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- Main Report, page 2 of 2 -
(updated April 2009)
by Michael Hodges - email
- a chapter of the Grandfather Economic Reports -

inequitable drain on working families and their children, with less offered in return

Social Security Trust Fund - what is it - when is it 'out of hard cash' - - meaning,when will taxes or new debt be needed?
WHERE'S THE TRUST FUND SURPLUS - a scam revealed - surplus spent elsewhere, creating an increase in federal debt with zero plan to repay
Medicare - - costs rising faster than wages
SSI and LACK OF MANAGEMENT - one of many examples
Discussion of main points
Links to additional facts


Young People Are Not Being told the Facts - but to just keep paying and also to start saving for their own retirement !! And, those approaching retirement are told there is a surplus trust fund. But, how good is a trust fund from which all the cash surplus has been drained and spent on non-pension stuff - - that requires issuance of even more public debt for future pensions?

So many numbers floating around. Here are facts about the so-called Trust Fund/pyramid scheme, as researched by this author:

There are four (4) issues that confuse many people. I hope this helps. The issues are:

  1. When does the Trust Fund run out of enough cash to cover all pension checks? Answer, according to latest Trustee Report, within 9 years (2017) for old age pensions and 2009 for DDI (disability) portion - but each report shows it earlier than any prior report. (the Medicare trust fund went into deficit in 2004 - an the Social security trust fund surplus gone next year).
    That's the year it starts paying out more than it receives from FICA taxes. This means a 49-year old will get to pay in for the next 12 years, only to find insufficient cash in the trust fund to pay his first retirement check - assuming, of course, that the next trustee reports do not again and again move in the 'drop dead' date even closer and closer. Best guess: since in most of the past years the report has moved in the date, we must assume the real drop dead date is much closer than 2017. Not such good news for those now in their 40's and 50's, unless they start saving big time on their own.
  2. If the trust fund cannot meet all its obligations starting somewhere by 2017, then they must start cashing in those non-marketable IOUs (those pieces of paper they put in there to 'cover' the cash surpluses they removed in prior years for non-social security consumption - pieces of paper that even the Federal Reserve does not recognize as legal debt - not official Treasury Bonds like those bought and sold by the public, but internal paper they call 'special issues'). Other than significantly cutting benefits and moving out retirement dates, they can't even use those IOUs - as, a retiree can't use them at the grocery store. They need cash, which can only come from raising taxes big time or floating immense extra debt. Even if they do that, and trade in the cash raised by selling more public debt to cover the IOUs as they need them, the next question would be: when are even those pieces of non-marketable paper called IOUs (internal special securities) used up? Answer per the latest, ever-changing Trustee reports: 31 years, year 2029. This means that a current 20-year old gets to pay in for 14 years, as he watches the cash disappear, then is told to keep on paying for another 17 years (until age 52) as he even watches the non-cash backed IOUs disappear. Neat savings plan!
  3. Should we believe those dates? No. Nearly every time we get a new Trustee's report we find the above dates of 'approaching disaster' are closer than prior reports, even though they say they fixed the problem last time. Guess what? They have called for another panel to report next year.
  4. Lastly: can they really solve the problem this time by raising taxes on working families, as done over and over in the past to keep the pyramid scheme going a bit longer? No, they can't. We have seen the charts above and the Family Income Report - showing real median family incomes have not increased in 2 decades, rates of savings are at an all-time low, and consumer payments for their own debt are at an all-time high as a percentage of disposable income. The 'turnip is dry.'

We will see below that any and all surplus cash going into the Trust Fund from higher than necessary FICA has been sucked out to pay for non-social security programs as fast as it arrives, which helps disguise the real size of the budget deficit. Politicians like that. That practice is a scam in itself, as I believe there are laws against allowing private sector firms to operate with 'un-funded' pensions, and especially laws preventing firms from raiding their pension funds for non-pension purposes. The government allows only itself to operate in such a manner. Fair rules?

Do today's working families recognize that part of the FICA taxes they pay each year does not all go to pay for current retirees, with the cash difference magically deposited in a Trust Fund to be there when they retire? Nope. Do they realize part of their FICA payment has nothing to do with Social Security, but instead is consumed by non-social security programs - and that their retirement fund is being sucked into the likes of today's welfare system? No.

