Established in 1935 under President Franklin Delano Roosevelt (FDR), social security has kept millions of retired and disabled Americans out of abject poverty. But we hear a repeating refrain from politicians – currently Wisconsin Senator Ron Johnson – that the program is “going broke” and needs “reform.” History says otherwise.
Luther Gulick was an aid to FDR and an expert in public administration working for the Treasury Department. The following conversation from the Social Security historical archives took place between Gulick and FDR in 1941:
“In the course of this discussion I [Gulick] raised the question of the ultimate abandonment of the pay roll taxes in connection with old age security and unemployment relief in the event of another period of depression. I suggested that it had been a mistake to levy these taxes in the 1930’s when the social security program was originally adopted. FDR said, “I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”
Let this sink in. The President of the United States and a member of the U.S. Treasury are saying no tax was needed to fund social security. Both knew the federal government was the constitutionally authorized creator of the nation’s money and could always pay social security benefits – no payroll taxes required. This was confirmed years later in a 2005 conversation between then Congressman Paul Ryan of Wisconsin and then Chairman of the Federal Reserve Bank (the Fed), Alan Greenspan.
From the Congressional Record (watch on YouTube), Ryan attempts to lure Greenspan into agreeing the Social Security System was becoming insolvent and the way to save it was to privatize it through “personal retirement accounts” (turn Social Security funds over to Wall Street). Greenspan educates Ryan in how the federal budget actually works:
Congressman Ryan: “Do you believe that personal retirement accounts can help us achieve solvency for the system [Social Security] and make those future retiree benefits more secure?”
Chairman Greenspan: “I wouldn’t say the pay-as-you-go benefits [Social Security payments] are insecure in the sense that there is nothing to prevent the Federal Government from creating as much money as it wants and paying it to somebody. The question is. . . How do you set up a system which assures that the real assets are created which those benefits are employed to purchase?
Greenspan confirmed what FDR and Gulick had said years before: Social Security is in no danger of becoming insolvent because the US Treasury and the Federal Reserve Bank are the creator of the nation’s money and can provide whatever funds are needed to pay all benefits. The system cannot become insolvent unless misguided politicians decide to make it insolvent.
University of Missouri – Kansas City Professor of Economics, L. Randall Wray reinforces this reality:
“Social Security is unusual because unlike most other government programs, we pretend a specific tax finances it. No one knows or cares whether the defense program runs actuarial deficits — because we don’t pretend that a particular tax pays for defense. In reality, Social Security benefits are paid in exactly the same way that the government spends on anything else – by crediting somebody’s bank account. Social Security cannot be any more financially constrained than any other government program. Only Congress can establish a financial constraint.”
Any politician warning about the solvency of social security and suggesting “reforms,” is either doing the bidding of Wall Street donors, or displaying ignorance of how the U.S. monetary system works. There is no shrinking “pot of money” called the Social Security Trust Fund. It’s simply actuarial record keeping.
It will be declared heresy, but pay roll taxes for social security should be ended altogether. They are a regressive tax falling on those who can least afford it, and the Federal Government can make all social security payments without them – just as it does for “defense.” We as a people, as citizens, must affirm that our government can, and will, care for the elderly, the disabled, and children living under unfortunate circumstances. In common cause we become the nation we want to be.