The Myth of the Social Security Trust Fund

Dear Friend,

Kudos to Charles Krauthammer on his excellent analysis that Social Security is not protected by a “lockbox” or “trust” fund. I said this in the first printing of Unaccountable Congress: It Doesn’t Add Up in 1992. In fact, I entitled chapter five on the methodology of the Social Security trust fund, “Congressional Child Abuse: Send the Kids the Bill.”

For some background on this, one can look at what Charles Ponzi tried to do in Boston in 1920. Like Bernie Madoff more recently, he took money from friends and promised to double it in a short period of time. Ponzi fulfilled the payments to his first investors by using the payments from his later investors. Unfortunately, for Ponzi, there wasn’t enough “suckers” in Boston for him to last, and he went straight to jail.

This background is important when one examines the methodology of America’s most significant social program. Social Security has been deliberately misrepresented to many trusting people over the years. This is especially deplorable because Social Security has become the means of living for many Americans, and as Krauthammer says, it has now -- for the first time in 40 years – fallen into a deficit position, adding to the already large annual budget deficits.

The terms “trust” fund or “lockbox” have become merely political rhetoric to help candidates for public office get elected or re-elected. Social Security has become a payas-you-go system and, now, the annual deficits to pay retirees will need to be made up for by taxes collected from current workers. So, to put a point on it, Social Security has been reduced to a Ponzi scheme because it has used the surplus FICA taxes collected in the past to fund other aspects of our bloated government, leaving us now to collect taxes from current and future workers to pay benefits to past workers and present retirees.