Issue #96

by Art Kelly

The day of reckoning on Social Security may be a lot sooner than expected.

Michael Barone, Senior Political Analyst for the Washington Examiner and author of the Almanac of American Politics, has reported that Social Security cash flow has suddenly turned negative.

For many years, Social Security surpluses have been used for NON-Social Security purposes. In effect, the Social Security program has been used to partly finance the general operations of government. Those days could be over.

Through the end of May 2010, the federal government has “borrowed” more than $2.553 Trillion from the Social Security Trust Fund.

No one has any idea how this money can be paid back.

Financial analyst Bruce Krasting writes about the new developments for Social Security, “The numbers are going in the wrong direction. Receipts are down across the board while expenses keep rising… These lines were not expected to cross for at least another five years… I am stunned by the continued drop in FICA/SECA tax receipts.”

In an article in Roll Call, “When Is a Trust Fund Not a Trust Fund?” Dorcas Hardy, former Commissioner of Social Security, explained, “These federal government trust funds are not the same as the dictionary definition or as most people would understand trust funds to mean from their common experience.”

Rather, the Trust Fund receives non-negotiable, special interest bonds, which are stored in a filing cabinet in Parkersburg, West Virginia. These are not the same kind of bonds held by banks, foreign governments, and the public. Instead of real assets on which to draw, the Trust Fund contains only meaningless IOUs from the government to itself.

The White House Office of Management Budget verified:

“These balances are available for future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. The holdings of the trust funds are not assets of the Government as a whole that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury.”

Commissioner Hardy is emphatic that “When some pundits and advocates say not to worry now about the finances of Social Security because benefits can be paid until 2037 when the Trust Funds run out, they are being naïve, confused, or--worse--untruthful.”

Indeed, claims that everything would be A-OK until 2037 is based on the completely false notion that, after 2016, when payroll taxes stopped producing enough revenue, the Social Security Trust Fund could be used to pay benefits. In truth, the federal government had no ability to pay full Social Security benefits beyond 2016.

But instead of 2016, Doomsday looks like it may be here a lot sooner.

That’s why Allan Sloan, senior editor of Fortune magazine, says in a Washington Post article, “Social Security could be next to need a bailout.”

Last week’s issue of this newsletter pointed to two bills that have been introduced in the House to require Social Security surpluses to be saved, not spent: HR 219, the Social Security Preservation Act, by Congressman Ron Paul (R-TX) and 18 cosponsors; and HR 1712, the Savings for Seniors Act, by Congresswoman Marsha Blackburn (R-TN) and 21 cosponsors.

The Social Security Board of Trustees postponed their annual report, which is normally issued in March, until the end of June, apparently in hopes the economy would improve and thereby justify a better projection for the future of Social Security. At this point, the trustees may not be able to do that.

If the economy does improve and there are again Social Security surpluses, it is even more critical that legislation be passed to prevent continued raids of the Social Security Trust Fund.