Social Security solvency assured by guarantee of Treasury bonds

Charleston Post & Courier (reg. req.) ^ | March 03, 2005 | Ernest F. Hollings

[LowCountryJoe]

The headline on the commentary in The Post and Courier reads; "Reformers must destroy myth of Social Security solvency."

Blasphemy!

Since when does a U.S. Bond become a myth?

Tell that to patriotic Americans who think U.S. Treasuries are the safest investment and now own approximately $5 trillion worth.

Tell that to China that has $500 billion of these "myths" or to Japan that has $714 billion of these "myths." If there is one thing about the United States that you can count on, it is that we honor our obligations.

The bank that has your account doesn't squat on the money. It's invested or loaned out. But you can bet your boots it you go to withdraw the money, it will be there. Same for Social Security. Senators and respresentatives will make sure the money is there.

ln the early '80s the Social Security fund was almost drained. The Greenspan Commission made sure the money was there by having Congress enact an age increase, a big increase in payroll taxes and requiring federal workers for the first time to pay into the fund. Section 21 of the Greenspan report recommended that these increases be set aside in trust -- not to be spent on anything but Social Security.

Read the debate at the time. It's clear that members of Congress would never have voted for these increases if they thought the money was to be spent for, say, food stamps or foreign aid or any other than Social Security.

I authored 13-301 of the Budget Act that President George Herbert Walker Bush signed into law on Nov. 5, 1990, which provided that the president and Congress treat Social Security monies as in trust.

Bottom line: Social Security is not broke. The government is.

Now you begin to understand Sen. Lindsey Graham's dilemma. Last year he approached me with a proposal to increase the $90,000 income limit on Social Security taxes to $120,000.

I said I would be glad to favor it if he would guarantee that the additional monies be set aside in trust for Social Security. He doubted he could do that. I'm sure the reason for his doubt is to continue the real myth that the money is spent.

The Congress is now working on the 2006 budget. The Social Security surplus is projected to be $185 billion.

If Congress is now going, to treat surpluses as in trust, that would increase this year's $600 billion deficit to over $800 billion, counting Sen. Graham's increase. Neither Republican nor Democrat members of Congress want to run for re-election next year having to explain how they increased the deficit to over $800 billion, rather than cutting the deficit in half.

If President Bush is correct that private investment accounts accrue at 3.2 percent rather than the Social Security 1.2 percent or 2 percent more than the retiree's money at present, then why not invest all of Social Security in private investment accounts. Moreover, if more funds are needed for Social Security then why not: a) extend the payroll tax to investment income; b) suspend rather than make permanent the tax cuts for the rich; c) withhold the sought-for estate tax cut and; d) increase the age of retirement. All of these are realistic solutions to the concern of long-term solvency.

But the truth is President Bush is not worried about a "crisis in Social Security."

If he were worried about deficits, he would worry about the $2 trillion added to the national debt in the last four years rather than his promised $2 trillion cut in the national debt.

The president's worry is political. His guru, Karl Rove, is after Social Security -- the mainstay of Democratic politics.

He is after the 20-year-old votes. If he can feed the worry of 20 year olds that they are paying into a retirement that's not going to be there, it's a win-win politically. With private accounts, President Bush is a hero. If the president loses, at least he tried.

Meanwhile, the Democrats, who oppose doing anything, are made to look fiscally irresponsible.

As Will Rogers said years ago "all politics is applesauce."

[LowCountryJoe]

A Great Investment Opportunity, “Trust” Me!

Dear Ernest Hollings,

I am the sole owner and manager of a 70-plus-year-old life insurance company that specializes in annuities. I’m looking for others to get in on the ground floor of this fantastic initial public offering and I’m starting with you since you might just help me spread the word; you’re one of the best salesman I know.

A very general business overview

I offer annuities to my clients that begin payouts once they reach their mid sixties as long as they have made 10 years worth of premium payments before reaching the ‘payout’ age. The 10 years premium payments can be made during any time span and do not have to be made in consecutive years.

The law is on my side and requires that everyone becomes a client, so marketing and revenue do not seem to be an issue…more on this later. Clients that have not reached the ‘magical age’ will be sending me premium payments that are used to payout to my current clients that have reached the ‘magical age’. In fact, the premiums that I collect exceed the amount that I have to pay out to my clients and the operating costs of my business – let’s call this the surplus.

Since I am the lone shareholder I have no need to payout dividends or concern myself with share price appreciation. Besides, that’s not my goal or ambition. Here’s what I do do though…my company ‘special issues’ bonds and does not offer them for sale to anyone except me. So, my company uses the surplus money collected from client premiums (after paying current beneficiaries and operating costs) and buys the bonds that my very own company ‘special issued’. Neat trick, huh? Next, I take the now ‘freed-up’ money and I just simply give it away to charity. That’s right; just give it away! It feels so good to give in fact that I have no need to be concerned with share price appreciation because my reward comes from knowing that I will be liked. This charitable giving generates great PR for me and takes care of the marketing. Amazingly, the face value of the bonds that I ‘special issue’ correspond almost identically to the value of the premium surplus amount. These bonds do pay interest but as long as the premiums exceed the benefits then I’m cool. And, as an added bonus, I can raise the premiums any time I want to and, since it’s compulsory, the clients will pay it.

A little more general background

- Like I’ve stated, the company has been in business over seventy years and I’m the fourth-generation owner.

- My company’s actuaries have made plenty of recommendations over the years regarding the mortality tables but I just generally ignore what they’re telling me. It’s all about customer service here!

