people for far too long is that there really are just two alternatives: partially privatize social security or cut benefits. There are no other possibilities at all. If we do nothing for the next thirteen years, the federal government will continue to spend the surplus and future working Americans will be unable to afford the benefits that have been promised to future retirees.
This truth should have been addressed in the 1990s and time is now running out. It will be the next president's greatest challenge.