In 1992 the Trustee's Report said the trust fund would be empty by 2051; and they then told us how well they had fixed it. In 1994 they told us it will be bust by 2029. I thought they told us they fixed it, but the newer report shows the problem became worse between the reports - not better - - which proves they have fixed nothing accept increase the tax take - - much of which is consumed by the general fund!! At this rate, by the next report (2002) they may tell us, "OOPS, its already bust."

Even if the Trust Fund IOUs last until 2029 (most unlikely considering the record of past reports, and certainly not even close to the benefits being received by today's seniors), and even if they win a foreign lottery and find the cash to cover those IOUs then today's 20 year old now entering the work-force will have the opportunity to pay taxes into that system for 32 years, only to find the system kaput (even of IOUs) when he or she is age 52. Nice, equitable plan. Right?? Should we believe what we hear? Better not.

Economist Martin Feldstein estimates the discounted-to-current-value liability of Social Security under current law at $9 trillion -- defining this as the as the present actuarial value of the Social Security benefits to which the current adult population will be entitled at age 65 (or are already entitled to if they are older than 65) minus the present actuarial value of the Social Security taxes that they will pay before reaching that age. Feldstein estimates it is increasing about $500 billion annually. That $9 trillion figure is the present value of future pay-outs less in-flowing FICA revenue - is nearly twice the size of all current federal debt, twice the size of all household debt, 1 1/2 times our entire economy's national income, and equivalent to $38,000 per man, woman and child in America. I have not seen an estimate of the present value of liabilities concerning Medicare or the federal employee pension and medical insurance trusts. An impossible situation to continue in its present form.

Only sensible answer for ALL working people: better to be safe than sorry; better to bet on yourself than on an acceptable social security check being there when you retire; better to think of a social security check one day like a possible lottery win (as a surprise if it happens, but not likely) - - by, saving for your own retirement plan just as if there will be zero social security one day. Do it, and be responsible and safe. Do nothing, and your odds may be even less than winning a big lottery.

Is it fair to pay FICA taxes and maybe receive much less (maybe nothing), compared to current retirees? Nope. But, what are you going to do about it? In the end, all citizens must learn to count more on themselves, and not on government and its promises. Government is just too over-extended, compared to the past, as seen in the Government Growth Report and the Federal Government Debt Report. Its best to look at your FICA pay check deduction and just write it off as a subterfuge label for an extra income tax - - that has zero to do with your own retirement security. You, alone, must take charge of your future. Young families have zero choice, but to reduce their own consumption so they can increase their own savings. It may not be fair, but that's reality. The author.

"If a low-wage worker born in 1950 had invested the payroll taxes in stocks, he would enjoy a monthly benefit of $2,490 at retirement - - compared with a measly $631 "promised" by Social Security." Investors Daily, 1/8/97.

"The Social Security Trust Fund is really little more than a polite fiction. For years, the federal government has used the Trust Fund to disguise the actual size of the federal budget deficit. It is comparable to the type of pyramid scheme that is illegal in all 50 states. As recently as 1950, there were 16 workers for every Social Security beneficiary. Today there are only 3.3. By 2030, there will be fewer than two. The Social Security pyramid is unsustainable." Michael Tanner, the Cato Institute Jan. 1997.

- a scam revealed, because it has been 100% spent elsewhere

Debt trust fund - now vs 1991SUMMARY: Already some $4.2 Trillion dollars of surplus have been siphoned off from all trust funds, of which $2 Trillion (see chart) has been siphoned out of the Social Security Trust Fund to support general government spending on non-pension things - - and none of this has been counted in the budget deficit calculations. According to Social Security Administration information, an additional $2.5 Trillion will be siphoned from the SS trust fund by 2012. Why do they tell us Social Security is in trouble in the future, while they continue to siphon off surpluses (for non-pension spending) that were paid in by workers to support their own pensions? Instead of marketable securities (like T-Bonds, etc.) in the trust fund to cover paid-in surplus funds there are internal, non-marketable IOUs (they call them 'special issues') - - which cannot be converted to cash for future pension pay-outs without selling even more debt to the public. These surplus funds should never have been spent on non-pension activities of the government - and, such practice makes it easier for expansion of general government spending and hides such general spending from the budget deficit calculations. Politicians like that.

