The Social Security Administration, decades ago, adopted an effective scam. It began providing reports on the depletion of the Social Security Trust Fund.
The scam has three parts. First, it involves a massive deception, namely, that there is money in the Trust Fund. There is instead a pile of IOUs from the U.S. Treasury. Second, to keep the illusion alive that there is a Trust Fund, it announces warnings about the depletion of this Trust Fund. The warning is that the Fund will be depleted in about two decades. This causes no problems politically. Two decades is so far away that this do not produce fear. Third, it pretends that the only relevant taxes are FICA taxes, i.e., Social Security taxes.
Numerous nonpartisan think tanks participate in this deception. So do the media. They never expose it as a fraud — a deliberate, massive deception. A recent example of this appeared on MarketWatch. It involved three paragraphs.
About a third of workers in their 50s expect Social Security benefits to be their primary source of income in retirement, according to the Transamerica Center for Retirement Studies. That reliance gives pre-retirees reason to worry about the future of the program. The Social Security Administration itself has said that unless something is done to reform the system, it will have to reduce benefit payments to retirees within the next few decades.
To keep from having to reduce benefits, the SSA will have to collect more revenues. That must take place sometime within the next two decades. The public goes back to sleep. “It’s decades away.”
The article mentions that the program has not been been collecting enough revenues since 2010. This means FICA revenues.
Less talked about, perhaps, is the concern that the program is having a hard time paying its bills today. In 2010, the Social Security Administration began collecting less revenue in taxes than it needs to cover benefit payments, forcing the agency to tap its $2.7 trillion trust fund sooner than some had expected. It was the first time since 1983 that expenditures had exceeded non-interest income, and the shortage is expected to continue. “It’s almost like a family running huge deficits throughout their budget,” says Eugene Steuerle, an economist with the Urban Institute, a nonpartisan think tank in Washington, D.C.
It had to “cover benefit payments, forcing the agency to tap its $2.7 trillion trust fund sooner than some had expected.” But how did it tap this Trust Fund? By selling assets. What assets? IOUs from the Treasury. Where did the Treasury get the money to pay the S.S.A.? From the general fund. Where did the general fund get this money? By borrowing it. That raised the federal deficit.
A Social Security spokeswoman points out that interest income from the Treasury bonds held in the trust fund will allow it to keep growing until 2020—even if the agency has to siphon off some money to offset shortages in tax revenue. The fund won’t be exhausted until 2033, around the time Gen Xers are expected to begin retiring. But that is already a few years earlier than previous projections. After that, the agency says, tax income under the current system will only cover about three-fourths of benefit payments through 2087.
Where will the Treasury get the money to pay this interest? From the general fund. Where will the general fund get it? By borrowing it from the public. When the agency says “shortages of tax revenue,” it refers to FICA tax revenue. But there is also a shortage of tax revenues in the general fund. That is why there is an annual deficit.
So, the story’s function is to keep alarm bells ringing quietly in the background. It muffles the bells that would otherwise be ringing in the foreground. It wraps the bells’ clappers in soundproofing material. “No immediate problem. The crisis is decades away. Something will turn up. It always has.”
Something has already turned up: the annual deficit of the general fund.