I give lots of talks about Social Security. I've given thousands of them over the past 45 years. And at almost every one of those presentations, inevitably, somebody in the crowd will get up and make a statement that begins with these words: "I'll tell you what's wrong with Social Security!" And then they will go off on some rant, spouting lies or half-truths. Lots of times, it's something they've been telling themselves for years. Or more recently, it's some garbage they picked up on the internet.
I don't mind the bombastic behavior because once I get a chance to respond, it gives me the opportunity to set the record straight. I can tell that many in the audience follow what I am saying and agree with me. But I almost never convince the guy who is on his soapbox. His misplaced beliefs are just too firmly rooted in his psyche. And I even sort of understand that. For example, if you've spent your whole life being absolutely convinced that the Earth is flat, and then someone shows you proof that the world is round, it might take a while before that knowledge sinks into your brain.
There are countless examples of these "what's wrong with Social Security" rants. But today, I only have space to cover one of them. And it is, by far, the most common rant of all. It goes like this: "I'll tell you what's wrong with Social Security. If politicians had kept their cotton-picking hands off the Social Security trust funds, we wouldn't have any problems today!" The implication is that presidents, or members of Congress, have stolen Social Security money and used it for other purposes. Many will go a bit further and say, "It all started with LBJ. He took Social Security money and put it in the general funds of the government!"
Here are the facts. And let's start with President Lyndon Baines Johnson. Back in the 1960s, his administration was running up huge deficits because of all the spending on the Vietnam War. But LBJ came up with a clever way to mask that deficit spending. He saw that the government kept a completely separate set of books for the Social Security trust funds. And those funds were running big surpluses. So Johnson, wily and crafty politician that he was, decided to combine the two sets of books.
On the one hand, you could say his reasoning made sense. I'm sure he told his staff something like this: "It's all government money. So we should simply add up all government money together." On the other hand, he was obviously doing this for one reason only: to use Social Security surpluses to hide his growing Vietnam War deficits.
BUT HERE IS THE IMPORTANT POINT EVERYONE NEEDS TO UNDERSTAND. All of this budgetary mischief was just bookkeeping tomfoolery. Johnson didn't take one nickel out of the Social Security trust funds. He merely combined the Social Security books with the general government books on paper.
In fact, it's a practice that continues to this day. In effect, the government keeps two sets of books. One set combines the Social Security funds with the general funds. When politicians want to demonstrate to people that they have the overall budget under control, they pull out the "unified" budget books. If other politicians want to scare you with gloom and doom stories of fiscal recklessness (usually to push their agenda of drastic cuts to federal spending), they would show you the "operational" budget that did not include Social Security surpluses.
But again — and I can't stress this enough — this is just bookkeeping shenanigans. Social Security resources were never touched.
And those "resources" lead me to the other part of the "politicians stole Social Security money" debate.
To understand that story, you have to understand how Social Security is financed. Every single day, about $2 billion in Social Security tax receipts flows into the Treasury Department in Washington. That is two BILLION dollars! And that is EVERY DAY!
So what happens to that money? It certainly isn't buried in a "lockbox!" (Remember those silly promises from several presidential campaigns ago?) It would be absolutely ludicrous to take $2 billion out of the nation's economy every single day and lock that money away. It would be the federal equivalent of someone burying his or her life savings under a mattress.
Also, the money itself does not go directly into the Social Security trust funds. Again, it makes absolutely no fiscal sense to deposit billions of dollars of cash into the federal equivalent of a Social Security piggy bank.
Instead, just like monies in any trust fund in the country, Social Security tax receipts are invested. But unlike all other public and private trust funds, Social Security money does not end up in the stock market or other private markets. Why not? It's a matter of scale. Whereas other trust funds might have a few million or even a few billion dollars in assets, the Social Security trust funds hold trillions of dollars. In fact, Social Security makes up about one fourth of the entire federal budget — and you simply do not take 25% of our country's federal budget and dump it onto Wall Street. Can you imagine the effect that would have on the private markets? The federal government, via the Social Security trust funds, would be the major stockholder of Apple, Amazon, Chase Bank, Philip Morris, ExxonMobil and others. I can't even imagine all of the conflicts of interests associated with those deals.
So instead, every nickel of Social Security money is invested in U.S. Treasury notes. It's surely an awkward marriage, but a marriage it is nonetheless. It's like the federal government is lending money to itself! But the system has worked that way for about 80 years now. The Social Security trust funds currently hold about $2.8 trillion in government securities. If you want to see a listing of the trust fund holdings, just go to the Social Security website, select "Menu," and click on "Actuarial Resources." On the Social Security Actuary homepage, click on "Trust Funds" and then on "Investment transactions" and "Investment holdings."
So, the Social Security trust funds do not hold cash. They hold Treasury notes. If you have some treasury notes in your portfolio, what is the government doing with your money? It is spending it. Do you think the government has stolen your money? Of course not. You think of it as an investment. The same holds true for the Social Security trust funds, just on a much larger scale. Politicians haven't stolen a dime of Social Security money. It's all invested. And just as your treasury bonds pay you interest, the Social Security trust funds are credited with interest on an annual basis — about $80 billion per year in recent years.
If you have a Social Security question, Tom Margenau has the answer. Contact him at [email protected] To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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