We know from the Trust Fund Report and its in-depth companion that $2 trillion dollars in hard cash was collected from workers in excess of that needed to cover pay-outs to seniors, and this extra intake surplus was siphoned-off from the trust fund by the general federal government and spent on non-pension stuff - - leaving non-marketable IOUs instead of marketable assets to support future retirees. In essence this means a big part of this FICA tax has not been for used or saved for pensions, as intended, but was consumed to support general government spending. This trust fund siphon was an equivalent extra hidden income tax that camouflaged general government budget deficits - - since they did not count this siphoned cash in their budget reports - - a government-supported ponzi scheme and fraud a million times larger than Enron. (The worthlessness of the trust fund has been confirmed by Secretary of Treasury O-Neill in 2001 and by President Bush in 2005.) And - young workers are now told their FICA tax payments will result in a negative return regarding expected benefits. Fair?? Equitable?? Honest??

First, I presume you have already viewed the long-term data graphics shown in the Social Security Report - page 1. - - and, therefore have a good feel for the tremendous problems and inter-generational inequities we all face.

PONZI SHCEME: Many call the current SS system, and the siphon-spend game, a Ponzi Scheme. That is absolutely correct. Such schemes are illegal in private America. When government does not play by the same rules as it invokes on the rest of us, we and our kids all lose - eventually.

TRUST FUND SURPLUS - SIPHON & SPEND & CREATE MORE DEBT: Not many workers recognize that part of the FICA taxes they pay to the SS trust fund is not needed at that time, and this surplus is siphoned off as fast as it arrives for spending on non-pension things of interest to politicians - - leaving a few more non-marketable IOUs in the kitty, which cannot be used for later pension pay-out without creating more debt on the back of our kids- - all hidden from the deficit calculation. In other words, that money is gone, spent, history. Politicians love that. Those paying FICA don't recognize that part of their FICA is actually treated as a hidden income tax. It has always amazed me when some talk about the trust fund surplus. Where is it, they should ask. Remember December 1995 in the budget battle between Congress and the President? All he had to do was yell, OK - if you don't raise the debt limit like I asked so I can issue some more debt, then social security checks stop going out because there is no money, and you (the Congress) suffer the back-lash. Never heard any media guy ask why would the Administration need the debt ceiling raised to create more debt, when he had said the week before that the trust fund has a surplus. Ever hear of a surplus without any money in it? Why do you think congress backed down. They knew there was no money. $2 trillion of surpluses had been previously siphoned for non-pension spending from the SS trust - and, an additional $978 billion so far from the federal employee pension and  federal medical trust funds.

PROOF: Want additional proof of the above statements? From a Treasury Department official: "Privatizing Social Security would do well. But beware of the alternate idea of building up a surplus within the current Social Security system for use down the road. Remember the lesson of one of the fixes. The politicians at that time consciously created a surplus in the trust fund, supposedly to prepare for the future baby-boomer retirements we're now worried about. But, no overall surplus occurred, because the Social Security surpluses were just raided to fuel additional government spending in other parts of the budget." (Bruce Bartlett, The American Enterprise, Dec. 1997, pg. 59).

$2 trillion siphoned-off so far from the Social Security trust fund - - $2.5 trillion more planned for future siphon. Not only has $1.6 trillion of trust fund surpluses been siphoned-off to date and spent on non-pension things, but according the Social Security Administration's table published in The Economist (pg. 30 - 2/6/98) an additional $2.5 trillion will receive the same action in the future - - leaving the government owing the trust more than $3 trillion that it does not have. This will require a combination of even higher tax rates on our young and higher debt for them to service and at that time such might place our nation even more at the mercy of foreign entities for loaning the funds than the disturbing trends already I place. (the Federal Government Debt Report has a chart showing the trends of foreign ownership of our public debt).

This violates the trust of citizens, young and old alike. It weakens the trust funds, as it piles more debt on the back of our kids, and is 'hidden' in deficit calculations. How can we expect to structure SS to make it stronger, until such siphon-spend-debt approaches are stopped. Wonder what would happen if workers paying FICA and retired seniors joined forces and demanded: "the government must immediately stop siphoning off trust fund surpluses as fast as they arrive for non-pension use, and immediately cut other spending sufficient to repay to the trust the pile they have so far extracted - - plus, repay to the trust fund all income taxes collected from seniors on their SS earnings that were used other than for pensions"? That would be telling them to keep their hands out of our cookie jar, and pay back the cookies already eaten- and re-calculate the deficit upward, where it really is. Would that cause a panic inside the beltway? What would they do, faced with a united young and senior demand? In any case, that demand should be made before allowing any more games to be hawked, like CPI/COLA and means-testing changes, to provide even more cookies for siphoning.

We should demand they talk to us as adults and citizens, instead of underlings to be conned. Bottom-line: the incoming FICA tax surplus (that money not immediately needed for pension pay-outs) should never be 'siphoned and spent', and new added debt created as a result. It must be either held in cash for short term needs of the trust for pension, or invested at arms-length in the outside (non-internal government market) just like required of private pension funds. Should the trust managers want to invest some in Treasury Bonds (for example) then they must purchase existing, fully marketable outstanding bonds in the open market. Those existing outside bonds are already a debt obligation of the government, so if the trust buys them that does not increase the federal debt, as said bonds are simply transferred from private ownership to trust ownership. That's the only correct and fair way. But, under the present method, they siphon and spend and create extra debt, on top of that already outstanding in the hands of others. This must stop, in fairness both to seniors and to those poor soles paying all that FICA tax - hoping it will be pension use only, and not spent on other things creating more debt for their kids and grand-kids. If the government wants to spend on non-pension things, then they have to do it in the open and count same in the deficit if they issue new debt to finance. But, keep hands off the social security and the federal employee pension trusts, and live by the same rules as the rest of us.

MISSING INTEREST: As the federal government siphons off surpluses from all trust funds, it should be depositing in those trust funds not only marketable debt instruments (it does not, giving only non-marketable IOUs) but should also be paying into those trusts interest on those IOUs in the form of cash or debt instruments that could be redeemed on the open market (it does not, but gives more non-marketable IOUs for the interest, too).

Guess what? Some say those IOUs in the trust are obligations of the federal government; i.e. real debt. But, if you check the Federal Reserve Bank web site you will find if they do not book trust fund debt as a debt obligation of the U.S. government. They do not even mention it in their figures for federal debt, because there is no budgeted plan to pay it off.

PROOF THE GRANDFATHE SOCIAL SECURITY REPORT IS BEING READ - FROM THE SENATE January 29, 1998 regarding the 1999 Federal Budget: "STOP LOOTING SOCIAL SECURITY TRUST FUND": Mr. HOLLINGS. Mr. President, the thrust of President Clinton's State of the Union address was ``save Social Security first.'' The quickest way to save Social Security is to stop looting Social Security. Over the years, we have looted the Social Security trust fund with wild abandon; we owe it to the tune of some $631 billion right this minute. It should be a $631 billion surplus. But actually, since Congress has expended it on foreign aid, defense, food stamps, and other programs in order to appear fiscally responsible, there is a deficit in Social Security.I see now from the Congressional Budget Office, and I take it from the President's budget to be submitted next Monday, that the CBO, along with the Congress and the President, is prepared, again, to go forward with this nonsense of a unified budget. The unified budget is a fraud. It allows Congress to spend money but get credit for not spending money. Only here do fiscally irresponsible people get a good government award. Archive-Name: gov/us/fed/congress/record/1998/jan/29/1998CRS199A[Congressional Record: January 29, 1998 (Senate)][Page S199-S201]From the Congressional Record Online via GPO Access [][DOCID:cr29ja98-22] - this was pulled from internet newsgroup:

