The phony “trust fund” controversy

Here is what the “trust fund” scare-mongers like the Committee for a Responsible Federal Budget (CRFB) is telling you: “Major Trust Funds Are In Trouble”:

The common interpretation of Shakespeare’s, “A rose by any other name would smell as sweet” is wrong. Words count. That is why products are given “fresh,” “sweet,” or otherwise positive names.

  • You never will see a toothpaste or a perfume named, “deadly stinkwort.”
  • When you misname something you create a false impression of what the thing really is.
  • Sadly, many things in economics are misnamed. The federal “debt” is not a real debt. It is the total of deposits into Treasury Security (T-bill, T-note, T-bond) accounts.
  • The federal “deficit” more accurately should be termed the “economic surplus,” because the private sector is enriched.
  • The “trade deficit” is a “trade surplus,” because the economy receives net goods and services.
  • And federal “trust funds” are nothing at all like real trust funds. Instead, they merely are bookkeeping balances.

To quote from the Peter G. Peterson Foundation web site:

A federal trust fund is an accounting mechanism used by the federal government to track earmarked receipts (money designated for a specific purpose or program) and corresponding expenditures.

The largest and best-known trust funds finance Social Security, portions of Medicarehighways and mass transit, and pensions for government employees.

Federal trust funds bear little resemblance to their private-sector counterparts, and therefore the name can be misleading.

A “trust fund” implies a secure source of funding. However, a federal trust fund is simply an accounting mechanism used to track inflows and outflows for specific programs.

In private-sector trust funds, receipts are deposited and assets are held and invested by trustees on behalf of the stated beneficiaries.

In federal trust funds, the federal government does not set aside the receipts or invest them in private assets.

Rather, the receipts are recorded as accounting credits in the trust funds, and then combined with other receipts that the Treasury collects and spends.

Further, the federal government owns the accounts and can, by changing the law, unilaterally alter the purposes of the accounts and raise or lower collections and expenditures.

Thus, the federal government can do whatever it wishes with the “trust funds.” It can add to them, subtract from them, or change them from the wrongly presumed mission of supporting federal expenditures.

At the click of a computer key or the passage of a law, the balance in the federal “trust funds” could be changed to $100 trillion or $0, and neither would affect taxpayers.

Thus, the notion that any federal “trust funds” are, as the CRFB claims, “in trouble,” is a lie, unless “trouble” comes from those who don’t wish you to understand the differences between the private sector’s real trust funds vs. the federal government’s phony “trust funds.”

(The scare-mongers always “forget” to tell you that Medicare Part B, doesn’t even pretend to be funded via a troubled trust fund. The federal government simply pays for it.)

The CRFB is led by this distinguished group of economists, business leaders, and educators. Is it even possible that these smart, well-informed people don’t understand the differences between a private-sector trust fund and a federal trust fund?

I think not. I think they very much understand.

So why do they broadcast the Big Lie, that federal taxes fund federal spending, and trust funds are going broke, when in fact, federal taxes fund nothing, and the trust funds have whatever Congress and the President want them to have?

They do it because of Gap Psychology, the desire to distance oneself from those below on any social scale.

In some cases, these distinguished people do it because they are paid by the rich. In other cases, they do it because they are rich.

They wish to grow richer by keeping the middle- and lower-income/wealth/power people down. And this is how they want to do it, as the CRFB summarizes:

Policymakers must turn their attention to long-term debt and deficit reduction to get the country on solid fiscal ground.

This includes action to secure Social Security and other trust funds headed toward insolvency, limit the growth of health care and other costs, and raise additional tax revenue.

Here is what those terms mean:

  1. “Debt and deficit reduction” means cut spending and increase taxes
  2. “Secure Social Security” means cut benefits by raising the minimum age (as we have been doing), and with an adverse formula for inflation (as has been attempted)
  3. “Limit the growth of health care” means larger deductibles, fewer procedures covered, and fewer people covered or eliminating a program altogether (i.e. Obamacare).
  4. “Raise additional tax revenue” by increasing the FICA percentage and by raising the maximum salary collection level (but not to the level where it would impact the rich).

In short, the debt scare-mongers want to take dollars from the lower- and middle-income groups and give the dollars to a federal government that has an infinite supply of them.

They want to starve the economy and impoverish the lower- and middle-income groups, thus making the rich richer by comparison. During the resultant recessions and depressions, the rich grow richer by gobbling up assets, while cutting payrolls.

