THE UNIVERSAL ECONOMY UNIT XII: THE RICH CLASS WAR ON SOCIAL SECURITY
“Social Security” is unusual because unlike most other government programs, we pretend a specific tax finances it. That makes it easy to mentally match payroll tax revenues and benefit payments, and to calculate whether the 75- year actuarial balance is positive or negative. 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.” – L. Randall Wray, Professor of Economics, University of Missouri-Kansas City
Almost daily we hear from political debt and deficit hawks that the Social Security Trust Fund is going broke, that it is bankrupting the country. We are told payments to the elderly, disabled and surviving children must be cut to stop the growing government debt. The push by Wall Street to privatize the program is endless.
But please, read the above quotation again – slowly. Let it sink in. Then ask yourself – Why don’t we have a Defense Department Trust Fund just like we have a Social Security Trust Fund. The annual US military budget grows virtually every year and is now at 716 billion dollars. Why aren’t we fed alarmist statements by our politicians that the Defense Department Trust Fund is going broke and unless we cut military spending or increase the “Defense Department Payroll Tax”, by 2035 we will no longer be able to afford to wage “generational” wars or provide bombs to drop on women and children in cities across the Middle East?
Ask yourself – Why don’t we have a Corrupt Bank Bailout Trust Fund. In the years following the 2008 economic collapse 16 trillion public dollars were given to Wall Street banks to rescue them from their fraudulent practices. Why aren’t we told the Corrupt Bank Bailout Trust Fund is defunct and unless we immediately raise the “Corrupt Bank Payroll Tax” we won’t be able to make parasitic Wall Street banks whole when they collapse again in 2023?
Ask yourself – Why don’t we have a Corporate Welfare Department Trust Fund. It is estimated that government subsidies to corporations now approach 3 times the size of social welfare programs providing for the neediest in our nation. Boeing $13.2 billion, Alcoa $5.6 billion, Intel $3.9 billion, General Motors $3.5 billion, Ford Motor at $2.5 billion, Dow Chemical $1.4 billion, Warren Buffett’s Berkshire-Hathaway $1.1 billion, Shell $1 billion, Amazon, Microsoft, Prudential $200 million. The list goes on and on and includes literally hundreds of corporations. A New York Times study estimates states, counties, and cities give away over $80 billion each year to corporations. The CATO Institute estimates corporate welfare in the federal budget costs taxpayers almost $100 billion a year. Why aren’t we told the Corporate Welfare Trust Fund is broke and unless we have a huge increase in the “Corporate Welfare Payroll Tax,” all subsidies to corporations will be ended in 2019?
The existence of the “Social Security Trust Fund” is perhaps the most misleading concept ever foisted upon the working people of America. We live with the illusion there is a pot of money held by the government in some mysterious place that we have all contributed to through payroll taxes. When we retire, we believe the money we contributed is taken out of the pot and given back to us. But we are now told by our Wall Street owned politicians that the “baby boomers” are draining the pot faster than younger workers can fill it. Benefits will need to be cut. On top of this we are informed the pot has also been robbed by previous politicians (current politicians would never do this) to pay for other government programs and is now totally depleted. It is all so conveniently presented as a household “budget.” And it is the biggest con job in US history.
Let us look at what happens when an individual (Fred) and his employer pay Fred’s social security taxes. Nothing physical changes hands. There is no “money” involved. An entry is made on a computer screen at the employer’s bank showing the taxes have been deducted from Fred’s paycheck. This electronic record of deduction is then sent to a computer screen at the Internal Revenue Service (IRS). For the purpose of calculating future retirement benefits, the IRS enters this tax “payment” in Fred’s social security record. For all practical purposes, that could (and should) be the end of the process. The imaginary money could just be dissolved and no longer exist. There is no “pot” in which to store an electronic entry. When Fred retires, the US Treasury and Federal Reserve would simply recreate Fred’s “money” and give it back to him by making monthly electronic deposits in his bank account. End of story. Nothing physical has changed hands and everyone is happy.
But the illusion of the Social Security “Trust Fund” – the pot of money – needs to be perpetuated. It opens the door for endless manipulation by politicians and their wealthy benefactors. So, instead of simply dissolving the imaginary money in Fred’s social security tax payment, the IRS sends his electronic record, along with the records of millions of others, to the US Federal Reserve Bank (the Fed). The Fed then sends all of this imaginary computer screen money to the Treasury and “buys” US Treasury Bills. This then becomes the Social Security Trust Fund – the imaginary pot filled with imaginary electronic dollars that self-serving politicians can claim is totally inadequate, has been robbed by other politicians, is bankrupting the nation, and needs to be turned over to Wall Street.
Why do we need a Social Security Trust Fund if we don’t need a Defense Department Trust Fund, a Corrupt Bank Bailout Trust Fund or a Corporate Welfare Trust Fund? We don’t. Why do we need to have a special tax for social security if we don’t need a special tax for the Defense Department, the Corrupt Bank Bailout Department, or the Corporate Welfare Department? We don’t. And though it may sound like the heresy of heresies, the Social Security Payroll Tax needs to be abolished altogether. It is an entirely regressive tax, falling upon those least able to pay it and most likely to otherwise spend this money into the real Main Street economy where it would benefit us all.
The US Government Treasury is the sovereign creator of the nation’s money. It never, ever, needs to collect taxes to pay for anything. It can always pay its bills. It always creates whatever money is authorized by congress for a bloated Defense Department, to bail out corrupt banks, or to provide billion-dollar gifts to the world’s richest corporations. It can always meet any social security payments the US Congress is willing to authorize for retirees, the disabled, and surviving children.
Requoting Professor Wray:
“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.”
Therein lies the rub – the financial constraints of an ignorant, and often corrupt congress, bought and paid for by the rich. If working Americans can be convinced their Social Security Payroll Tax should be sent to Wall Street, the billionaires become multi-billionaires and average citizens end their lives in abject poverty.
Further reading on this topic: