SOCIAL SECURITY and Uncle Sam
by Dale Coberly
SOCIAL SECURITY
and Uncle Sam
moving parts edition
Most of us have heard the “phony iou” claim about the Social Security Trust Fund, with its accompanying cartoon of a hapless Uncle Sam furiously borrowing from his left pocket to fill up his right pocket, and stuffing “worthless iou’s” into the left pocket to pay for what he borrowed.
And most of us know there is something wrong with this picture, but find it hard to say just what it is. And of course some of us know exactly what is wrong and say it clearly, only to be met by unbelieving looks from the folks who had nodded their heads wisely when the folly of Uncle Sam borrowing from himself was first “explained” to them.
I have tended to “explain” the fallacy of the Uncle Sam cartoon by reminding people that there is more than one person in the United States and that we borrow from each other all the time. The people who pay the income tax tend to be “the rich.” And the people who pay the payroll tax tend to be “the poor.” Moreover, the people who paid the “excess” payroll tax, the boomers, are NOT the people who will pay back the money. The money will be paid back by the boomers’ “children,” who will generally have more money than the boomers did, and who presumably get the advantage of living in a richer, stronger country paid for by the money that was borrowed. This explanation has met with no notable success.
I thought I’d take the “only one man in America and his name is Sam” hypothesis seriously for a moment and see if i could use it to explain what is wrong with some other aspects of the phony iou claim… including the one that “we pay for our Social Security twice… once when we paid the payroll tax and once again when we pay the income tax to repay the money the government borrowed from Social Security (or “from itself,” in some versions).”
Goes like this:
Forget the government, forget Social Security, forget the income tax. Just imagine that YOU have been saving… putting your money in a box… for something, call it A, that you will need in three months. You have a hundred dollars in the box… just what you will need for A when the time comes.
Suppose then that something comes along that you need to buy right now, like a nuclear submarine to save you from the Russians or something. Call that B. It will cost 100 dollars.
Suppose also that you have a steady job.
Now, you can’t afford to pay for B out of this week’s earnings. But you do have enough money in your box of savings for A. And you won’t be needing to pay for A right away.
So you take the money for A out of the box, leaving behind a note that reminds you that you have to pay it back.
You use the money to buy B “in cash.” Then you start replacing the money you borrowed from the box, at ten dollars per week out of your income. In ten weeks, just in time, you will have enough money in the box to pay for A.
So, have you paid for A twice?
I hope you didn’t answer yes. Because then who paid for B? You paid a hundred dollars for B, and you paid a hundred dollars for A. You did NOT pay two hundred dollars for A. The point here is that you CAN borrow from yourself, and when you pay back the money to yourself, you have not “paid twice” for what you were originally saving for. You paid once for that, and once for whatever you borrowed the money for.
[Truth in advertising: i tried this explanation on a kind friend of mine. He didn’t buy it.]
Be glad to hear your reasons why.
This is common sense to me. I don’t understand why your friend would not accept the explanation.
thanks, Mike H
i don’t understand why either, he couldn’t explain why he wouldn’t accept it.
on the morning after i can see a few places where the dots could be connected better, but that would make it too long.
i think the bad guys rely on that. a short colorful lie is easier for people to understand than something they have to think about.
The problem is in the assumptions on the back end. That “Sam” will have the discipline to “pay himself back” for the disbursement for item B.
Indeed, it appears from the actions of politicians, particularly Republicans, but lately almost all of them, that they never intended to pay fund A back for the transfers made to fund B.
Indeed, fund A was puffed up to cover for increased transfers to fund B, and “Sam” intended to reduce spending item A all the time. In other words, there is no discipline, just an elaborate lie.
The scenario is fine as long as you have good intentions from Sam. No one assumes this about government representatives right now (or ever).
Jeezuz luweezuz, even I understand this! Bear in mind that I was a language major of the type who had to work like a dog to get a lousy C in Trig. I am still not very sophisticated in my understanding of investments and money management. But I understand that if I put my money in an FDIC insured CD I’ll get it back when it’s due. So, how come people who accept the federal govt’s reliability in the FDIC program don’t accept its willingness and reliability in paying SS benefits?
Beats me, y’all. NancyO
JG–If you think that everyone involved in the govt is a liar and a thief, then you have good reason to doubt you can have any faith in Box A’s ever being paid back.
But, notice here that we are talking about the full faith and credit of the US govt. So, consider the doubter who thinks that Box A is empty and will never be refilled. At the same time, he may believe that the bonds owed to China or Japan will be repaid and the therefore the country is prospectively broke.
So, we have bonds in all three boxes. But, the only ones that will be paid back are the ones in boxes C and J. Why? Well, the govt presumably put mere worhless IOU’s in your A box and real bonds in the others. Which means that the govt wants to pay the Chinese and Japanese, but not its own citizens. You know, you can’t trust ’em!