And they want you to agree to do it.

Rodger Malcolm Mitchell

Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all or a reverse income tax
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

The “Bold Plan to Strengthen and Improve Social Security”

Social Security certainly needs “strengthening and improving.”

The amounts being paid are at starvation levels. The people who need it most often receive the least or none at all.

It contains an unnecessary “gambling” element; you must try to guess how long you will live, to determine when you should begin to receive benefits.

Image result for pickpocket
The sole purpose of FICA

Most of Social Security’s shortcomings are based on the myth that it is funded by FICA. It is not. FICA funds nothing — not Social Security, not Medicare, nothing.

FICA dollars disappear upon receipt by the Treasury. They do not enter those mythical “Social Security Trust Funds.”

They do not enter the economy. Federal spending is unrelated to tax collections, which is why there is a $20 trillion federal “debt.”

According to misleading statements by the federal government:

The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds. These funds are accounts managed by the Department of the Treasury.

They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets.

These accumulated assets provide automatic spending authority to pay benefits. The Social Security Act limits trust fund expenditures to benefits and administrative costs.

The funds do provide an unnecessary accounting mechanism, but they do not hold anything. They aren’t even trust funds.

According to The Motley Fool there are three elements to a trust fund:

  1. The Grantor: The person who establishes a trust fund and contributes property to it.
  2. The Beneficiary: The person or people who will eventually benefit from the assets in the trust fund.
  3. The Trustee: The person or organization responsible for administering the trust as it was intended.

In the Social Security “trust funds,” the grantor is the federal government, which supposedly populates the funds, but uses your property.

The trustee is the federal government which supposedly manages the assets, except you make the biggest management decisions of all: When to begin taking benefits.

Here is how the Foundation for Economic Education describes it:

Though Congress legislated the Trust Fund, it is not the grantor, because a grantor puts his own property into a trust, which Congress did not do.

As for the Board of Trustees, who in a true trust would hold the legal title to its property,  (the Board not have) title to anything.

Nor do the purported trust “beneficiaries” have property in the fund to which they have an enforceable property right, as beneficiaries of a true trust do.

Board Chairman Altmeyer revealed that Social Security maintains no accounts containing funds earmarked for individuals, and never had.

Its accounts, then, are just record-keeping entities: file folders, not piggy banks.

Assistant Attorney General Robert Jackson stated that under Social Security, “There is no contract created by which any person becomes entitled as a matter of right to sue the United States or to maintain a claim for any particular sum of money. Not only is there no contract implied but it is expressly negatived, because it is provided in the act, section 1104, that it may be repealed, altered, or amended in any of its provisions at any time.

And the government’s brief for the Supreme Court case Flemming v. Nestor (1960) argued that a current or prospective Social Security beneficiary does not acquire an interest in the Trust Fund—that is, a property right to its assets—and that the belief that Social Security benefits are “fully accrued property rights” is “wholly erroneous.” The Court concurred.

All this confirms the observations by Suffolk University Law School Professor Charles Rounds, a fellow of the American College of Trust and Estate Counsel:

“Despite the term ‘trust,’ the Social Security system contains nothing that remotely resembles the common law trust.

“There is no segregation of assets, no equitable property rights, no private right of enforcement (all characteristics of the common law trust).

“It is merely a system of taxation and appropriation sprinkled with trust terms to hide its true nature.”

Demonstrating the uselessness of FICA, is the “tax holiday”:

The Middle Class Tax Relief and Job Creation Act of 2012 temporarily reduced the amount of Federal Insurance Contributions Act (“FICA”) taxes owed by employees by two percentage points from 6.2% to 4.2%.  This reduction expired on December 31, 2012.

The “holiday” resulted in no change in Social Security benefits.

The purpose of the tax holiday was to stimulate economic growth, particularly favoring the lower- and middle-income Americans. Isn’t that something the government should do all the time?

To summarize, so far:

  1. Federal taxes do not fund federal spending, nor do they fund Social Security benefits. Federal spending does not rely on federal taxing.
  2. The federal government, being Monetarily Sovereign, cannot run short of its own sovereign currency, the U.S. dollar. It creates dollars, ad hoc, by paying creditors.
  3. Just as the federal government cannot run short of dollars, no agency of the federal government can run short of dollars, unless Congress wills it.
  4. There are no Social Security trust funds. They are just bookkeeping devices.
  5. The non-existent “trust funds” cannot run short of dollars unless Congress wills it.

Keep these points in mind as you read excerpts from the following article:

Dean Baker: A Bold Plan to Strengthen and Improve Social Security Is What America Needs
Posted on November 9, 2019 by Yves Smith
By Dean Baker, co-founder of the Center for Economic and Policy Research, where he is a senior economist.

The Social Security 2100 Act proposed by (Democrat) Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. If it were to be approved and become law, it would both improve the program’s benefit structure and its financial picture.

The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years.

The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.

An income of “At least 125 percent of the poverty level” does not guarantee anyone will not be in poverty, unless the government also can guarantee no one will live in a higher-cost area like New York, much of California, or many big American cities.

Further, why is it necessary for someone to have “worked for at least 30 years”?  Is there a moral code requiring labor for 30 years.

And what about people whose labor is not as a salaried employee? Does their labor not count?

The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index.

The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.

Well, of course, that is what “many politicians” want. It is what the rich, motivated by Gap Psychology, pay them to “want.”

The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.

The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle.

All this effort for a $400 per year benefit increase? And if $17,600 is “not enough to maintain a middle-class lifestyle” (It isn’t), would an increase of $400 to $18,000 be enough?

Hardly.

And now we come to the most economically ignorant part:

Rep. Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers.

On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900.

Larson’s bill would make wages over $400,000 subject to the tax.

Note that the tax is on wages. But rich people receive most of their income from non-wage sources: Stocks, bonds, rents, etc.

And, as we have shown, taxes do not fund Social Security benefits. FICA taxes merely remove dollars from the economy, with a disproportionate coming from the pockets of the middle- and lower-income people.

In addition to being unnecessary and a burden on the economy, FICA is, and would remain, the most regressive tax in America.

No wonder the rich love it. FICA widens the Gap between the rich and the rest.

His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.

While this is a middle tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.

It is an unnecessary tax that is especially “easy to bear” for the rich, for they pay so little of it.

The article continues:

After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes.

Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.

One wonders what “take back” means. The wage increases come from the private sector, and the taxes go to the federal government. So the government would not be taking “back” anything. It simply would be taking.

The article ends with this bit of nonsense:

In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.

No, it is an ill-considered bill, put forth by a Congress that either is ignorant of economics, or has been paid by the rich to widen the Gap between the rich and the rest — or both.

There is nothing “bold” about the plan, and it does nothing to “strengthen” Social Security, which is infinitely strong, based on the federal government’s infinite ability to fund it.

A “bold” plan would be to institute the “Ten Steps to Prosperity” (below), beginning with Step #1, Eliminate FICA.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

An excellent article about Social Security, except for one small detail

The Week Magazine published an excellent article titled, “Social Security’s looming crisis is political, not economic,” by Jeff Spross.

It begins by agreeing with much of what we have been saying for the past 20 years.

Here are excerpts:

There are few traditions in American politics as cherished as the semi-regular panic over Social Security. There are equally few that are such utter balderdash on the economic merits.

The latest example of this time-honored practice comes to us courtesy of The New York Times. “Social Security’s so-called trust funds are expected to be depleted within about 15 years,” the outlet warned this week.

“Benefit checks for retirees would be cut by about 20 percent across the board.” The cuts could potentially rise to 25 percent in later years.

The question is whether the cuts, at the basic structural level, are actually necessary at all.

It’s widely assumed the federal government is just like a private household or business; it can run out of money if it doesn’t manage its spending and revenue properly.

Indeed, Social Security’s trust funds are designed on this premise.

But that’s actually not how it works at all. The federal government can never “run out” of money, nor can it ever suffer an involuntary debt crisis. 

The implications for Social Security should be obvious.

As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.

It can keep right on paying every last Social Security benefit it has promised in perpetuity.

Absolutely correct. So far, so good.

Image result for politician lying
If you don’t pay more taxes, we’ll have to cut your Social Security. Believe me.

Unlike state and local governments, and unlike businesses, you and me, the federal government uniquely is Monetarily Sovereign.

It created the very first dollars at will –from thin air — and arbitrarily gave them a value.

Today continues to create dollars at will, from thin air, and still controls the value.

Even if the federal government didn’t collect a single dollar in taxes, it could continue spending, forever. 

[There are two why the federal government levies taxes, and neither reason has anything to do with funding federal spending:

Reason 1. To control the economy be encouraging certain kinds of private spending and discouraging other kinds. (Tax breaks for home ownership are an example of the former. “Sin” taxes are examples of the latter.)