PRIVATIZE: Many say the SS system should be privatized, as the only solution. I fully agree it must move in that direction. If not, eventually, just plain debt build-up and demographics (fewer workers per retiree) assure the system is doomed, at least in any where near its present form of purchasing power benefits. In the end, all 'Ponzi Schemes' collapse, with many people hurt. The key is some phase-in approach, to help somewhat ease the pain for those current retirees, and those nearing that age - - who have no time to shift gears. Instead of games being played at the fringe, like CPI/COLA and monkeying with treating it like welfare (means testing), we need a clean fix that politicians so far are too afraid to discuss in the open. One thing is to STOP all siphoning- off of surpluses now being paid which are spent on other government programs, causing the creation of even more new debt on back of the young - - plus paying back to that trust (by cutting other spending) that which has so far been siphoned off. In other words, that trust should be operated under the same 'arms-length' laws required of private pension funds. (if private pensions did what the federal government does, they would be in jail - - we need government to stop operating different that the rest of us). So, correcting the past 'siphon' game, would assure the existing system would be safer a bit longer - without creating a single penny of NEW debt. Next, we could look at eliminating COLAs all together (not just playing with 1.1%, etc.), which would not only allow seniors to take a bit of the pain, but do so in a gradual way, but would also be more fair to the millions of working people who have ZERO government mandated COLA on their incomes. Then, start phasing down SS for other age groups and cutting FICA taxes to allow younger families said resources for their own PRIVATE pension investment planning. The younger people have more time to adjust than one now 80 years old. But, the young must have the facts and as fair treatment as possible. There are many mutual fund and insurance firms out there ready to provide that private pension building service for younger people - - and, other firms and plans would spring up helping the total climate and thereby foster more competition. One thing is for sure, they could not siphon or create Ponzi Schemes - there are laws on that. Yes, privatize - - in steps that are clearly articulated and phased on a time schedule. We can fix this to be fair to all, but such is not coming from inside the beltway.

with his grandchildrenIf my children and grandchildren are to have debt on their backs by debt already outstanding due to consumption not of their choosing, that's unacceptable. But to play siphon and spend games, which camouflages the true deficit, causes even more debt to be added to their backs. I flat out hate that - and, its wrong!! It is just another part of the Ponzi Scheme.

No wonder the Trust in Government Report shows a dramatic decline in citizen trust in government, and the Voter Turn-out Report trends declined to a record low.

HISTORIC NOTE: If you read the Federalist Papers (Alexander Hamilton, etc. 1787), documenting the formation and intent of our constitution then being designed, you will find there is no social (pension, welfare, medical ) function for the federal government. You will find repeatedly it says: the federal government is to cover four principal areas: national defense, trade between states, trade between nations, and foreign relations with others. PERIOD!! I think those nation-founders would turn in their graves today if they viewed that today's federal government is not only 10 times larger in share of economy than earlier in this century, but that nearly all of its growth is in social spending ratios - not a part of the 4 founding principals. Those guys were wise. By not listening, and changing their concept, we have put our next generation into a heck of a fix. We have to start somewhere. And, I recommend the Federalist Papers to all. To attack our ills, we need to understand the basics.

For those wishing to view some long-term graphics on debt, see the Federal Government Debt Report, for a crash course of knowledge. It may blow your mind, to see the national debt per kid of all types is $88,000 and rising - not counting the off-budget and contingent liabilities of the federal government.

Medicare - - costs rising faster than wages. Premimus up 17.4% for 2005

Medicare is paid by two separate trust funds. The fund going broke gets its money from a payroll tax and covers Part A, or hospital expense. Another fund covers Part B expenses, like doctors' visits. Its money comes from the Treasury's general fund and a monthly premium is paid by everyone in the program.

Medicare Monthly Premiums for Part B since 1970: 1970 - $5.30, 1975 - $6.70, 1980 - $9.60, 1985 - $15.50, 1990 - $28.60, 1995 - $46.10, 1996 - $42.50, 2002 - $55, 2003 - $58.70, 2004 - $66.60, 2005 - $78.20, 2006 - $88.20, 2007 - $93.50, 2008 - $96.40. That premium is up 18.2x since 1970. As shown here, the monthly Medicare insurance premiums paid by seniors was $5.30 in 1970; today its $96.40 - 1,820% inflation. In fact, the 2008 premium was up a whopping 75% over 2002 - - while officials claimed inflation is low and under control.

The Medicare hospital fund is scheduled to be in deficit by 2011

Annual Report of the Trustees issued March 2005 finds, under current legislation and using intermediate assumptions, the fund (Medicare Part A) is in deficit as of 2004, when expenses out-ran revenue. This despite 1,260% increase since 1970 in the monthly  premium seniors pay - - and the 430% increase since 1985. By the way, that 2011 date does not include the new prescription drug program which will bring that date much closer.

