Social Security

By: Hubert Crowell

Is there or is there not a Social Security Fund? Well there is and there is not! At the end of each month all or almost all Social Security surplus funds are required by law to be invested in the "Federal Old - Age Survivors Insurance Trust Fund" or in simple terms they are required by law to loan the U.S. Government all the extra money collected.

Old-Age and Survivors Insurance Trust Fund

The Old-Age and Survivors Insurance Trust Fund is a separate account in the United States Treasury. A fixed proportion (dependent on the allocation of tax rates by trust fund) of the taxes received under the Federal Insurance Contributions Act and the Self-Employment Contributions Act are deposited in the fund to the extent that such taxes are not needed immediately to pay expenses. Taxes are deposited in the fund on every business day.

The trust fund provides automatic spending authority to pay monthly benefits to retired-worker (old-age) beneficiaries and their spouses and children and to survivors of deceased insured workers. With such spending authority, the Social Security Administration does not need to periodically request money from the Congress to pay benefits.

Funds not withdrawn for current expenses (benefits, the financial interchange with the Railroad Retirement program, and administrative expenses) are invested in interest-bearing Federal securities, as required by law; the interest earned is also deposited in the trust fund.

The Old-Age and Survivors Insurance (OASI) Trust Fund was created pursuant to section 201 of the Social Security Act Amendments of 1939. These amendments also established a Board of Trustees. OASI became effective on January 1, 1940, and superseded the old-age reserve account established under the Social Security Act of 1935.

The Board of Trustees currently consists of 6 members, 4 of whom automatically serve by virtue of their positions in the Federal Government. These 4 are the
Secretary of the Treasury (the Managing Trustee),
Secretary of Labor,
Secretary of Health and Human Services, and
Commissioner of Social Security
The other 2 members are appointed by the President, and confirmed by the Senate, as required by the "Social Security Amendments of 1983." These 2 members serve 4-year terms.

Source: http://www.ssa.gov/OACT/ProgData/describeoasi.html

Now the government does pay interest on the funds and that interest is reinvested in the Fund. A report is available at the end of each month that shows how much is reinvested, collected and paid out. This report for the last ten years can be found at: http://www.treasurydirect.gov/govt/reports/tfmp/oldins/oldins.htm

On January 31, 2010 the total Assets of the fund was $2,360,761,034,062.03 or 2.3 trillion dollars. So when you see it reported that the National Debt is 12 trillion plus, keep in mind that 2 trillion plus of that is your money on loan to the government.

Will Social Security go Broke?

As long as our government can remain afloat, then Social Security will remain solvent. However the payments may have to be increased as they have in the past. In December of 2009 Social Security took in $2,772,496,333.67 less than they paid out resulting in a 9 billion interest payment by the government to cover the short fall. In January 2010 they took in a surplus of $14,509,238,667.20 which reflects the reduction of the unemployment rate falling from 10% to 9.7% in January. It appears that if the unemployment rate can stay below 10% the Fund will continue to grow along with our National Debt. However as the unemployment rate goes over 10% fewer people will be paying into the Fund and as more people retire and live longer, the funds could evaporate quickly. We are currently paying out around 1/2 trillion each month in benefits.

Think how great it would be if the government did not rely on this income and it could be invested in our American companies. An index fund of all stocks would provide good growth for the fund and save us the interest on the Fund. Just as other countries are now trying to cut back on their loans to the US, if the unemployment rate rises, this two trillion will have to be paid back to cover the benefits. Benefits is a poor choice of words for Social Security as most of us paid heavily into the fund. But if you try and put everyone on it and add health care then it is truly a benefit to some.

So I think that the answer to the question, will Social Security go broke, is no, but it will break us.
The average cost for each household in the U.S. just to pay the interest on the loan from Social Security is currently $945 per year. This is not what you pay for Social Security, only your share of the interest owed.
In other words, if the funds were invested, your taxes could be almost a thousand dollars less each year.

Social Security net income/loss a indicator of our health

If we look at the income the government is collecting for Social Security, it has to indicate how many are being employed and how much they are making. With the exception of course of those who are making over the maximum limit for the tax. And maybe just looking at the monthly net income/loss would be a better indicator. It would at least be a simpler indicator that most could understand. However this is not possible, because the amount collected each month is estimated.

The Social Security Administration (SSA) estimates future tax liability by calendar year and trust fund. SSA also estimates the portion of tax liabilities that will be collected quarterly. SSA sends these estimates to the Department of the Treasury, where the estimated quarterly tax collections are split into monthly tax collections.
Then the estimated amount for the month is the total amount deposited. The initial adjustment for a particular quarter occurs about one year after the close of that quarter. So the fund gets adjusted each year for prior years after taxes are filed. The older the data, the more accurate it becomes.

This table for the last ten years, shows how the Trust Fund and the interest we pay has grown:

Conclusion

We must reduce the National Debt and pay off the loan to Social Security. The Social Security Fund or Federal Old - Age Survivors Insurance Trust Fund, should stand on its own or be done away with over time. Investing the Fund in our economy would be the best stimulus package and would reduce the debt, if we could only cut back on our spending.

Pouring over 2 Trillion into American companies would create jobs, adding to the surplus that would be invested and also increase the revenue from income taxes to help pay more than this amount back to the government.

The year that U.S. Government ends without a deficit and no new taxes, I will contribute $100.00 toward reducing the debt. If you would like to join with me and see how many others are doing the same, Click here.

Something to think about: If Social Security were done away with, and the funds given back, each household would recieve $20,596.00. Assuming that all 114,825,428 households in the U.S. had paid into Social Security!

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hubertcrowell@comcast.net