Social Security is Being Robbed?

Courtesy of Freepik.com

Bear with me...

You go to the bank and open up an interest bearing checking account. You deposit $500 and throughout the following month, write checks for $1,250, while depositing another $1,500. At the end of the month, there is $750 in that account. The bank pays you interest on that amount. This repeats month after month.

I hope you are not one of those people that think the money you put in is just sitting there and collecting interest. It is NOT. The bank pays you interest to use your money to facilitate loans, etc. Things that would give the bank a means to make money and in return... pay interest. THAT bank account is what the bank will back, if you ever need to withdraw its entirety.

The Federal Government has something similar called Reserve Accounts. There are dozens of these reserve accounts and the OAS Trust Fund (what we commonly refer to as THE social security trust) as well as DI (the social security disability trust)... so on and so on. 

It is called a trust fund due to the Constitution. 

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

Basically it says that taxing the general public for benefit of one group is not constitutional. Hence the bookkeeping around the whole matter. It was a workaround to avoid constitutional challenges of the act. And constitutional challenges in the 1930s was a fixture during FDR's early years... which led to an attempt to pack the court. 

I'm not real sure how or why many people think the trust fund has been robbed, etc. While there has been some changes over the years, the trust fund is set up exactly as it was in the beginning... 1935.

Hence the phrasing of the original act... 

An act to provide for the general welfare by establishing a system of Federal old-age benefits

Here is the original Social Security Act. The above is the preamble. Note the number of "titles" in the act (11). The trust fund we are familiar with and the program most people think of in terms of Social Security is but one title. That would be Title II. 

There is hereby created an account in the Treasury of the United States to be known as the Old-Age Reserve Account hereinafter in this title called the Account.

It details how it would be collected, spent, interest paid etc. The only change is how the accounting of the trust funds, relative to the overall budge. For awhile, it was treated separately, but currently is counted together, as far as national debt. Note: intragovernmental holdings would include all trust funds, which are many, and would include OAS, DI, and Medicare A.

Actually, the fractional reserve monetary system is the monetary system used by banks, the fed, etc. There is a school of thought that this should considered theft. However, can we really call something theft if we agree to collect interest and have the federal government guaranteeing our deposits?

It has been getting interest since day one. Without that interest, the trust fund (OAS) would be more in the order of $500B, rather than the current $2.8T. When you think about, if there were a balanced budget excluding Social Security (OAS) revenue, would there be a need to pay interest? The interest accrued is likely tied to the 10 Year Note, as it historically has nearly matched that rate.

Whether you think it has been robbed or not, that $2.8T is the current balance and as more people retire and draw from that trust and outstrips the revenue... that balance will fall, just like that interest bearing checking account. Added into the equation is interest paid is falling as interest rates have fallen.

Doing nothing guarantees the fund will finally hit zero in the 2030s. And just as you would with that interest bearing checking account you have at the bank... you will start delaying payments until the money is the bank, to back that payment. It will not go bankrupt, but simply be arrears in payments. Yes, people and companies can go or be forced into bankruptcy, which is the inability to pay creditors. We the People are both creditors and debtors in this instance. We gonna sue ourselves?

For Social Security (OAS), this would result that monthly check getting delayed by a couple of weeks each month, until the checks are behind about 3 months in the first year. That continues until the revenue returns to match the outgo. Then there is the matter of revenue being enough to catch up on all those delayed checks.

So when you hear someone throwing a hissy fit about proposals regarding saving Social Security (OAS) and then proclaim there is/would be nothing wrong if the government hadn't robbed it, they are to put it delicately... stupid.

The argument being put forth would be similar to someone screaming there is/was nothing wrong with their dwindling bank account if the bank hadn't robbed them. How else can that be anything but... stupid. The alternative would be to have the bank charge YOU a fee for holding that money in a vault OR you could stuff it under the mattress.