Pack of lies and nonsense

As the Great Depression of the 21st century continues, something I've written about is now being generally recognized: the Social Security system is broke.

The financing scheme behind Social Security is called "pay as you go," which means whatever money you pay out this year you also raise this year in payroll taxes. One dollar raised is one dollar paid out. However, for at least the last generation, the government has collected annual surpluses because it jiggered the payroll tax rate. The government immediately applied these surpluses to its annual budget and gave Social Security IOUs in return. Thus, Social Security was converted into a surreptitious income tax that partially disguised the size of annual federal budget cash deficit. Then came the 2008 Great Depression; unemployment reduced payroll tax revenues and claims on Social Security increased. All of a sudden not only is there no longer any surplus; the system can't even pay as it goes because Social Security revenue is less than expenditure. The system is in trouble. Time to call in those IOUs. But wait! Who pays these IOUs? Answer: the government. Question: how? Answer: with borrowed money that increases the federal budget deficit. Question: how long will this go on? Answer: it must go on indefinitely because as far as anyone can tell Social Security revenues will never again be sufficient to cover expenditures.

That's the Ponzi-scheme scam that has now blown up. Social Security payroll taxes don't raise as much money as Social Security pays out, so Social Security is being supported by funds from the general budget. As 41% of the federal budget is borrowed money (previously borrowed from the Chinese and Japanese and now just printed dollars issued by the federal reserve), Social Security is now living on borrowed money. And borrowed time.

What's likely to happen? Two things: big cuts in benefits and higher taxes. Grandma must live on less while grandson sees his take-home pay shrink. That's the inescapable future of Social Security. But who in Congress will vote for such a thing? Nobody. So some sneaky, under-handed scam will be invented. Like indefinitely postponing cost of living increases even as the cost of living sky rockets. Like removing the annual limit on the payroll tax and in effect converting it into a second income tax. Or like imposing new tax rate hikes disguised as "temporary" surcharges or adjustments. The possible deceptions are innumerable. Whatever happens, we will hearing an endless barrage of political talk about the absolutely sound foundation of Social Security even as it falls apart before our eyes.

The simple, unavoidable fact about Social Security is this: the future demands on the system will far exceed the ability of the system to pay. As the Baby Boom generation ages, the need for income support will overwhelm the ability to provide it; this failure will undermine public support for Social Security, which may be the only part of government most people care anything about nowadays.

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