Pat Says...

People view the nation's Social Security system as a giant bank account, or a trust fund. In this model, money that's taken out of each working American's paycheck gets deposited, grows over time, then is paid back out. In effect, the government acts as a bank for the money, and when retirement comes, you get money back--not dollar for dollar--but based on Congress' social priorities at the moment.

If the budget really worked this way, there would be a huge asset consisting of cash and obligations owed to the uS somewhere on the United States Balance Sheet; and there would be a huge balancing liability in the form of money owed to the taxpayers. However, in reality we don't see any of this!

Instead, what we see is that the government budgets for Social Security income and expenses, and the current expectation is that income exceeds expenses. The result of this situation, though, is not a trust fund that grows in size, but rather a public debt that decreases in size. In other words, our tax money, whether from income taxes or from Social Security, goes into a giant pot and is meted out. As long as there's enough money coming in to pay the Social Security obligations, there's no problem; but once our age demographics become top-heavy, there will no longer be enough wage-earners to pay for everybody who's retired. This is a big concern that everybody's aware of, but the continual presentation of Social Security as a trust fund makes one scratch his head and wonder how the trust fund runs out of money. Good question. What we end up with is a pyramid scheme, and we all know that at some point there will be winners, and there will be those left holding nothing but losses.

The US government likes to present the federal debt as a number exclusive of other factors, including Social Security, with misleading numbers resulting. This is akin to an individual telling the bankruptcy court that all the money's gone, except for retirement money, but that you're not counting that because it's not politically expedient to tell your family that it has no savings. Same thing with Social Security.

I could write about this for a while, but in poking around to get some facts for this post, I discovered a great web page at the Congressional Budget Office. This is required reading for anybody wondering how a properly managed trust fund can run out of money, and where the disconnect is with Social Security.