Meanwhile, people you know are getting retirement and disability benefits from SS and the money just comes from a Ponzi scheme which will go broke long before you retire. And, the lying, stealing govt has been doing that for 77 years. Also, SS is in such great shape that it will have money in the bank for at least 30 years in the future. But, it’s still a Ponzi scheme, for all that. Never mind that your bank account is somewhat what less solvent than that. SS is broke! Why? Because it is, that’s why!
Now, do many conservative members of Congress want to abolish SS? Do they want to drown the govt in their bath tubs? Do they think that every old person in this country ought to suck it up and make it on zero income when they retire? Or, even worse, do they think that your payroll contibutions are being diverted to people who don’t deserve their checks?
These people know that the TF contains 2.6 Trillion dollars. But, they want to destroy the govt. Ok, where do the $2.6 Trillion bucks go when the govt drowns? Into their pockets? Oh, it’s already gone. Ok, where is it going? It’s paying benefits? For 77 years? There’s something bad about that?
You can’t believe the empty Box A argument and the solvent SS paying benefits for 77 years at the same time without simply saying anything at all just to throw words at the problem. I’m done. But don’t get me started again. NancyO
J Goodwin
poor coberly. he goes to all that trouble to explain how Sam can borrow from himself, and why that isn’t “paying twice” for your Social Security..
then he turns around and sees “Deadbeat Sam” another cartoon produced by the LIe Factory to give the yokels something to yuck about, because they KNOW that their taxes, including their Social Security”tax” just go to feed the evil gubbimint and dirty uncle Sam never pays his debts.
except of course when SS recently went “cash flow negative” meaning it had to collect some of its debts from Uncle Sam, Sam paid up, on time.
This of course was called “SS is bankrupt!” Because you see if you have three trillion dollars in the bank and have to use some of it, as planned, to pay for some long expected expenses, that’s “bankrupt” because the “bank” is “The United States of America” and we all know that The United States of America never pays its debts.
See how simple that was.
OK, let’s keep it simple. We shouldn’t have set up the Social Security “trust fund” in the first place and should have kept the program on a “pay as you go” basis as it had been structured for forty years. Pay back the Trust Fund – NOW – not over the next sixty years. Borrow the money with a special bond issue that gets paid back out of income taxes starting NOW. We can forget about the trust fund that way. It’s clear the folks who set up the trust fund intended to perpetrate an enormous fraud from the beginning, so let’s have the debate about how to wind it down now while most of the folks who are involved in it can still remember the lies that were spewed when the legislation was first passed in the 1980s.
“Borrow the money with a special bond issue that gets paid back out of income taxes starting NOW.” VV
Hmmm, what a clever idea Vic puts before the crowd. It has a familiar sound, however, as though the “special bond” concept isn’t new. I can’t put my finger on just what it is about paying back the Trust Fund Treasuries via the income tax sounds so familiar. Is it the cash raised by the special bond sale?
And what is to be done with all that cash raised by the special bond sale? It will be too much money to apply to next years annual benefits. What will we do with the excess raised by the special bond sales that gets paid back via income tax while we’re waiting to pay Social Security benefits as they come due?
I’ve got it! Once Vic’s special bond sale is completed we can use all that extra cash to buy T-Bills on the open market. That way all that extra cash earns interest income and grows as it is being used to supplement pay-as-u-go benefits so that current FICA revenues will be sufficient even if such revenue falls off a bit in this lousey economy. Great solution!! Vic has shown us that there is no need for a Trust Fund when we can just raise the same money, retire the Trust Fund Treasuries and replace them with Treasury notes issued by the USofA, a safe haven for all that extra cash.
I understand the math and the concept, and I understand what full faith and credit means. Nevertheless, all the schemes to do XYZ to social security and/or medicare involve not paying the trust fund or not paying benefits, or raising taxes, all of which make it look like it is not business as usual.
What do you want the average person to believe in this situation? It smells of scam from top to bottom, and both sides are in on it.
Most of the time I actually believe that most people don’t give “the government” enough credit, and that most of “the government” really is working in their interests, and that “the government” is us, at least conceptually. But this one smells bad and has smelled bad since before my adult life began.
I dunno, Jack. I don’t like the idea of buying those awful, worthless T-bills on the open market. You know, the price varies along with the interest rate and I have no guarantee that the US govt. will be there to honor them if I want to convert them to cash. Same as with the special T-bills in the TF. Plus also, if I get the money all at once I’d have to pay some kind of income tax on it, wouldn’t I? That means I’d get 40% percent less in a cash payout than I would one month’s benes at a time. Minimum.
Wait. The TF was worth 4.7 Trillion bucks before I get my T-bills. So, really, if the govt and I as a citizen, owed 4.7T before, now it owes the same amt of money, but with no guarantee I’ll ever get my fair share of the bonds’ yield. Or that the govt can honor the bonds or will honor the bonds. A govt so unreliable that I need to bail out my only really secure retirement savings is unlikely to be willing to let me cash the bonds they owe me.
You can figure it out for any possible way to distribute the TF you can think of. SS is better, safer and since you still have to lay out payroll contributions for the pay-as-you-go system, why not just take the best retirement payments on offer in this country? Oh, right. Just convert it all into specially minted coins, and……NancyO
Nancy
I think Jack was being funny: lets pay of the Trust Fund and buy a… Trust Fund.
Goodwin
It has smelled bad all your adult life because that’s about the time Peter Peterson started Petering on it.
The Trust Fund is okay. Social Security is fine. The Congress and the Press not so much… Peterson already bought them. Not quite so easy to bring down SS because the workers pay for it themselves. But with more clever lies, and more paid Congressmen and President…ial advisors… pretty sure we can “fix” it the way we fixed the cat.
Everybody’s got a good idea, see. Some of them are good guys like yourself, but they forget that the cat is fine and doesn’t need to be fixed.
I dunno. Most of the cats I’ve known have really needed fixing….Oh, well. NancyO
The idea of SS is so simple, but its execution has lots of complexities. Most people just want their representatives to handle it, but for those who do want the understand, it needs to be done in smaller increments.
“should have kept the program on a “pay as you go” basis” sounds good, but is not.
1) THINGS CHANGE. The schedule of benefits and payroll taxes cannot stay the same forever. Mortality, fertility, productivity, and more keep changing and SS must also change. The surge from the Boomers is really an example of how much these factors can change.
The changes made in 1983 were not intended to last forever. We are now halfway through the time frame for which they planned, and we can see more changes are required.
The idea that you already “paid for” your share is only mostly correct. It turns out that staying on schedule means you will be getting more, so it is going to cost more.
Once people get lesson 1, we can move on to more specifics.
Nancy
did you ask the cats about this?
“What do you want the average person to believe in this situation? It smells of scam from top to bottom, and both sides are in on it.” J. Goodwin
Let’s be a bit more specific if we’re going to things that stink in the night. It isn’t the Social Security program that is the scam. What smells of seceit and deception is all the bullshit being floated in the press and in the Congress by Peterson, Bowles et al. I leave out Simpson because he is suc an obvious old scrooge with little to add other than his nasty characterizations of all that does not meet his approval.
It’s like all other aspoects of government. We’ll have nothing to worry about once we clear the halls of government of the flotsom and jetsom that have crowded out all thoughtfulness. Listen to Beohner and his cohorts. They don’t know truth from propaganda. They lie so often that they’re beginning to believe the crap they spew. The Republican party has gone so far to the right that we can’t recognize that the Democrats have become moderate Republicans of old. There aren’t more than a small handfull of progressives in either hall. Great work middle America. We have nothing to fear, but the creeps we vote into office.
Nancy
identifies what is wrong with cute metaphors.
i was looking at “fixing the cat” from the cat’s point of view.
But Nancy, a True Friend of Social Security, points out that the folks who are trying to Save us from Social Security would take the metaphor and point out that if, my god, we don’t fix the cat RIGHT NOW the cat will have kittens, and the kittens more kittens and in just 10 years we will have 60 million cats. And in just 20 years we will have 3 thousand TRILLION cats. And in just seventy five years or the infinite horizon, whichever comes first, we will have so many kittens the earth will be covered 600 feet deep in cats. It’s just math. THINK OF THE CHILDREN!
And yes, the first comment addressing Vic was with tongue firmly in cheek, but Nancy’s comment seems to recognize that fact. Though I was being mildly facetious in that comment it is not far from the facts.
The Trust Fund is just another creditor of the Treasury. It is a fund that is ear marked for special use, to supplement FICA contributions each year as needed to pay Social Security retirment benefits. The fund originates from FICA contributions which have been accounted for by the issuance of Special Treasury notes. This is so f’in’ simple that only a fool or a charlatan can’t comprehend the details and tghe charlatans are lying even about that.
Jack
yes, I see that Nancy had her tongue in cheek also. The only humor deprived person here is me.
When someone babbles about raiding the trust fund, ask them precisely how SS’s finances would be different if it had purchased AAA foreign bonds instead. The answer, of course, is that there would be no meaningful difference. But their lock-box raid argument evaporates.
Chad Brick
I think their answer would be first that they trust the foreign government more than they do their own.
and second, that they would not be taxed to pay back the money borrowed by the foreign government.
i think their answer falls apart if you think about it, but it’s an argument i’d rather not get into.
What I try to focus on is that you get back your payroll tax, plus interest, when you need it most, and there is no other way ordinary workers can safely put aside some of their own money for their own retirement.
the fact that our government borrows all the time… just like businesses… and sometimes it makes sense to lend money to the government, while retaining a claim on it (that is, it’s yours), rather than just pay it as a general tax… is true but it invites confusion and arguments that never seem to end.
I have been trying to save SS from the Big LIe for over ten years now, and I get called a traitor and a shill for the rich by people who want the rich to pay for their retirements. That won’t happen in this country in this century, and if it did it might not be as nice a deal as they suppose, but the sheer cosmic justice of sticking it to the rich overwhelms anything i would call rational thinking.
Good night, y’all. Meow. NancyO