Social Security

From:  Anonymous

There is occasional talk of the need to reform Social Security so that it is financially sustainable.  There are also many misunderstandings of the program and the way it works.  Perhaps I can help you understand this issue a little better. 

Many people seem to believe that Social Security (FICA) deductions from their wages go into an account in the federal treasury and remain there accruing interest until their retirement. Nothing could be further from the truth.  Many years ago the Supreme Court ruled that FICA is in fact a tax and is part of the general tax revenue stream flowing to the federal government.  An artifact of the federal accounting system treats that stream as a line item that accumulates that revenue flow in the so called "lock box".  There is no such thing. Actually, the money is spent as it arrives 

When you hear about the Social Security Trust Fund, that is simply a tabulation of the accumulated FICA revenues less the Social Security outlays.  In effect, Social Security could be called a Ponzi scheme because the taxes levied on those employed is used to pay the benefits to those who have retired.  The serious problem with the system is that it has failed to take into account the increasing longevity of our population.  As a result, those being taxed are paying for a growing set of aging retirees.  It is financially unsustainable. Without serious reform, the so called Trust Fund will reach a zero balance and the cash inflow through FICA taxes will not meet the growing outlays to retirees. 

President George Bush proposed one reform that would have permitted younger tax payers to divert a portion of their FICA tax to a personal investment or savings account and would have raised the age of eligibility.  At least, those who chose that option would have money in an account when they retired.  Obviously, for most of them there would be nothing left in the "Trust Fund" at their retirement.  This initiative was shouted down by its opponents who convinced those already receiving the benefit that it would be reduced or eliminated.  That was a lie, but poorly informed retirees took the bait. 

CJ