US Gov't. Borrows From Social Security to Make Minimum Payments

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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Social Security COLA 2011: Cost Of Living Adjustment Not Coming

WASHINGTON — The Social Security Administration is set to announce that more than 58 million retirees and disabled Americans will have to go a second straight year without a cost-of-living increase in benefits.

The government will make it official Friday morning when the inflation numbers for September are released.

It will be only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.

The cost-of-living adjustments, or COLAs, are set automatically each year by an inflation measure that was adopted by Congress back in the 1970s. Because consumer prices are still lower than they were two years ago, the last time a COLA was awarded, the trustees who oversee Social Security project there will be no benefit increase for 2011.

To make up for the lack of a COLA, the House will vote in November – after congressional elections – to provide $250 payments to Social Security recipients, House Speaker Nancy Pelosi said. But even if Pelosi can get the House to pass the proposal, it faces opposition in the Senate.

The lack of inflation will be small comfort to many older Americans whose savings and home values still haven't recovered from the economic recession. Many haven't had a raise since January 2009, and they won't be getting one until at least January 2012. And the timing couldn't be worse for Democrats as they approach an election in which they are in danger of losing their House majority and possibly their Senate majority as well.

"We're a little bit upset because our bills are going up and our Social Security isn't," said Betty Dizik of Tamarac, Fla., a retired tax preparer and social worker.

Dizik said her only source of income is a $1,200 monthly payment from Social Security. At 83, she said she applied for a temporary job as census taker but didn't get it.

"I'm like a lot of other people in my predicament who live on Social Security," Dizik said. "It's hard. We cannot make ends meet."

A little more than 58.7 million retirees and disabled Americans receive Social Security or Supplemental Security Income. Social Security was the primary source of income for 64 percent of retirees who got benefits in 2008.

The average Social Security benefit is $1,072 a month.

The last increase in benefits came in 2009, when payments went up by 5.8 percent, the largest increase in 27 years. The big increase was caused by a sharp but short-lived spike in energy prices in 2008.

Gasoline prices topped $4 a gallon in the summer of 2008, jolting the inflation rate and resulting in the high COLA for 2009. When the price of gasoline subsequently fell below $2 a gallon, so did the overall inflation rate. Seniors, however, kept the high COLA for 2009.

"They received a nearly 6 percent COLA for inflation that no longer really existed," said Andrew Biggs, a former deputy commissioner at the Social Security Administration and now a resident scholar at the American Enterprise Institute.

By law, the next increase won't come until consumer prices rise above the level measured in 2008. The trustees who oversee Social Security project that will happen next year, resulting in an estimated 1.2 percent COLA for 2012.

Advocates for older Americans are pushing for some kind of payment to make up for the lack of a COLA.

"For over three decades, millions of older Americans have counted on annual Social Security benefit increases to help them afford their basic needs," said Nancy LeaMond, AARP's executive vice president. "AARP is asking Congress to provide relief to millions of older Americans in the postelection session."

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