Reason 2. To create the illusion that the federal government’s spending ability is limited without sufficient taxes. (This is the method used by the government’s leaders — i.e. the rich — to justify cuts to benefits for the poor and middle classes and to increase their taxes.)] 

The very first Social Security beneficiary, Ida May Fuller, got her initial benefits check in 1939, after paying into the system for just three years — hardly enough time to build up the necessary “savings” to fund her retirement.

The very fact that benefit cuts would reduce Social Security to a cashflow basis demonstrates that current workers finance the benefits for current retirees, as opposed to payroll taxes being stored up for the future retirement of the citizens who payed them.

Oops! Now, Mr. Spross begins to slide off the rails, a bit.

Current workers pay FICA, but FICA does not finance benefits. Federal taxes do not fund federal spending.

Remember, Spross said it himself:

“As far as the federal government’s ability to procure dollars is concerned, the depletion of the trust funds is a meaningless event.

It can keep right on paying every last Social Security benefit it has promised in perpetuity.”

The actual function of the payroll taxes is to remove demand from the economy, thus making room for the demand that Social Security’s spending injects into the economy.

Which is what keeps inflation on an even keel.

The above is the old, “federal money printing causes inflation” myth.

Think about why the price of, say apples, would go up. Because people have too much money?

No, the price of apples or of any other products or services is caused by one thing: Shortages. 

The price of apples goes up when there is an apple tree disease, or a drought, not because your salary went up and you have more money to spend.

The notion that money creation (erroneously called, “money printing”) causes inflation, may stem from a misreading of hyperinflation.

Governments often respond to hyperinflation by printing currency.

But all hyperinflations begin and continue with shortages — usually, shortages of food — and they end only when the shortages are alleviated.

In short: the system is fine.

Of course, Congress still faces the fact that it made a rule for itself that benefits must be cut when the trust funds run dry.

If it wants to maintain the fiction, Congress could do what previous reforms have done, and bring spending and revenue back into line through some combination of benefit cuts and payroll tax hikes.

The above is exactly what the rich want you to believe: The benefits for the poor and middle classes must be cut, while their taxes are increased.

At some point, however, you’d think the better move would be to acknowledge the trust funds are a political gimmick, and just spend whatever benefits our elected representatives deem appropriate.

Social Security may face a very interesting political crisis in the coming decade or two. But in hard economic terms, there is no crisis at all.

Amen, brother Spross. The invented danger that Social Security (and Medicare and all other federal programs) could run short of dollars is a myth.

Now, while we’re at it, let’s get rid of that inflation myth, too.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

 

Social Security: How you are being conned

Yes, you are being conned, and the following article from the May 10, 2019 issue of The Week magazine unintentionally tells you how.

Social Security will be insolvent in only 16 years, said Eric Boehm in Reason​.com. That’s the finding of a new report by the program’s trustees, which says Social Security’s costs will exceed its income in 2020.

To put this as gently as possible, you are being fed 100% bovine excrement, with some equus poop tossed in.

It is absolutely impossible for any agency of the U.S. government to become insolvent unless the government wants it to become insolvent. Period.

Image result for greenspan and bernanke
A.G.: “A government can’t become insolvent from obligations in its own currency.”
B.B. “And the suckers never catch on.”

Unlike our state and local governments, our federal government uniquely is Monetarily Sovereign, meaning it cannot run short of its own sovereign currency, the U.S. dollar.

In the beginning, the federal government created an arbitrary number of the original U.S. dollars from thin air.

It continues to do so. (See: “Does the U.S. Treasury really destroy your tax dollars?“)

It also gave those original dollars an arbitrary value, and it continues to do that, too. (See here.)

Even if total FICA collections, which you have been told (erroneously) fund Social Security, were $0, the U.S. government could continue paying SS benefits, without limit.

In fact, even if all federal tax collections were $0, the federal government could continue spending forever, and still not borrow.

To cover benefits, the program will have to start dipping into its $3 trillion trust fund.

“If nothing changes,” those reserves will be exhausted by 2035 and recipients will receive only about three-quarters of their expected benefits.

The so-called “trust fund” is a bookkeeping fiction, designed to make you think federal finances are like personal finances.

There is no trust fund. There merely is a bookkeeping account, over which the federal government has total control.

If the government (i.e. Congress and the President) wished, that fictional “trust fund” could show a balance of $100 trillion. Or $0.

