The Trust Fund Fraud

You might know that more Social Security is collected every year than is paid out. And the extra is “in” a trust fund. You might think it’s a very trusty fund – a lockbox. And when needed, the extra will be paid back in the form of distributions.

None of this is remotely true.

Imagine a society with 10 people working, no children, and 5 people retired.

Each of the 10 pays $100 in income taxes, and $20 dollars in social security taxes.

The government has 10 x $100 = $1000 to spend from income taxes. And 10 x $20 = $200 to spend on social security.

Each retiree gets $20 dollars, or $100 total. The social security fund has an extra $100 to save for the future.

Reasonably, you might think it is deposited into a savings account like thing, and “saved”. A trust fund. A trust fund in a lockbox.

The social security part of the government “invests” the $100 in treasury bills, which are issued by the same government. The $100 is now part of the government general fund, where it is spent. The government spends the $1000 it collected plus the $100 it “borrowed” with a promise to repay later to … itself.

10 years later, let’s say the trust fund is needed. Note that there is no actual money. It’s all been spent. The government either has to pay back the money it owes to itself by defunding something else, or raising new taxes.

Since the government never defunds anything, we should assume new taxes. To pay for money that was collected, and “saved” on our behalf, but was actually spent.

Imagine that.

Sadly this is becoming increasingly unimportant as total US debt and money print rise to levels that no society has survived before.

Perhaps this is why the government would rather you focus on pronouns.

Mike.

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