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Social Security is NOT bankrupt.

Updated on February 27, 2012


The confusion in the Social Security debate stems from the notion that there is a "trust fund" that the current works "pay into" to fund those who are currently receiving social security benefits. For a handful of reasons, the current beneficiaries are receiving larger dollar amounts than they have personally paid in. So based solely on that information, it would appear that the "trust fund" is lacking and deficient. But this is a huge misconception of the way government spending ACTUALLY works.

The United States is Not Like a Household

The United States is a currency ISSUER, not a currency USER. As the monopoly supplier of US Dollars, in a floating exchange rate system, the US Government simply doesn't have piles of dollars sitting around, waiting to pay out it's citizens. Taxes and bond issuance don't "fund spending". The US has virtually no constraint to create dollars to meet it's obligations. This is very different than a household or corporation's budget (currency users).

As a result, the USA always has the money to make its social security payments. There is no social security "fund" sitting around, being fed dollars by workers, that will ultimately pay the beneficiaries.

As FDR once told one of his advisers: "I guess you're right on the economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren't a matter of economics, they're straight politics."

Understanding the operational realities of a currency user vs issuer is not a small feat. Much of what we learned in Econ 101 was relevant BEFORE the US abandoned the gold standard in 1971.

What the SS Debate Should Be (in my opinion, of course)

The ultimate discussion should be whether we, as citizens, want to provide benefits like this to our elderly. It's not about "how" we will provide these benefits, as much as it is, "how much" benefit do we want to provide. "Measuring" whether or not the government has the ability to pay the benefits is a waste of our time and energy. We should instead turn the focus of the discussion to deciding whether these benefits are consistent with the size of government and prosperity that we want for ourselves as citizens. We need a dramatic shift in our approach to government spending in this nation. If we can better understand HOW the government spends, we can help decide what we want our government to spend money on. We should always strive for efficient and sensible spending. Just because the government technically can't "run out of money" does not mean it has a license to spend recklessly. Government is intended to exist for the people, by the people. Let's continue to work towards that concept.


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    • LearnAboutIt profile image

      LearnAboutIt 5 years ago

      YouGotItWrong - thanks for your comments. To address your first point, confidence in the US Dollar is backed by our 19T economic output as a nation. From an accounting standpoint, yes, SS is a government obligation, however, my point was that there isn't a literal "trust fund" holding money that Congress is borrowing from. And to address your final point, taxation serves as a tool to regulate flow between the public and private sector. 0% taxation and 100% taxation would cripple the system. The government does tax first, and spend later. It spends when it needs to spend. However, I don't want this seem like I am an advocate of reckless spending. Just because the US has no "solvency constraint" doesn't mean we have a license to spend inefficiently.

    • profile image

      YouGotItWrong 5 years ago

      You are oversimplifying without addressing a very key point. As the government prints money as an issuer there has to be something to establish it's value. The government can, as you state, print an unlimited amount of money however at some real, measurable juncture confidence will have dropped to the point where US currency is no longer accepted for exchange. Inflation is the mechanism that rebalances the money supply to match confidence; this is the result of moving off the gold standard.

      There is a very real chance as our debt races skyward that we reach a point where our currency is devalued and no longer worthy for economic interchange. That's the reality of operating as an issuer ignoring the reality of currency valuation.

      From an accounting point of view you are entirely incorrect. The government does have on its books the Social Security Trust Fund and all the debits against it as Congress has continually borrowed money from it to pay for other programs.

      If your argument held water, why would the government collect taxes when it could just issue more currency?

    • LearnAboutIt profile image

      LearnAboutIt 5 years ago

      Express10 - operationally speaking, it is impossible for the US Government to "run out of funds". Might we see an overhaul of the Social Security system by 2037? It's definitely possible. But the outgoing Social Security checks aren't dependent on the amount of Social Security tax that is collected. That's the important distinction.

    • Express10 profile image

      H C Palting 5 years ago from East Coast

      My last social security statement says, in 2037 there likely will be no funds for me after having had a lot of money taken out of my paychecks. I won't be near retirement until long after the wheels have fallen off, but it bothers me in that I have had a lot of taxes taken from me to support others under a system that will not be there for me. I am not planning on having social security when I retire but it would be nice to at least get a decent percentage back which is the general premise.

    • LearnAboutIt profile image

      LearnAboutIt 5 years ago

      Insane Mundane - I support a discussion on reform. The basis of the hub though is apolitical in the sense that it points out the glaring error in the assumption that Social Security is verging bankruptcy. Once people better understand that these programs aren't "funded" by taxes, etc, the discussion of what we want to change becomes much easier.

      Thanks for reading.

    • Insane Mundane profile image

      Insane Mundane 5 years ago from Earth

      No matter "HOW" you look at it, we got too many people sucking off funds that they never paid into. Blah, blah, social security is becoming a laughingstock. Just look at all the bogged down lines of people who are trying to get on disabilty who are not disabled; just look at all the ones drawing extended unemployment who continue to turn down jobs; just look at all the single males, for example, who get rewarded with food stamps for being lazy bums that refuse to work for a living.

      Yeah, as you say, Social Security is not "unfunded" but it sure as hell finds a way to fund the undeserving. The question is, what does the future hold for Social Security?