About That Trust Fund . . .

By James Schaefer

Mr. Obama recently stated that he couldn’t guarantee that Social Security checks would go out in August if America’s debt ceiling weren’t raised (Obama’s Debt-Ceiling Scare Tactics).  

America’s taxpayers have paid $2.5 trillion in FICA taxes over the past several decades to create the Social Security trust fund.  It isn’t enough that the fund is empty; now, taxpayers will get to pay $2.5 trillion again to redeem those Treasuries.  

In his article, “How Much Government?”, David Gergen writes:

 “Seventy-five years ago, President Franklin D. Roosevelt was eager to weave a safety net under millions of impoverished Americans who were retired and had no savings. On his left, supporters called for a massive new government program. On his right, Republicans argued that it would bankrupt the country and undermine people’s habits of thrift and self-reliance.

FDR, ever the master, came up with an ingenious solution: create a program in which Americans would be asked to contribute to a social savings account that government would manage on their behalf and would be there for retirement. Instead of big government, it was to be a partnership that would encourage individual thrift and responsibility.”

If that was the intent at its inception, Social Security has not worked out that way.  Instead of fostering individual thrift and responsibility, it has led many citizens to believe that government will take care of them in their retirement.  Government has spent the trust fund surplus on other government programs, and America’s citizens will be taxed twice on the amount represented by the surplus.

Social Security needs to invest in the stock and bond markets.  The market is safe for insurance companies, IRAs, 401(k)s, and public employee retirement funds such as CalPERS (California’s $230 billion Public Employees’ Retirement System).  Social Security should also provide vested accounts protected by fiduciary responsibility, and it should be prohibited from investing the surplus in Treasuries, thus preventing double taxation on the amount represented by the surplus.

The $2.5 trillion needed now and in the future to redeem those Treasuries is the equivalent of foregoing $100 billion a year in tax cuts for 25 years straight.  For businesses, think of that as hiring, plant expansion, product development, marketing programs, and pay raises foregone; for households, it represents college savings, retirement savings, debt reduction and personal consumption foregone.

Worried about the returns that Social Security would receive in the stock and bond markets?  The returns earned by CalPERS in the last twelve months were 20.7% (link), and their average return for the past four decades is over 8%.


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