The Trustees Report states: "Medicare still faces financial difficulties that come sooner--and in many ways are more severe--than those confronting Social Security. While both programs face similar demographic challenges, Medicare costs per enrollee are projected to rise faster than wages and eventually will place larger demands on the Federal budget and beneficiaries. The most significant change reflected in this year's reports is that health care costs per capita are assumed to increase at a faster rate than had been assumed in previous reports."

"A bigger problem begins in 2010 when baby boomers start retiring. Today's debate is a mere warm-up for the reforms that will be needed to let Medicare survive the boomers' retirement." Source: " On the Horizon: A Bankrupt Medicare "- U.S. News and World Report, 17 June 1996 : [ Source - Medicare trustees' annual report ]

More specialists = more Medicare cost without better quality - 'States that spend more on Medicare don't necessarily have better health care, according to a study being published. In fact, health care in those states may be less effective and lower in quality. The study found that New Hampshire, which had the highest overall quality ranking in America, spent the least at $4,863 per beneficiary, while Louisiana, which spent the most at $8,238 per beneficiary, had the lowest quality ranking. The pattern is likely due to state medical practice patterns, such as the use of intensive surgical procedures instead of drug treatments where both could be considered viable options, rather than the relative cost of medical treatments in a given state, said Katherine Baicker, lead author of the report in the peer-reviewed policy journal Health Affairs and assistant professor of economics at Dartmouth College in New Hampshire. The mix of specialists vs. general practitioners in a state had a direct link to cost and quality of care, the report said. Each additional general practitioner per 10,000 people increased the state's quality ranking and lowered spending by $684 per beneficiary. Each additional specialist per 10,000 people lowered a state's ranking and increased spending by $526 per beneficiary.' Larry Lipman, Atlanta Journal-Constitution, 04/06/04

The U.S. consumes 82% more of its economy on health care than other advanced nations,
with less life-expectancy to show for it

The Health Care Report contains pictures of U.S. health care spending relative to other nations, whereby the U.S. consumes 82% more of its economy on health care than others - with lower levels of life-expectancy.

Note this data shows in the U.S. government spends 6.7% of its GDP on medical - - more than the OECD average (5.8%), although many other nations for this 5.8% spending ratio cover a significantly larger portion of their population.

Poor Management by Government equals FRAUD

NEW YORK (AP) -- A government audit found that the federal Medicare program made an estimated $23 billion in improper payments to health care providers last year.

The figure, calculated by the inspector general's office of the Department of Health and Human Services, suggests that fraud, abuse, and bookkeeping lapses eat up more of the program's budget than previously thought, the newspaper said. The improper payments made to hospitals, nursing homes, doctors and laboratories represent about 12 percent of Medicare's $194 billion budget. In the past, policy analysts have estimated abuse represents about 3 percent to 10 percent of total health spending. People familiar with the audit told the newspaper that investigators found problems with 30 percent of 5,000 Medicare claims from fiscal 1996. The Department declined to comment on the audit, saying it is not yet finished.

The audit found billing problems common throughout Medicare, especially in home-health services and nursing homes. Medicare relies on private insurance companies to handle much of its claims-processing. Critics say these companies focus on making sure claims are submitted in a standard format, rather than checking whether Medicare is paying for appropriate care. The audit "verifies what a lot of people at the grass roots have been saying," Iowa Republican Charles Grassley, chairman of the Senate Special Committee on Aging, told the newspaper.

Source: Associated Press : 6/11/97, and Wall Street Journal

SSI and LACK OF MANAGEMENT - one of many examples

one out of three recipients of social security funds are non-pensioners

Growth of SSI & DI As shown by the left chart, there is tremendous growth in outlays within the Social Security Administration, other than pensions for seniors - - its welfare.

The left chart reports Supplemental Security (SSI) and Disability (DI) growth in the number of recipients - from 4 million to 7 million, for an extra $30 billion in outlays.

This includes alcohol and drug addicts. The SSA's program to rehabilitate SSI & DI people back to work has a failure rate of 999 out of 1,000 - GAO claims SSA is forcing or promoting disabilities instead of promoting vocational rehabilitation - and that neither beneficiaries or staff seem aware of or promote vocational programs. (from 'Disability Traps', Brian Doherty, December 1996)

According to the Congressional Research Service: 32% of old-age SSI recipients are aliens. (That's 500,000 aliens getting old-age SSI) SSI to old aliens costs $2 billion yearly. According to Associated Press: 25% of elderly aliens are on SSI, compared to 4% of elderly Americans.

