How Social Security Works

The easiest way to explain how Social Security works is to take a look at the movie Dumb and Dumber. Lloyd and Harry travel across the country to Colorado looking for Mary to return a briefcase they think she accidentally left at the airport. As they arrive at their destination, they discover that the briefcase is full of $100 bills.

This creates what is known as a "moral hazard." Lloyd and Harry are too weak to resist the temptation of so much money, and here is what happens . . .

LLOYD: Okay, here's the plan: We borrow a few bucks – just a small loan – from the briefcase, and we check into a cheap motel.

HARRY: Sounds good.

LLOYD: And we'll keep track of the money we spend with IOUs.

HARRY: We'll be meticulous – right down to the last penny.

LLOYD: That way, whatever we borrow we can pay back.

HARRY: Absolutely. We're good for it.

Later in the movie, they get caught by the bad guys who are after the money.

LLOYD: Uh, sir, about the briefcase, I want you to know, my friend Harry and I have every intention of reimbursing you. That's as good as money, sir. Those are our IOUs. You can add them up yourself. Every penny's accounted for.

And this, boys and girls, is how a plan, dreamed up by government bureaucrats, called Social Security works. No need for charts, graphs, big words and technical stuff. This IS the plan!

If you don't believe me, then here is the same explanation given in more sophisticated terms by The Heritage Foundation:

First, the Treasury estimates how much of the aggregate tax receipts are Social Security taxes and "credits" the Social Security trust fund with that amount. Then the Treasury "subtracts" the total amount paid in monthly Social Security benefits from the trust fund balance. No money actually changes hands; these are strictly accounting entries.

Any "money" remaining in the trust fund is converted into special-issue Treasury bonds, which are really nothing more than IOUs. In addition, the Treasury pays interest on the trust fund's balance by crediting the trust fund with additional IOUs. These are also strictly accounting entries, and again no money changes hands. After crediting the trust fund with the proper amount in IOUs, the government spends the extra Social Security tax collections just like any other tax revenue--to finance anything from aircraft carriers to education research.

Many people think that all those billions of dollars that Americans have been paying over the decades are set aside to be paid out as a retirement benefit. In fact the government claims there is a Social Security "Trust Fund." Just one little problem: there's no money in it, only IOU's. Like Lloyd and Harry's briefcase!

Like Lloyd and Harry, our politicians also faced a moral hazard and spent the money, much of it on worthless stuff.

Again, the assessment from Heritage:

The Social Security trust fund is merely an accounting device filled with IOUs that future taxpayers must repay. Far too soon, payroll taxes will be insufficient to pay all of the promised benefits. Unless Congress promptly takes action, taxpayers will have to pump hundreds of billions of additional tax dollars into Social Security to pay the promised benefits.

Social Security's financial crisis will begin far sooner than many politicians claim. In less than three years, the first baby boomer will reach retirement age. Once that happens, Social Security (and Medicare) will be on a slippery slope toward insolvency. While Social Security can continue to use its tax receipts to pay full retirement benefits until 2018, Congress cannot wait that long to act. Misleading the public into believing that Social Security is secure until 2042 or beyond will only make the impending crisis more difficult to avoid.

You can read the entire Heritage article here. It's not very long.

In conclusion, here are Old Weird Dad's rants and observations:

• You can't trust a politician with money - they will spend it every time, usually in some way that helps them get re-elected. After they've spent it, they go out and borrow more money to spend. Their greed is infinite against finite resources.
  
  
• The Income Tax is the root of much evil in that it concentrates great amounts of money, which equals power, in the hands of a few weak, immoral people in Washington.
  
  
• The Income Tax is probably unconstitutional, and it has allowed the Federal government to steamroller the State governments in violation of the tenth amendment which states: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people." This makes us less free since regular folk have much less influence at the Federal level than the State level.
  
  
• Politicians are like water: always seeking the lowest level and the path of least resistance. Very few of them have the will or even the intention to "do the right thing" if it requires making a hard choice. Many of them are so lost and deluded that they call evil "good" and good "evil." And remember, getting re-elected trumps everything.
  
  
• The IOUs in the Social Security Trust Fund have as much chance of being repaid as the IOUs from Lloyd and Harry. Therefore, Social Security benefits will be drastically reduced for my generation, the Baby Boomers. The only other choice is to bankrupt the country and they have already pretty much accomplished that. Decisions and choices could have been made along the way that would have preserved the integrity of the system, but these decisions were in the hands of people with no integrity.

Watching things play out in our public life over the years has turned me into a rabid cynic, as you can see. I was not always like this. But as the Bible says, we cannot put our trust in men, chariots, and horses - only in God. We need to "lay up our treasures in heaven," in a trust fund that will be there for us. While politics may seem important, it is ultimately God who deals with those who rule over us.

The king's heart is in the hand of the LORD; he directs it like a watercourse wherever he pleases. Prov 21:1 NIV