- Over the years the company has increased the required percentage amount of the premium that must be contributed – the increase has been well over 1000%. The premium that the client pays depends on the amount of income that they make. It’s a little more complicated than that though but perhaps you’ve seen it…I know that you are a client of mine.

- The benefit payments to my ‘magical aged’ clients are indexed to wage growth and not to consumer prices growth. Every time I consider changing that, they gnash their teeth and wail. I cannot afford to have my ‘magical-aged’ clients mad at me…it’s all about customer service.

So, are you interested in becoming part owner? If you don’t mind I’d rather not show you any of my financial reports; can’t you just ‘trust’ me on this one?

How many shares should I pencil you in for, Fritz?

[econ_grad]

Senators and respresentatives will make sure the money is there.

Thank God! Now I can safely go to sleep.

[Congressman Billybob]

Good analysis. Sarcasm is a fine weapon against blowhards. And even though Fritz is no longer a Senator, he is still a blowhard.

Congressman Billybob

Latest column, "Death in a Courtly Manner"

[Raycpa]

How many shares should I pencil you in for, Fritz?

All of them, and put them on my tab.

[AaronInCarolina]

Senators and respresentatives will make sure the money is there.

Maybe with the help of a little pixie dust!

[KarlInOhio]

You left out one additional fact. If you ever do run low on money, you can slap a few twenties on the copying machine and make more until you run out of paper. Sure they reduce the value of the other money in circulation, but you've have to pay off those bonds you have.

[Blood of Tyrants]

The bank that has your account doesn't squat on the money. It's invested or loaned out. But you can bet your boots it you go to withdraw the money, it will be there. Same for Social Security.

Bad analogy, Earie. The bank INVESTED the money. Congress SPENT IT AND GAVE THE SS Administration a worthless IOU! EVERY LAST NICKEL! And YOU helped!

Senators and respresentatives will make sure the money is there.

And HOW, pray tell, are you going to do that? Are YOU personally going to make the bonds good?

[expatpat]

Tell that to patriotic Americans who think U.S. Treasuries are the safest investment and now own approximately $5 trillion worth.

This is pure deceit. The US Treasury notes we invest in via the markets are not the same as the bonds held by the SS Trust Fund -- the latter are non-negotiable bonds. In other words, they are just self-dealing bits of paper that have no value on any market.

[Ole Okie]

Treasury bonds, me eye!

Sochsecurity (that's how some Dumbocrap on TV pronounced it tonight) is a gigantic Ponzi scheme.

I'm sorry. Wish I could feel different about it, but just on its face, it is a Ponzi scheme. The intake today is used to fund today's outgo; the overage is confisticated by Congers. A sheaf of paper is substituted for the dollars spent by Congers (and that representation of the Congress is intentionally intended to suggest they're a bunch of eels).

Classic Ponzi.

[longtermmemmory]

Yes, I thought the "bonds" in social security were not real bonds, but a special class of iou's.

The democrats and their mediots are exosing themselves for the partisan frauds that they are.

If GWBush were to resign today and bill clinto magically return, SS would again be in crisis and they would blame the republicans.

[cpdiii]

You forgot to add that the wages you earn that go to social security are part of your gross income thus you have a tax on a tax. When you receive social security it is considered income.

Thus we have a tax on a tax and we then tax it a third time.
Al Capone was an amateur.

[David]

That's really very good Joe. Excellant.

In my view, the real political pressure at this point in time is that it can now be clearly foreseen that FICA tax revenue will be exceeded by Social Security distribution payouts in about 10-12 years.

Now if the "trust fund" were real, that would not be a problem--you just dip into the fund. But the trust fund is not real--in order to provide the current funds when FICA is no longer sufficient, general fund tax revenues must be used. Congress can see clearly that will provide a current period cash flow problem of increasing magnitude.

Real reason why we are now willing to see the actual substantive problem with the system.

[groanup]

Bottom line: Social Security is not broke. The government is.

Er, Fritz...what's the effing difference?

[groanup]

Here ya' go, figure it out.

http://www.sscommonsense.org/SimIntro.html

[lifelongsoldier]

Fritz never could tell the whole truth, bless his heart.

[ancient_geezer]

The bank that has your account doesn't squat on the money. It's invested or loaned out. But you can bet your boots it you go to withdraw the money, it will be there. Same for Social Security.

Hmmmm, According to the Social Security Trust Fund trustee's report of 1998, them congress critters up and spent it, not one penny was "invested or loaned out" in any normal sense of the word.Social Security Trust Fund Report Shows Need For Reform

Defenders of the program claim that a portion of this unfunded liability can be offset by the Trust Fund. The Trust Fund, however, contains nothing but IOUs. All surplus payroll tax revenues have been spent on other government programs (see Chart 3). When the IOUs come due in the future, they can be redeemed only with revenues from taxes or borrowing.

[Spirited]

"Now if the "trust fund" were real, that would not be a problem--you just dip into the fund. But the trust fund is not real--in order to provide the current funds when FICA is no longer sufficient, general fund tax revenues must be used."

Walter Williams gives a little insight on "trust".
http://www.capmag.com/article.asp?ID=4150

[ancient_geezer]

Thus we have a tax on a tax and we then tax it a third time.
Al Capone was an amateur.

Wages-of-Sin: An employer pays a tax on wages for the sin of hiring you, You pay a tax on wages for the sin of working, and a second tax on your wages so some another guy can go fishing, drink, and sin some more.

[John Locke]

If there is one thing about the United States that you can count on, it is that we honor our obligations.

Wrong again, Fritz: