Tuesday, January 14, 2025

Social Security Trust Fund; flawed flip-flop from the git-go


Question: What sort of Social Security retirement system counts, as a crucial portion of its future revenue, a stream that is set up to run out (as in dry up) --just as it reaches its maximum contribution (approx 20%)?

Answer: In 1983, Congress -- rather then setting up a straight forward mechanism to funnel federal income tax revenue into Social Security retirement payouts -- when FICA could no longer keep up with growing retirement needs -- projected to happen 35 years out (35 years out!) -- instead hatched the so-called Trust Fund, see-saw stream scheme.

During the long wait for this income tax diversion-into-retirement payouts switch to begin, Congress prescribed that all the excess Social Security (FICA) rev should be used to pay for "on budget" items, that income tax would normally pay for -- and that a matching amount of US bonds be set aside in the so-called Trust Fund to be drawn down in (far) future decades when our growing elderly population finally (at long last) makes FICA -- at the current tax rate -- unable to support retirements in full.

This was to be considered "saving" money for (much) later retirements --IOUs to ourselves.

(FICA tax revenue, by itself, could not fully meet retirement obligations beyond 2010.  After that, interest earned by US bonds in the Trust Fund were able to fill the payouts til until 2019 -- a stream within a stream  -- writing IOUs to ourselves within IOUs to ourselves.)

I don't know why the 1983 Congress would concern itself with Social Security shortfall 35 long years down the road -- and not care to provide for full-up funding beyond the 50 year point.

Trust Fund dry up is looming now (2035?), and we are being warned that Social Security will face a so-called "crisis."

A common sense resolution: we could institute a mechanism that permanently diverts income tax revenue sufficient to cover FICA shortfall -- which is what we have been doing in financial terms since 2019, and which is all Congress ever had to do in the first place.  Lazy alternative: print up a bunch of bonds (more IOUs to ourselves) and stuff them into the Trust Fund to keep the income tax into retirement payouts machinery up and running.

The so-called Social Security Trust Fund was a fundamentally flawed flip-flop gizmo from the git-go.

https://en.wikipedia.org/wiki/Social_Security_Trust_Fund