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Dean Kalahar
Sarasota Thursday, Sep. 15, 2011 6 years ago

My View: The truth about Social Security

by: Dean Kalahar

With a national debt of $14.587 trillion, the U.S. is on track for bankruptcy. Don’t be fooled by politicians.

The largest part of the federal budget is entitlement spending. Nobody wants to touch entitlements, but basic math demands we feel the shock before we all get burned.

The Federal Insurance Contribution Act (FICA), also known as Social Security and Medicare, was designed based on purchasing political power, not care for the afflicted. In the largest scam ever perpetrated upon Americans, politicians have stolen the money and cooked the books.

In simple terms, FICA is a Ponzi scheme, in which people on the top collect as long as they can get others below them to pay in. As the baby boomers retire, the takers outstrip the payers, and like all Ponzi schemes, this is when the system will collapse.

Your FICA deductions are supposed to be placed in a “trust fund” providing retirement income and health-care benefits when you need them most. Social Security is not like a private pension, however, in which money is saved, invested and grows for the rainy day of retirement. FICA is a pay-as-you-go system, meaning that the taxes paid by today’s workers are immediately sent out to pay beneficiaries.

If Social Security revenues exceed expenditures, the surplus is credited to the trust funds in the form of U.S. government “non-marketable” bonds that are not worth the paper on which they are printed. When the bonds mature, they are rolled over into new bonds.

In short, the government confiscates the public’s hard-earned money, writes IOUs from one branch of government to another and pays off mature bonds with newer IOUs so the trust fund appears solvent.

The real wealth earned from hard-working Americans goes into the general fund of the Treasury, where it is spent by politicians as fast as it is confiscated. As everyone knows, you cannot spend and save the same money.

In fact, the Social Security trust fund is actually a white metal file cabinet. When the federal government takes cash coming into Social Security, it writes the trust fund a bond on a laser printer located at the Bureau of the Public Debt in Martinsburg, W.V. It is then stored in a three-ring binder and locked in the bottom drawer of a fireproof filing cabinet.

The agency has about $2.5 trillion in bonds sitting in the binder. Some will say they are all backed by the “full faith and credit of the U.S. government.” But when political faith is a fraud and our credit is flawed, good luck getting your benefits.

The trust fund balances are real current-dollar claims on the Treasury. To repay those IOUs, the government will have to: raise taxes, borrow the needed funds from private markets, reduce or cut other federal programs, reduce Social Security benefits by increasing the retirement age, link benefits increases to longevity or lower automatic adjustments to benefits based on inflation.

In 2017, when Social Security begins paying out more than it takes in, the percentage of spending for entitlements in the federal budget will begin to rapidly expand, forcing massive cuts in other programs. The trust fund will become fully exhausted by 2041, overwhelming the budget and forcing the U.S. to borrow itself into insolvency — or forcing Congress to raise taxes catastrophically.

Not even the all-powerful Oz can spend other people’s money, write an IOU to himself and then on some future day expect to use those IOUs to fund the Emerald City. It’s time to pull back the curtains.

It’s in everyone’s self-interest to stop the train and de-energize the “third rail” before it runs us over.

Dean Kalahar teaches economics and psychology at Sarasota High School and has authored three books, including “Practical Economics.”

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