–Why Medicare and Social Security are not “adequately financed”

The debt hawks are to economics as the creationists are to biology.

Soon you will read about this new report:

2010 Social Security Trustees Report, August 6, 2010:. . . the Medicare HI Trust Fund is adequately financed until 2029, and the Social Security OASI and DI Trust Funds are adequately financed until 2040 and 2018, respectively. . . significant longer term financial imbalances of the programs still need to be addressed .”

Timothy F. Geithner, Secretary of the Treasury, and Managing Trustee
Hilda L. Solis, Secretary of Labor, and Trustee
Kathleen Sebelius, Secretary of Health and Human Services, and Trustee
Michael J. Astrue, Commissioner of Social Security, and Trustee

For Mr. Geithner et al, “adequately financed,” means tax revenues will equal or exceed spending. When, spending exceeds taxes, Medicare and Social Security will be “inadequately financed,” i.e insolvent.

To put it gently, Mr. Geithner et al do not know what they are talking about.

Visualize a scenario where there are zero federal taxes. The federal government has no income, not even any money, yet sends you a check for $10 trillion dollars. You deposit the check in your bank. Will the check bounce? No. Your bank will send the check to the Treasury, which will credit your bank and debit its own balance sheets for $10 trillion. The bank now has $10 trillion, which it credits to your account, allowing you to buy a few thousand Rolls Royces or the State of Montana, whichever you prefer.

The government can send you checks endlessly, in any amount. With each check, the government merely debits its balance sheet and credits your bank account. The government balance sheet is just a score sheet, though it misleadingly is called “debt.” Whether that score sheet reads $10 trillion or $100 trillion makes no difference to the score sheet. The only limit is the artificial “debt limit,” on which Congress votes periodically. There is no functional limit on what any balance sheet can read. The government can write a check of any size, despite zero taxes, credit your account for any amount, and enter any amount into its score sheet.

Taxes may be levied for several social reasons (cigarette and liquor taxes are examples), but supplying the government with spending money is not one of them. The government creates money by spending. It does not use tax money. Therefore, all federal debt is sustainable, endlessly.

Because Social Security and Medicare are federal agencies, the government can support them endlessly, without any FICA taxes at all, merely by mailing checks. Sadly, the wrongheaded beliefs of Mr. Geithner et al have led to the deterioration of Social Security and Medicare benefits.

At one time, the “normal retirement age for Social Security benefits was 65. Today, it is age 67 for people born after 1969. Mr. Geithner’s kind of reasoning has cost Americans two years worth of benefits. Further, these benefits are subject to income tax. Thus, you pay tax on your FICA payments and pay tax again on your benefits – a double tax. Finally, despite paying FICA taxes for years, the day you die all benefits cease. You could pay FICA for 40 years, and if you die at age 60, your estate will receive nothing – all because of the false belief that taxes pay for federal spending.

Medicare payments also are so restricted many Americans purchase supplementary insurance to cover what Medicare does not – all because of the false belief that taxes pay for federal spending.

We pay penalties for believing taxes support federal spending. We pay penalties for believing Medicare and Social Security could go bankrupt unless FICA is increased or benefits reduced. We pay penalties for believing the federal deficits are “unsustainable.” We pay penalties for the misinformation coming from our leaders. We pay penalties for believing them.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity

2 thoughts on “–Why Medicare and Social Security are not “adequately financed”

  1. Here is a perfect example of the debt-hawk economic ignorance that has slowed recovery from this recession:

    Virginia Gov. Bob McDonnell said that some “stimulus funding” has helped, but, “I think it has to end soon because the federal government is running out of money. . . ”

    The federal government is running out of money?? Governor McDonnell, are you saying that the government, which has the unlimited ability to create money is running out of money? No, Governor, it is 100% impossible for the federal government ever to run out of money. Even if federal taxes were zero, and federal borrowing also was zero, the federal government’s ability to spend would not be reduced by even one penny.

    Rodger Malcolm Mitchell


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