Why the SS Trust Fund is meaningless View another article
 
Frequently you will hear rosy reports of SS/Medicare, because there is "trillions in the Trust Fund". Well, what are they talking about?

Well, the "Trust Fund" was set up to handle the surpluses to Social Security/Medicare. See, payroll taxes you pay TODAY go to pay a retiree TOMORROW. The money you pay in payroll taxes isn't saved in a bank account like a 401K. It's spent as soon as it comes in.

Well, for years (decades), SS and Medicare ran a surplus as the Baby Boomers were working. And for a long time (until 1963), this extra surplus was saved so that it could be used in the future.

Starting in 1963 with LBJ, Democrats started spending that extra money to help pay for their other social programs. Every Congress, Democrat and Republican, has spent every dollar of that surplus for the regular budget. NOTHING of the surplus was saved.

What happens is that SSA gets the extra money from payroll and gives those dollars over to the US Treasury where it's spent by Congress. Congress then gives an "IOU" (US bond) for the same amount. So if SS ran a $100 billion surplus, Congress spends the $100 billion and issues $100 billion in US bonds to SSA.

That made the regular Federal budget deficit smaller every year, but that meant that SS/Medicare was losing out because all that surplus money workers were putting in was being spent.

Well, now we're in a bit of a pickle. See, contrary to what they thought, Baby Boomers got older and are now set to retire. All at the same time. So all that extra money they've been paying via their payroll taxes...is already spent. SS/Medicare doesn't have ANY CASH on hand, $0. They have bonds that are worth trillions, and NO CASH.

So what happens when SS/Medicare starts running a deficit? Well, Medicare has been running deficits for years. And SS? SS started running a deficit this year. So what are SS/Medicare going to do? They will simply cash in their bonds from Treasury into dollars and payout retirees.

But that means the Treasury has that fewer dollars to spend on EVERYTHING ELSE (defense, DOEnergy, DOLabor, NASA, etc.) This means if we had $3 trillion in tax revenue, and we spent $3 trillion on everything else, and we owed $300 billion to SS/Medicare...you guessed it, we'd have a $300 billion deficit.

That's why the SS Trust Fund is essentially meaningless. They can have $1000000 TRILLION in US bonds, when they cash them in they will hit the regular budget as regular spending.

Think of it like your checking and savings accounts you have with the same bank. If you borrow money year after year from your savings and deposit into your checking account to pay bills (and you write checking owes savings $100)...then what happens when you want to pay for something out of savings? Do you smile and say "no problem, because look my checking account owes my savings account $10000!"? The SS Trust Fund is the same thing, it's just one account of the same entity owing another.

Completely meaningless.
Topic How this article applies
Deficit (8)
Social Security (10)
Medicare (10)
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