Is Social Security a scam?

Talk about alternative facts. A purple post (and I do mean purple, as in prose) is making the rounds in Indiana, among Hoosiers Against Braun (including me): 'We've taken trillions from Social Security...." *Sigh*. Neither Republicans nor Democrats have robbed or are robbing the Social Security trust funds. No one is taking trillions from the funds. Yes, they are within a decade of insolvency, but that's because Americans are growing old. Congress is not to blame, aside from dithering rather than biting the bullet and either raising taxes or cutting benefits to fix the problem. The last time that Congress formally borrowed from, or for, Social Security was December 1982, in the Reagan years. The Old-Age and Survivors Insurance Trust Fund, which is conventional Social Security, was nearly depleted. To save the fund, Congress passed emergency legislation. OASI borrowed $17.5 billion from the Disability Trust Fund and the Medicare Hospital Insurance Trust Fund to pay benefits. All three of these funds are part of Social Security or Medicare. The borrowing occurred because, due to stagflation arising from high oil prices (sound familiar?), the funds were having trouble paying benefits on time, so Congress took money out of the disability and Medicare funds, which had a surplus at the time, to bail out OASI. By law, OASI had to pay back the loans by 1989 with interest. They were actually paid off by 1986. And that was it, sports fans. Congress' authority to play this shell game with Social Security and Medicare money ran out in 1987. I am drawing upon notes by the historian's office at Social Security: Social Security History https://www.ssa.gov/history/interfundnote.html The claim that Congress has stolen (excuse me: "borrowed") trillions from Social Security is not documented, for a good reason: It is hogwash. The Social Security trust funds do rely on Social Security tax revenues, which are invested in Treasury securities to earn interest. However -- and this is the vital point -- Social Security is pay-as-you-go. Taxes from current workers and their employers pay for current retirees. No, it is not true that your benefits come out of the taxes that you and your boss paid. The crisis of the moment is that current tax revenues are falling short of current benefits. This is because Americans are aging: The number of retirees is growing more rapidly than the number of workers, so the number of retirees financed by a worker is growing. The number of workers supporting each beneficiary has fallen from 5 in 1960 to 2.7 today: Social Security History https://share.google/702ITYdP9IF4cCzrf. In fact, in 1940, it was 159! Who’s paying your bills? While the trust funds still had a $2.8 trillion surplus at the end of 2023, Social Security projects insolvency in the OASI fund by 2035. This crisis is not because Republicans or Democrats have raided Social Security. It is just demographics. Although OASI is headed for the rocks, the disability fund DI is to remain solvent until 2098. It would seem to make sense to transfer funds from the disability fund to OASI, but this is illegal. Anyway, the combined Social Security funds -- OASI + DI -- are to remain solvent only until 2035. Over the rest of the century, Social Security would be able to cover only 83% of promised benefits. To make Social Security whole, Congress must either cut benefits or raise taxes or both. Estimates at the moment are that an increase in the Social Security tax of 3.5% would enable current benefits to continue until 2098. The payroll tax now on workers and bosses is 7.65%, so this would be a hefty chunk of change. Understandably, Congress keeps putting off resolving this predicament, especially in an election year like 2026. The Social Security administration has suggested that raising the retirement age right now would postpone insolvency for several years, but there doesn't seem to be much enthusiasm on Capitol Hill for this sensible idea. Another intriguing idea is to let the trust funds invest in private securities that earn more interest than Treasury securities do. But critics correctly object that private securities are less safe than securities from the US government, which still has a superb (if no longer spotless) record for paying its bills. Nailing billionaires I see proposals to save Social Security by taxing billionaires. That would change the nature of Social Security, which was meant to pay for itself. Congress can do it, of course; and as far as I'm concerned, it makes sense to treat social insurance as an endowment for everyone rather than as a means-tested program (which is what we do today), since we all are prone to good and bad luck. (A “means-tested program” is one that pays you benefits only if you qualify. For example, Medicaid pays benefits to the poor, although the definition of poverty varies