Submitted by Taps Coogan on the 26th of December 2019 to The Sounding Line.

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Every year, the US federal government receives Social Security taxes and pays out benefits. When the taxes amount to more than the benefits, the federal government spends the extra money on its various other programs. It then writes an ‘I owe you’ to the Social Security Trust Fund in the form of a non-marketable treasury bond. The Trust Fund currently has about $2.9 trillion of such treasuries.

The treasuries held in the Trust Fund produce interest income for the Social Security Trust Fund. That interest income has been bridging a widening deficit between Social Security tax revenues and benefit payments for nearly a decade.

2019 is likely to prove to be the last year when Social Security tax revenues and interest income exceeded benefit payments. As such, the Trust Fund is going to become a net ‘redeemer’ of treasury debt in 2020 for the first time since 1982, and it is likely to remain a redeemer until it runs out of money sometime around 2035. Once the fund runs out, benefits will be cut automatically unless Social Securiy tax rates are raised.

While the imminent drawdown of the Trust Fund is a stark reminder that the nation’s unfunded liabilities are fast transforming into a present day solvency problem, the Trust Fund has always been a bit of an accounting scam. It’s drawdown will simply make it more obvious that you, the taxpayer, are already funding the Social Security deficit.

Here’s why:

Imagine that taxpayers pay $100 of Social Security taxes that end up in the Trust Fund. The government takes that $100 and spends it immediately. It then gives the Trust Fund a $100 treasury that will mature in a few years. However, in a few years, where will the government get the $100 to pay back the Trust Fund’s treasury? The government will get the money from taxpayers or by issuing more debt (which taxpayers are ultimately on the hook for).

In reality, the Trust Fund is nothing more than a convenient tally of all the non-social security taxes that taxpayers will eventually have to pay to reimburse the federal government for the Social Security taxes that it has already wasted.

Put differently, it is simply a promise to tax the American people twice for the same benefit, and charge them interest in the meantime.

While there is no way to fund Social Security without more taxes and/or less benefits, perhaps it is time to consider making the Trust Fund an actual trust fund and allowing it to invest in actual investments, not just non-marketable taxpayer ‘I owe you’s.’ Of course, that would lead to the question of what to invest in, for what fee, paid to whom, questions whose answers would inevitable lead to corruption and abuse.

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