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Friday, August 18, 2006

The Social Security Trust Fund- A Massive Loan to the Rich

The Richest Americans Try to Renege on Their Loans from the Social Security Trust Fund - with President Bush's Help.

"President bush has called his proposed (privatization) policy 'a promise to reform and preserve Social Security.' In fact, his proposal would neither reform nor preserve Social Security. In the name of preservation, it would destroy the nation's most comprehensive social insurance program and replace it with a system bearing enormous costs and risks for millions of workers and retirees."

--from The Plot Against Social Security: How the Bush Plan Is Endangering Our Financial Future (2005) by Michael A. Hiltzik, Pulitzer Prize winning columnist for the Los Angeles Times.

This is the third book I am researching regarding the current conundrum on Social Security. The following excerpts are from Chapter Six - 'The Myth of the Mythical Trust Fund'...

'...The truth is that Social Security's reserve has been built up from assets belonging to millions of working taxpayers. It's money the government has collected in payroll taxes since 1983 over and above the system's current needs, on the representation that the surplus will eventually be spent to cover the cost spike caused by the retirement of baby boomers.'

'In practice, the money has amounted to a huge loan from the middle class and poor, who pay most of the payroll tax, to the wealthy, who pay most of the income taxes. The income tax rates have been kept low by four presidential administrations, which have raided the trust fund to pay for federal programs that should have been financed by the income tax levy...
Why shouldn't the wealthy be obligated to pay it back?'... (italics MrKen)

'...Presidents and lawmakers alike soon became hooked on the Social Security trust fund. The government sold ("special issue") T-bonds to the Social Security system, in effect borrowing the surplus, and once the borrowed money was in hand, they spent it...'

'...The payroll tax is regressive, meaning it costs lower-earning workers proportionately more than it costs the rich. The income tax is progressive, falling most heavily on higher-earning taxpayers. About three-quarters of all taxpayers, in fact, pay more Social Security tax than income tax. Since the payroll tax is only levied on the first $90,000 (in 2005) in earned income, taxpayers reap larger and larger payroll tax exemptions as their income rises above that amount - but they incur higher income tax rates as their income mounts.'

'...The implications of the pattern may be clearer if ... we view payroll taxpayers and income tax payers separately. Let's say Sam pays only Social Security tax, and Ingrid pays only income tax...'

'...Since 1983, when Social Security taxes were increased and the buildup in the trust fund began, Sam has been paying more into the Social Security system than it has required to pay for current retirees benefits. The excess has been funneled into the trust fund as a cushion against the baby-boom retirements. Until the money is needed to pay for those benefits, it is lent to the federal government, which has used it to cover general (that is, non-Social-Security) expenses.'

'Considering that Ingrid's income taxes normally would have been used to pay for those expenses, she has benefited from the transfer. Indeed, she and her fellow income tax filers have reaped a windfall of more than $1.5 trillion since 1983. Without the loans from Sam and his fellow Social Security taxpayeres, her taxes would have been raised substantially. So she has been able to hold on to a larger proportion of her earnings since 1983 than she otherwise would have...'

'According to Social Security's official projections, the flow of money from the trust fund to the general budget will reverse course sometime around 2022. At that point, Ingrid will be obliged to repay the loans from Sam.'

'What will happen is she reneges on the loans? The options are not pleasant - but all of the unpleasantness will be visited on Sam. His Social Security benefits will be cut, or his payroll taxes will have to be raised. In either case, Ingrid will have enjoyed the fruits of Sam's tax payments for some 40 years. But he will have gained nothing - and he'll have to pay much more for his retirement, to boot.'

'It's true that repaying the loans without reducing the federal budget may require a general tax increase - but that's a burden on Ingrid. In other words, the income tax may have to be raised to repay Ingrid's obligations to Sam. But isn't that the proper course?'

'The point made most commonly about the fiscal retrenchment the country might have to undergo to cover the trust fund redemptions is that it will, essentially, break the bank - that the necessary tax increases or budget cuts will be so large the economy will collapse...'

'...The sums the government will have to transfer to Social Security, compared to the size of the economy at the time, should be manageable. Assuming that the gross domestic product grows at an average 4.5 percent a year in accordance with forcasts by the Congressional Budget Office, then... the total of redemptions from 2025 through 2041 will come to less than one-half of one percent of GDP per year...'

'...It's hard to make the case that paying off the trust fund obligations would be a devastating blow to the economy. All we can say for sure is that if it's so, then President Bush's 2001-2003 tax cuts will be an even harsher blow. They're going to cost an average of 1.95 percent of GDP, or nearly four times the average cost of redeeming Social Security's assets.'

'In fact, the share of the tax cuts paid to the wealthiest 1 percent of Americans alone - those who, not so coincidentally, gained most from the government's borrowings from the Social Security trust fund in the first place - comes to about one-half of one percent of GDP. In other words, if their tax cuts were rolled back, the revene gain to the government would cover the cost of redeeming the bonds, with a little left over. Maybe that's why, when you examine who is really behind the organizations looking for privatization of Social Security, you find some of these people...'

MrKen says baby-boomers have to oust the vile and corrupt plutocracy that the Bush Administration represents. Bush and his neo-con friends continue to wage war against the poor and middle class at home, while waging perpetual war around the globe. Bush has promised to bring up his 'privatization' scheme again in 2007, and his new 'lapdog' Treasury Secretary Paulson promises to "overhaul" Social Security.


Book Jacket Curtesy:


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