Those dollars do not “come from” anywhere. The government owns the balance sheets and puts any entries it wishes into them. (See: Monopoly)

“That may sound like a long way off, but 51-year-old workers today will just be hitting retirement age when the cuts kick in.”

Americans have long known this shortfall is coming, said Noah Rothman in CommentaryMagazine​.com, “and they do not care.

More bovine scat being fed to you. Americans do care, but they have been conned into believing that the only solution is higher taxes or reduced benefits.

In 2005, President George W. Bush unveiled a major effort to reform Social Security. It failed.

In 2012, GOP presidential nominee Mitt Romney and his running mate Paul Ryan outlined ways to trim the program’s costs.

“They were defeated.” Then in 2016, Donald Trump “explicitly ran against conservative efforts to rein in entitlement spending.” He won.

Americans have voted themselves into an entitlement crisis.

The politicians lie when they tell you that “reforming” Social Security requires benefit cuts or increased taxes. The real reform would be to eliminate FICA taxes and to increase benefits.

There is not a single financial reason why this cannot be done.

Congress could restore the program to health by letting the government invest some “of the Social Security trust fund in the stock market,” said Brett Arends in Barron’s

A truly dopey idea. Not only is the stock market a high-risk investment, inappropriate for an annuity-like account, but the investment is completely unnecessary. The federal government has the unlimited ability to fund Social Security, and with no deductibles.

Further, the notion of the federal government investing in publicly-traded corporate stock is the ultimate of the socialism (i.e. federal ownership and control) that conservatives love to decry.

Federal law says the fund can invest only in low-yielding securities backed by the U.S. Treasury.

That’s why Social Security has earned a “dismal” return of 17 percent on its investments over the past five years.

U.S. stocks over the same period: 49 percent. “Stock returns are more volatile from year to year, to be sure.” But Canada, Australia, and New Zealand invest their national pension funds in stocks and other assets, “and the results have been amazing.”

The “invest in stocks” idea has only two purposes:

  1. To further brainwash you into believing that the Social Security “trust fund” is a real trust fund that is running short of dollars, and
  2. To enrich wealthy shareholders, stockbrokers, and bankers.

Such radical free-market solutions aren’t needed, said Michael Hiltzik in the Los Angeles Times.

There are low-risk ways to shore up the program. Right now, the payroll tax that largely funds Social Security only covers wage income up to $132,900.

Two Democratic bills in Congress would remove that cap over time and increase “the payroll tax on the wealthy, who get away with paying an unwarranted low tax rate.”

Wrong. The Social Security program could be “shored up” by completely eliminating FICA, and by ending the pretense that FICA funds Social Security benefits.

But hiking taxes won’t address the key reason Social Security has a cash-flow problem: our rapidly graying society, said Robert Samuelson in The Washington Post.

Wrong, again. The “cash-flow problem” is an invention of the rich, who do not want the non-rich to receive money. (See: “The Gap Psychology con job“)

An American who reaches age 65 can now expect to live for about another 20 years, up from 15 in 1950. That means retirees are claiming more from Social Security than the program’s creators ever intended.

But seniors today are far healthier than in previous generations. “We could be working longer—and should be.” Politicians could stabilize Social Security by gradually lifting its eligibility age to 70.

But our leaders won’t even propose this change “because it is not a vote getter. They should be ashamed.”

Speaking of the program’s intentions, here they are:

Luther Gulick recalling why President Franklin Roosevelt Social Security seeminly was based on payroll contributions, 1941:

“I raised the question of the ultimate abandonment the payroll taxes in connection with old age security and unemployment relief in the event of another period of depression.

“I suggested that it had been a mistake to levy these taxes in the 1930’s when the social security program was originally adopted.

“FDR said, ‘I guess you’re right on the economics. They are politics all the way through.

“‘We put those pay roll 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.

“FDR also mentioned the psychological effect of contributions in destroying the ‘relief attitude.'”

In short, President Franklin D. Roosevelt, the creator of Social Security, did not intend that taxes fund Social Security. They only served as an excuse not to eliminate Social Security.

Image result for bernie madoff
I thought if the government can get away with it, I could, too.

Roosevelt knew that taxes only give the illusion of funding Social Security, but he believed that illusion would protect the program from the “damn politicians.”

Unfortunately, the dishonesty of politicians has proven too great, for they now have turned Roosevelt’s plan inside out; they use FICA as a false excuse for cutting benefits.

The fake FICA/Social Security relationship is a con that is far greater than anything Bernie Madoff ever thought of.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY