Dec 15, 2010 Christopher Pascale
The Only Money in Social Security is New Deposits - David Siqueira
People always say that there is not enough money in the Social Security program to support the Baby Boomers (born 1946-1964). Among the many reasons given are that there are too many people who will need it in the next decade as the average Boomer will be 65 in the year 2020. Others say that it is a system that cannot sustain itself because it rewards people who do not work as hard while punishing those who have been fortunate enough to have had the health and intelligence to earn more.
While these are viable reasons to doubt the system, they are nothing compared to the fact that there is literally nothing in it save for IOUs and, maybe, the money most recently contributed.
President Reagan Borrows From Social Security (1983-1988)
President Reagan had many challenges during his Presidency, including an assassination attempt. One of the most pressing financial issues he had to solve was that of debt to foreign nations. Tax revenues increased, but so did the size of the country to include its need for infrastructure (police, military, government buildings, government payroll, etc.). On top of this, the top income tax bracket was drastically reduced from 70% to 50%.
To the government, taxes are income. How does one pay off debt when his income has decreased? One usually cannot. President Reagan used a method called "surfing," which is when borrowing is utilized to pay off a debt that is owed. For example, if a person loses his job, he might take a cash advance against his credit card in order to make a house payment. The bill is paid today, another one is coming due, and the cash advance is awaiting satisfaction in the meantime.
During these five years, President Reagan borrowed $300 billion to cover payments for money owed to other countries. He also lowered the top income tax bracket again to 38.5%.
President Bush Borrows From Social Security
Families who get into a trap of borrowing to support luxurious lifestyles soon learn that lines of credit eventually run out. In the past few years, European nations have learned this as well, needing bailouts from the European Union.
The only way to curtail this cycle of borrowing to pay bills (which creates more bills) is to increase income and cut spending. President George H.W. Bush lowered the top income tax bracket to 28% before raising it to 31% shortly after. During this time, the minimum payments owed to other nations had increased and he borrowed $350 billion from Social Security to avoid defaulting.
Many people might think that this exemplifies how great of a President Bill Clinton was, but when it came to this issue, he was no different.
President Clinton Borrows Billions in 1995
In 1995, the US government was out of money once again. In order to keep the system running and the nation on its feet, President Clinton, who had a boost in revenue as a result of raising the top income tax bracket to 39.6%, needed to borrow from Social Security just as his two predecessors had.
Supposedly, the budget was balanced under President Clinton, and that may be true depending on the definition of the word "balanced." For example, a person can balance a drinking glass on its side, and an athletic person can balance on his or her head. But it is perplexing to think that people would argue that during this time, the national debt was nearly paid off, as noted by Minnesota Senator Al Franken (D) in his 2005 book The Truth (with jokes).
Saying that the national debt was nearly paid off is not necessarily a lie; it is a matter of how one feels about ownership. For example, if a family is under financial hardship and they have debts (including a mortgage) that exceed $200,000, and they borrow from a 401(k) or whole life insurance policy to pay it all off, then it would be accurate that those debts are paid off, and that this family only "owes themselves" the money.
However, for this statement to mean the same thing in relation to the acts of these three Presidents, one would have to believe that the money paid into Social Security by employees and their employers (self-employed people pay as both), does not belong to them. Rather, it belongs to the government, much as in a Marxist society where Communism's first tenet is that there is no personal property to include the funds earned from one's labor.
In essence, the people pay revenues (taxes) and then also subsidize the government with their retirement savings, enabling them to run the country in a manner that would bankrupt any other person, business, or institution. Countries are no different, but it is nice to play pretend.
Sources:
Scurlock, James. "Maxed Out." Magnolia House Entertainment. 2006.
Linder, John; Boortz, Neal. The FairTax Book. William Morrow. 2005.
Kiyosaki, Robert; Lechter, Sharon. Rich Dad's Prophecy. Business Plus. 2002.
Franken, Al. The Truth (with jokes). Dutton Adult. 2005.
The Only Money in Social Security is New Deposits - David Siqueira
Foreign Debt is Paid for With Soc. Security Funds - Sundeip Arora
G.W. Bush Raised SS Debt Limit to $800 Billion - Simon Stratford
The Elderly Will Have to Supplement Their Income - Gary Scott
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