Middle Class Suckers

The 1935 Social Security Act was created to ensure the financial stability of US citizens when they need it. We pay FICA taxes (Federal Insurance Contributions Act) in and get monthly payments back out under certain conditions. Under a situation like this, it would be prudent if the FICA paid in by a person was collected, invested, and then used to pay out the benefits for that same person when that time came. In that way, each person’s taxes are paying for their own benefits. Our federal government has invested our excess FICA tax money in special series non-marketable U.S. Government bonds. The particular bond type is the Government Account Series (GAS.) So far, this all looks good. The “Social Security Trust Fund” has been invested in bonds that should be worth more at maturity than when they were purchased, thus making money on the over 4 Trillion dollars of excess FICA taxes collected.

Sadly, this is the case. What? That is correct. This is exactly what has happened. The reason it is sad is because very few people really understand what has truly happened. Let’s explore a bit further. The particular bond type, the Government Account Series, is NON-MARKETABLE. That means it cannot be sold to anybody but another federal government department or bureau. So that $4+ trillion in FICA taxes collected that is supposed to be there to pay out social security benefits has been transferred to other government departments and spent. Now we have pieces of paper that say those departments need to give that money back when the social security office needs to pay out benefits. But those departments have already spent it. It is gone. So now the current taxpayer has to pay that $4+ trillion a SECOND time!

So what does that leave us with? Our social security system has paper IOU’s that can only be paid with currently collected taxes. The current outgoing payments are only funded by current tax paid dollars. That will continue to function as long as we have enough people paying in. But what guarantee do we have of that? Simply put, none.

The social security system is now a system where the payout going to people at the top is being fed by people at the bottom. The people at the bottom move up in years and hope there are enough younger people added to the bottom to feed tax money in so they can collect while they are at the top. Let’s compare this to a pyramid scheme. Wiki says a

…pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. … The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the “pharaoh”) and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.

So those paying years ago are paid from funds of those that pay in today. Those paying in today hope to get their payments from those paying in the future. This money travels directly up the chain just like a pyramid scheme. There are claims that the social security system is not so because the money paid in today is in the “trust fund” ready to pay out in the future. We have shown this to not be true. The GSA’s will only be exchanged for new money obtained by the government through current taxes.

There is another claim to the difference: the power of the federal government to ensure payment into the system through taxation. Let’s explore the claim of taxing to ensure the future influx of cash into the social security system. There is no guarantee that there will be more people paying into the system than will be taking out nor that incoming FICA tax revenue will meet outgoing payments. In 2011 the total expenditures were $736,083 [million] and total receipts were $805,057 [millions.] That looks good until you dig into where the total receipts comes from. There were only $564,231 [millions] in FICA payroll tax contributions and $23,792 [millions] in income from taxation of the benefits supplied. That totals a mere $588,023 [millions.] The rest came from general fund reimbursements which are taken from NON-FICA taxes collected in 2011, and interest. But that interest comes from other government departments, which is again from NON-FICA taxes collected in 2011, plus a relatively small amounts of gifts to the fund. Ignoring the small gift amounts the FICA tax income was short $171,852 [millions] or over $171 billion. Tell me again how the government can assure us that this system is sustainable.

Oh, I found it on wiki:

In 2007, the Social Security Trustees suggested that either the payroll tax could increase to 16.41 percent in 2041 and steadily increased to 17.60 percent in 2081 or a cut in benefits by 25 percent in 2041 and steadily increased to an overall cut of 30 percent in 2081.

So you pay into this system all your life just to get back 70% of what you was promised, in addition paying NON-FICA taxes to cash out the GSA’s. So how secure will you feel when they break that promise of security the next time? What about the time after that? For a real social security system, please read “Where does our Social Security go?”

SOURCES:
1. Social Security wiki ( http://en.wikipedia.org )
2. Social Security government ( http://www.ssa.gov )
3. Social Security recipients ( http://www.ssa.gov )
4. Social Security expenditures and incomes ( http://www.socialsecurity.gov )
5. Pyramid scheme wiki ( http://en.wikipedia.org )

It is a warm late summer day. Not a cloud in the sky. A young single mother of two walks out of her office building and down to the local bank branch to cash her pay check. She cashes her check, safely tucks the money into her wallet, and heads to her car. She is thinking about the yearly fall school shopping she and her two young children are to take the following day. But she is stopped on the way by a robber. This person forcefully reachs into her purse and takes her wallet. They pull out all the bills and set the wallet on the hood of her car as they walk away. The young women cries in desperation “Please give me back my money. That is half my months pay. My kids and I need that to live on.”

There should be laws written to make that action illegal. There should be police there to prevent the crime, and if that cannot be done, then apprehend the perpetrator. There should be judges there to hand down harsh sentences as punishment, so harsh as to deter anybody from doing a heinous act like this ever again!

Luckily we do have some laws written that do make the above a crime, police to enforce them, and judges to hand down the sentences. Unfortunately we also have some laws written that make the above legal. The legal versions are just handled a bit differently, but the outcome isn’t any better. In fact far worse. The legal versions are where the governement takes half a person’s income through taxation.

The above summer day could have been written with innocent bystanders jumping in to save the day by forcefully getting the wallet away from the robber and subduing the villan until the police arrived. But when the money was taken from the young vulnerable mother of two by the government, the bystands just stood there and watched it happening. In fact, editted for today’s America and many of those bystanders would be cheering the act of forcefully taking the money and chanting “Take more! That isn’t enough.” And after the money was taken, they would have walked up to those that took it and asked for their “fair share.” In today’s America, the bystanders are no longer innocent, but instead they are complicit because they take these tax dollars in the form of programs funded by these actions.

Which version is scarier? The latter by far. The lone unlawful criminal doing a single random act of theft is just that, a single incident. We have systems in place to catch and punish this behavior to teach this person, and others, not to act this way. If they continue with such behavior we remove them from society for long periods of time to protect ourselves, our wallets, and even our children. This nightmare will most likely only be experienced once. With the government punitive taxation version of the story, the nightmare is reoccurring. It happens this month. Again next month. Again the month after that. So your dreams are haunted night after night. You think about the school clothes you wanted to buy your kids but couldn’t. You dream about the lunches you wanted to buy them but couldn’t. You have nightmares about putting them through college and wake up screaming, in a cold sweat. Then, not being able to get back to sleep, you weep because you realize there are so many that ask the government to take a “fair share.”