In 2004, President Bush tried to make the entitlement programs for Social Security and medicare the topic of a national debate. Unfortunately, vested political interests prevented any progress on this vital issue and and obscured any understanding of it with lies, half truths, and mis-representations.
Those who want to duck responsibility on this issue cite the trust fund. They want us to inhale the political smoke, not breathe the clean air of reason. The sad fact is that there are no trust fund assets.
There are few issues in which both political parties have worked as hard to obscure the economic realities from the American public as Social Security and Medicare. The concept of a trust fund for both programs must rank as one of the greatest political fictions of all times. In reality, the funds are just meaningless bookkeeping entries that have no intrinsic value or assets behind them. Each of us can become instant millionaires by writing ourselves an IOU promising to pay ourselves a million dollars sometime in the future. That personal trust fund, without assets backing it, will have the same value as the government's promises to pay itself in the future.
The only thing that counts in this issue is cash. In any given year, the only significant sources of cash for the federal government are tax collections or borrowing through the bond markets. The government must meet its cash obligations in that year from the funds it receives in that year.
How it allocates these collections and expenditures are bookkeeping issues that may provide useful information but do not change the basic equation. The government may say that the dollar it takes from your pocket is a tax collection or it may call it a payment from the Social Security Trust Fund. Whatever the government may call it, it still must take that dollar from
your pocket before Washington can spend it.
For at least two decades both Social Security and Medicare have taken in much more cash than they have given back to the recipients of those programs. Each year, the tens of billions of surplus cash has been spent to fund other government programs, including the pork barrel projects that are so popular among those seeking re-election. This stealth tax has been hidden
by claims that the excess has gone to a trust fund. But, the cash has been spent. The only thing that has gone to the trust funds is an IOU. And, unlike the bonds sold by the government, these trust fund IOU's are not bound by any binding legal commitment. The government may change the rules at any time it likes.
The system has already gone bust. I have read that this year's demands from Social Security and Medicare recipients will be some $60 billion more than those two programs collect in taxes. If that number is accurate, it means that this year Washington has $60 billion less to spend on other programs, or it must find that much more cash from somewhere else. Each year the cash shortfall will increase and, with it, the pressure on the federal budget. Real programs must be cut or real taxes must be raised.
In just a few years, certainly by the next president's term, this will have hundreds of billions of dollars impact each year on the federal budget--regardless of the accounting entries in the trust funds. And, the political blame game will begin. Unfortunately, the president in office when a crisis strikes gets the blame. It will mean nothing that politicians from both sides of the aisle have avoided this issue for decades; pushing it off to their successors. The future has arrived, and it can't be avoided.
Those who want to duck responsibility on this issue cite the trust fund. They want us to inhale the political smoke, not breathe the clean air of reason. The sad fact is that there are no trust fund assets.
There are few issues in which both political parties have worked as hard to obscure the economic realities from the American public as Social Security and Medicare. The concept of a trust fund for both programs must rank as one of the greatest political fictions of all times. In reality, the funds are just meaningless bookkeeping entries that have no intrinsic value or assets behind them. Each of us can become instant millionaires by writing ourselves an IOU promising to pay ourselves a million dollars sometime in the future. That personal trust fund, without assets backing it, will have the same value as the government's promises to pay itself in the future.
The only thing that counts in this issue is cash. In any given year, the only significant sources of cash for the federal government are tax collections or borrowing through the bond markets. The government must meet its cash obligations in that year from the funds it receives in that year.
How it allocates these collections and expenditures are bookkeeping issues that may provide useful information but do not change the basic equation. The government may say that the dollar it takes from your pocket is a tax collection or it may call it a payment from the Social Security Trust Fund. Whatever the government may call it, it still must take that dollar from
your pocket before Washington can spend it.
For at least two decades both Social Security and Medicare have taken in much more cash than they have given back to the recipients of those programs. Each year, the tens of billions of surplus cash has been spent to fund other government programs, including the pork barrel projects that are so popular among those seeking re-election. This stealth tax has been hidden
by claims that the excess has gone to a trust fund. But, the cash has been spent. The only thing that has gone to the trust funds is an IOU. And, unlike the bonds sold by the government, these trust fund IOU's are not bound by any binding legal commitment. The government may change the rules at any time it likes.
The system has already gone bust. I have read that this year's demands from Social Security and Medicare recipients will be some $60 billion more than those two programs collect in taxes. If that number is accurate, it means that this year Washington has $60 billion less to spend on other programs, or it must find that much more cash from somewhere else. Each year the cash shortfall will increase and, with it, the pressure on the federal budget. Real programs must be cut or real taxes must be raised.
In just a few years, certainly by the next president's term, this will have hundreds of billions of dollars impact each year on the federal budget--regardless of the accounting entries in the trust funds. And, the political blame game will begin. Unfortunately, the president in office when a crisis strikes gets the blame. It will mean nothing that politicians from both sides of the aisle have avoided this issue for decades; pushing it off to their successors. The future has arrived, and it can't be avoided.
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