from one state to another. Medicare pays benefits to the old.) Milton Friedman proposed a negative income tax that was seriously considered from 1969 to 1972 when Richard Nixon was President. Even today, it lives on in the form of the Earned Income Tax Credit. But there would be a battle royale if anyone proposed to replace Social Security, Medicaid, Medicare, what is now Temporary Assistance to Needy Families, and the other social insurance programs with a pure negative income tax. For example, Social Security recipients feel that they have earned their benefits by paying Social Security taxes, although in reality there is no close relationship between the taxes you paid and the benefits you receive. And maybe that's one reason for Bernie Sanders’ proposal to pay for Social Security, the Social Security Expansion Act, by soaking the mega-rich: They don’t “work,” the argument goes, so why should they receive benefits paid by workers? At first glance, this is a tempting proposal. Sanders would lift the current maximum of $160,200 of annual income on those who pay Social Security taxes. In other words, today, a billionaire pays the same amount in Social Security taxes as someone who earns $160,200. In principle, taxing the billionaire at a rate commensurate to his income could greatly increase tax revenues and even benefits for most Americans, according to Sanders. Social-Security-Expansion-Act-one-pager-Final.pdf https://share.google/B4EQ6xuUj2bCtcgeM One problem with the argument is that millionaires and billionaires have enough money to pack up their bags and take off for friendlier countries. The United States would lose billions of dollars of income and of tax revenues – money that could feed the hungry, heal the sick, and educate the kids. But boy, we’d sure get even with those billionaires! Would we lose so many of the rich, as they vote with their feet, as to offset the tax revenues gained by taxing the rich who stay? The answer is not clear. The most relevant case study is the United Kingdom’s reform of “non-dom” status last year. For centuries, the UK had taxed only residents. If you were a British citizen living outside of the UK, you were taxed only on the foreign income that you brought into the commonwealth. That policy changed last year. The UK now taxes all income earned by citizens regardless of where they live. The Adam Smith Institute, which favors free markets, estimates this this would cost the economy 111 billion euros over a decade as the rich flee to low-tax jurisdictions like Dubai, Switzerland, and Italy. But the UK Treasury estimates that it would gain 30 billion euros, because the rich choose to live where life is good and where they have social roots: Not only taxes matter. Clearly, we have a lot to learn about how the rich choose their locations. Examining the UK's non-dom regime - LSE https://share.google/F13eRjXb7V4N1rqWq ; Why the super-rich are leaving Britain https://share.google/6n2WLeLonpUXrt1Vk Is your Congressional representative a dollar burglar? A last note about thieves on Capitol Hill. Many years ago, when the trust funds were running an annual surplus, Congress would temporarily borrow from the surplus, in a technical sense. But since 2010, the Social Security trust funds have been in deficit every year. Their annual costs exceed their annual revenues. It's like your credit card; if you don't pay off the balance each month, your available credit will shrink. Since there is no longer any annual surplus, Congress cannot legally tap into the trust funds now. Not for trillions. Not for one blessed dollar. I will expand on this point a bit. The Social Security Act of 1935 requires the IRS to send Social Security tax revenues to the Treasury (Section 807a). When Social Security has an annual surplus, the Treasury will hold that cash in general funds and then exchange it for special Treasury securities, which Social Security holds. In that sense, Treasury borrows from Social Security for the general fund, not for specific programs. Social Security earns interest on the securities -- and cashes them in when it needs the funds. It is thus, to say the least, highly misleading to assert that Congress has stolen funds from Social Security. Social Security does get the use of the funds, with interest. In any event, even this point is moot, because Social Security no longer runs an annual surplus. Many readers said the Treasury securities given to Social Security in exchange for payroll tax revenues were worthless IOUs. In reality, the Treasury has always made good on the securities. There is a reason why the Treasury has a sterling reputation for paying its bills: The value of the dollar as a currency trusted the world over, depends on it. This FAQ from Social Security may clear things up: Trust Fund Data. https://www.ssa.gov/OACT/ProgData/funds.html – Leon Taylor, Seymour, Indiana