What Happened to the $2.6T SS Trust Fund?

This is a rebuttal to Mr. Tobin's recent blog entry: "Let's Blame Senior Citizens For USA Unsustainable Budgets." With all due respect for Mr. Tobin, I really can't agree with his supposition that entitlements are not a major part of the national budget and deficit problem. [1]

The bottom line is that the so-called "mandatory" entitlements made up 31% of the budget when Mr. Tobin first started contributing in 1958. They now make up 62% of the budget. That's a doubling of benefits while individual contributions fall far short of what one can expect to draw from the system (on average). Life expectancy has grown considerably since 1958 yet retirement age has remained about the same. Add to this the fact that a 2012 dollar is equivalent in purchasing power to a mere 13 cents in 1958. Imagine contributing $130 in 1958 to receive $1,000 in benefits today, while in the interim spending that original $130 for something other than SS. That's simply not sustainable. It's a major drag on the budget and major contributor to the deficit problem. [2] [3]

Withdrawals now exceed contributions and the "trust fund" is nothing but a pile of IOUs. Every Congress since Reagan has chosen not to invest the funds in real assets, but chose instead to spend the funds on things other than SS. Current liabilities are paid for by younger generations, by borrowing from the Chinese and by printing more money. [4] [5] [6]

But "that's not true", claim the status-quo proponents; the "trust fund" was never used to finance the general fund and has nothing to do with the deficit. President Obama’s budget director explained all this in February, 2010: [7]

“Social Security benefits are entirely self-financing.  They are paid for with payroll taxes collected from workers and their employers throughout their careers.  These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. … Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

That kind of accounting is a bold-faced fraud and worthy of jail time if given by a titan of industry, but perfectly legal if given by a government official. It would be laughable if it weren't for the fact that so many people blindly believe this fiction.

If this status-quo claim is true, why did President Obama and his Treasury Secretary both say that SS recipients might not get their checks if the debt ceiling wasn't raised? I quote the President: [8]

“I cannot guarantee that those checks [he included veterans and the disabled, in addition to Social Security] go out on August 3rd if we haven’t resolved this issue.  Because there may simply not be the money in the coffers to do it.”

And like a well orchestrated circus, the Treasury Secretary echoed the president that if a budget deal isn’t reached by August 2 of that year, seniors might not get their Social Security checks. [9]

So, the status-quo defenders have assured us for the past 25 years that Social Security is fully funded for the next 25 years. If there are real assets in the Social Security Trust Fund - and not a giant stack of IOUs - then how could failure to reach a debt-ceiling agreement possibly threaten seniors’ Social Security checks? 

Either Obama lied to us in 2011 or all the status-quo defenders have been lying to us for decades.  It must be one or the other. The "trust fund" either holds real assets in it or it doesn't. It either contributes to the deficit and borrowing or it doesn't.

But let's not forget Medicare which is also going bust. The average entitlement recipient has been drawing more from the system than they ever contributed, all while relying on the younger generations to fund the shortfall. This has been going on for decades and persists today.

A single man earning an average wage would have paid $352,000 into the two entitlement systems, but stands to receive $432,000 in benefits. A single woman would draw about $475,000. The single earner couple would draw a whopping $798,000. All three groups contribute the same $352,000. [10]

So cut out the waste you say, like bridges to nowhere and foreign aid to countries that hate us. Here's some news for you: If we were to cut out practically all of "discretionary" spending (including the entire defense budget) we would still add to the deficit. [11]

So let's soak the rich instead. More bad news for you: Since WWII, no matter the marginal tax rate on he highest tax bracket, revenues have remained the same. Raising taxes on the rich won't bring in more revenue. In fact, if we taxed their income at 100% we still couldn't balance the budget. [12] [13]

Here's my solution: Fully fund the social programs by increasing contributions and or cutting benefits! Wow, what a novel idea for people to pay their way instead of being leaches on society. Nah, we can't do that because this is America where "democracy" means the tyranny of the majority who are seduced by the idea that we can all live at the expense of another. 

Sure, the boomers contributed to the system all these years, but we also threatened our elected officials that we would throw them out of office if they made us pay full value for our entitlements. To stay in power, the politicians spent the trust fund to pay for the shortfall (and lied to us about spending it). If that weren't enough, the people you and I elected sold your grand-children's and great-grand-children's future to pay for these entitlements (because the underage and unborn can't vote). What a hell of a legacy the boomers have left while attempting to skip out on the bill.

The sooner we all face reality, the sooner we get onto the path to fiscal sanity. I, for one, have little hope that anything short of a fiscal collapse will shake people from their fantasy world in which everyone lives at the expense of everyone else. Inevitably, we will run out of other people's money, the fantasy ends and the real pain begins. The sooner the better, in my opinion.

References:

[1] Tracy Tobin's Blog: Let's Blame Senior Citizens For USA Unsustainable Budgets
[2] Bureau of Labor Statistics CPI Calculator
[3] Congressional Research Service:  Mandatory Spending Since 1962
[4] MSNBC: U.S. budget deficit to hit 1.5T which means we borrow 40 cents of every dollar we spend.
[5] WSJ: The Fed purchases 61% of the national debt. Where do they get the money?
[6] SSA FAQ #7: The goverment spends the money it borrows from SS.
[7] USA Today: Opposing view: Social Security isn't the problem 
[8] CBS News Obama: No guarantee for Social Security checks 
[9] CBS Face The Nation: Transcript for July 10th, 2011 
[10] Urban Institute: SS & Medicare Taxes/Benefits over a Lifetime
[11] CBO: 2011 revenue was 2.3T while manditory sending was 2T. The 2012 numbers are worse.
[12] The Armchair Economist: Hauser's Law and the Lauffer Curve  
[13] YouTube: Bill Whittle On Eating "The Rich"