The Washington Post has finally laid it out: Social Security is a Ponzi scheme, not a prudent savings program. As the Post special report points out, Social Security has now gone “cash negative“: the payroll taxes coming in are not enough to cover the pension payments going out.Ah, you say sagely, but that is not a problem. The Social Security trust fund has been carefully putting money aside for decades. Now we will simply draw from the savings account to cover the extra costs.Not exactly. The government has been spending the money that came in as Social Security payroll taxes for years. It has “invested” the payroll tax revenues in Treasury bonds: that it, the government has been ‘saving’ money by investing in IOUs to itself.Now that the program is cash negative, annual social security payments result in a net flow of cash out of the government every year. As the Post puts it,
The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.Many Democrats have largely chosen to ignore the shortfall, insisting the program is flush, citing the existence of the trust fund. They argue that fixing Social Security can wait, perhaps for years.
That “trust fund” is a myth, an accounting trick. Note that if the money had been invested in stocks or other assets, the government could now be selling those assets to cover the Social Security costs. But that would have forced spending discipline in the past; Congress was too busy ladling pork to cronies and ginning up popular new entitlements to face up to the troubles ahead.Now those troubles are here. In the future, more and more money will have to be diverted from other priorities — education, defense, tax cuts, health care — to cover hundreds of billions of dollars in Social Security costs every year.While quacking disingenuously about a valuable ‘trust fund’, the government has already spent the payroll taxes you and your employers paid to provide security in your future. The money is gone, exchanged for Treasury IOUs. It really was a Ponzi scheme, and the bill really is coming due.