COMMENTARY:

Beware the Social Security Raiders of the Public Covenant

by Fred Cederholm

Under the Reagan Administration, the trans-generational pyramid scheme became a budget deficit funding pyramid scam of celestial proportions.
I've been thinking about raiders and our elected public servants in Washington D.C. Think in the context of "Raiders of the Lost Ark," and "Raiders of the Lost Retirement," respectively. While Spielberg's Nazi villains sought to prostitute the power of the Ark's covenant between God and His chosen people, Cederholm's Congressional villains are prostituting the power of Social Security's covenant between the Federal Government and the eligible recipients of future benefits.

Social Security (S.S.) is a trans-generational pyramid scheme whereby the current generation of workers (and their employers) fund the costs of the current generation of retiree benefits. In the late 1930s, there were about 42 workers per retiree, with worker and employer each paying 1% on the first $3000 of gross salary. Today, there are about 4 workers per retiree, with worker and employer each paying 6.20% on the first $87,900 of gross salary (FICA only). By 2050, there will be about 2 workers per retiree, with worker and employer each paying ??.??% on the first $ ???,??? of gross salary.

In the early 1980's, Congress, acting upon warnings from the Social Security Administration, upped the employee/employer payroll tax percentage rates and taxable basis to build up the S.S. Trust Fund for the time when current-year expenses would exceed current revenues--presumably beginning in 2018.

The liability of National Debt to the Social Security Trust Fund has skyrocketed.

Up to that point, the payroll tax rates/basis were adjusted slightly to fund the system on a pay-as-you-go basis. There were slight surpluses (by Federal Govt. standards) in the 1950's the 1960's; and during the LBJ administration, those surpluses began being lumped with general revenues. No big deal, no problem--after all, weren't S.S. benefit payments guaranteed by the "Full Faith and Credit of the United States of America?" (Think "Savings and Loan Crisis" and costly bailout funded by taxpayers.)

The increase in employee/employer payroll tax percentage rates and taxable basis of the early 1980's was coincidentally timed with the huge cuts in income tax rates/policy of the Reagan Administration. Effectively, what DC "gave back" to individuals and businesses with one hand, they "took back" with the other. The public was basically indifferent, but Washington had a big problem--its spending levels did not go down, they increased dramatically; its income tax revenues seemed to tank.

While spending deficits and mandated Federal borrowings ballooned, so too did the S.S. Trust Fund surpluses. If Uncle $ugar continued the "policy" of lumping excess S.S. revenues into the "common kitty" begun modestly so under LBJ's administration, the Fed would have to go to the open market to borrow/refinance less every Tuesday. After all, payroll tax collections flow into the Federal coffers automatically, like clockwork. Thus, the trans-generational pyramid scheme became a budget deficit funding pyramid scam of celestial proportions.

The liability of National Debt to the S.S. Trust Fund has skyrocketed. While "the Raiders of the Lost Retirement" argue that debt is debt, and this accounting sleight-of-hand makes no difference, who will have to ante up to meet the future S.S. obligations (already paid for) when they come due? The American taxpayer, again.


Copyright © 2004 Fred W. Cederholm. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer who contributes the column "TH*NK*NG" to The Weekly Observer in Creston, (Ogle County) Illinois. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.



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This story was published on September 9, 2004.