Is Congress stealing your Social Security?

 While I’m waiting for the FB bully block to expire, I’m reading yet again posts about how Congress needs to “pay back” Social Security.

Here’s a short tutorial. Social Security is a pay-go system. When you are working and a fraction of your compensation goes to payroll taxes, that money doesn’t go into a bank or drawer with your name on it, waiting until you retire. It goes to one of two places: (1) it pays the retirement checks of current retirees and/or (2) it goes into the trust fund.

I assume everyone knows that (1) is burn money. Gone. The trust fund (2) is any money that is over and above what is required to pay for current retirees, and is required, by law, to be invested in US treasuries. Yes, these are loans (just like they are to any one who buys treasuries) and are subject to repayment from the general fund. But just like the US dollar, treasuries are backed by the full faith and credit of the government.

What does that mean? Well, most “dollars” are not pieces of rag paper with ink on them. Most dollars are digital. Dollars are created and destroyed every day with computer keystrokes. If the US government needs to redeem treasuries, it creates the dollars needed and ships them to the accounts of the treasury note holders.

Wait, won’t that cause hyperinflation? Maybe someday, but right now the inflation rate in the US is around 2%, which is very low by historical standards. The dollar is still the world’s reserve currency.  And for all the bloviating about the national debt, what’s important is not the absolute value of the debt, but the debt/GDP ratio. If it were only the national debt, then Greece would be fine. The reason they aren’t is that their GDP is a small fraction of ours. In the event, the debt/GDP in the US has exploded under Trump, but it is still less than the years after WWII, and we survived that without becoming Weimar Germany or Zimbabwe.

So, no, Congress isn’t going to eat your Social Security.

What is true is that the trust fund, which has buffered the difference between inflow and outflow, will be gone by around 2030. Again, the liars will have you believe that SS will be bankrupt then. SS cannot be bankrupt, by definition, as long as there are people working for money. What could happen is the projected benefits will drop by 20%.

What? Yes, there are no promised SS benefits. Only projected benefits. But don’t pretend that Congress stole the rest. It didn’t. The fix needs to come from increased payroll taxes to restore the difference.

What about raising the SS cap? There is a cap on benefits as well as taxes. If you eliminate the cap on taxes without eliminating the cap on benefits, SS becomes welfare. The genius of FDR was to make SS a worker-paid retirement insurance program. Not welfare. When SS becomes welfare, it will be means-tested and underfunded, just like welfare is today.

The worst that can happen is that your SS payment will be reduced by 20%. Is that bad? Well, the median SS benefit is around $17,000/yr. And for at least half of Americans over 65, this will be their main source of income. So yes, this is bad. But things are already bad for Americans over 65.