This is another excess load being carried by our young employed, that was not carried by the older generation when they were working - another generational shift.

The above is presented to show an example of the lack of management quality in the current system. And, of course, one could ask why are welfare programs like SSI included in the Social Security dole.

There are many such wasteful, horror stories. But, citizens should not resort to wishful thinking that elimination of waste & inefficiencies will resolve the problems alone. The waste is just the 'tip of the iceberg' of a massive problem. A call for privatization seems appropriate.


Suppose you are 20 years old and earning $10,000 a year. You and your employer are paying $1,240 a year in Social Security taxes. That's 12.4 percent of your hard-earned income, for benefits that you will never see.

In a recent survey, Americans between the ages of 18 and 34 reported they are more likely to see a UFO (46 percent) than their Social Security benefits (28 percent). They're right. The Social Security trust fund starts running out of money, under current projections, in the year 2013. If you're 20 today, that's when you turn 38. By the year 2030, when you turn 55, the fund will be short $200 billion a year and be unable to meet one quarter of its obligations. By the year 2042, when you turn 67 and reach your so-called (extended) normal retirement age, the fund will have an accumulated debt of $4.7 trillion. I'm not making this up. This isn't science fiction. These numbers come from the 1994 report of the trustees of the Social Security system.

You could get all your benefits, of course, if there were an enormous tax increase for your children and grandchildren. (some reports indicate a tax rate of 84% would be required to fund this - author note).

Some politicians will tell you not to worry: Social Security is building up a big trust fund that will take care of all those promises. By the end of this year, the trust fund will have over $500 billion in assets-on paper. By 2020, there will be $3 trillion on paper. The trouble is, when the program needs the money, the money will already have been spent on everything the federal government spends money on. To redeem its IOUs to the trust fund, the federal government will have to borrow money or raise taxes-by over $36,000 per family-just as if the trust fund had no assets at all.

So you and your employer are now paying one eighth of your income to pay for the Social Security benefits of current retirees, and to build up an illusory trust fund. Meanwhile, your own retirement is in jeopardy. No wonder younger Americans fear they are on a treadmill. No wonder there is so much trepidation about the future of the country. No wonder we have a savings crisis: our savings are being spent. No wonder most Americans now say their children will enjoy less opportunity than they do.

Sam Beard, Policy Review, Summer 1995, Number 73


(NOTE: am I concerned for those now in retirement and those nearing retirement? Yes (and, the author is a senior). But, in all fairness, they have had a much better deal from the social security pyramid scheme (more benefits with less paid-in tax rates), than our younger generation can ever hope for. The senior generation (and its AARP lobby and vote-happy politicians) allowed these inequities to build up on their watch. They must accept responsibility for being a part of the scheme. As solutions are searched for, I am more concerned for the generation of my children and grandchildren - - and the inequality involved between generations.)

  1. We are told: "don't worry, there's a surplus." But, where is the surplus? The approximately $1.8 trillion supposedly in the social security trust fund (which some call the surplus) has not been funded with 'arms-length-untouchable' funds, as required for private pension funds. It has all been spent on non-social security items. The paid-in money is GONE - replaced with IOUs with nothing backing them up but the legal right to increase taxes even more, or add more national debt! When its needed by newer retires it will have to be borrowed & taxed again. And as seen above, the medicare hospital fund will be completely out of even its IOUs in 3 years. Should we not put a halt to this practice, and require the pension and medicare funds meet the criteria of private funds - - 'arms-length' - - and start denying any government entity from using these funds - - starting now? And, Congress should reduce other spending as required to re-fund every penny of the approximate $600 Billion they have already extracted from the trust fund to date for non-pension purposes. (The President & Congress said they want to start living by the same rules as the private sector - - when?)Why should we not reduce the outlays to senior citizens, and significantly reduce tax rates on our young families, to provide a better balance in fairness and equity between these generations? ACTION: Cease siphoning-off surpluses arriving in the trust fund for non-pension spending, AND covert all non-marketable internal IOUs now held by the trust fund (a 'paper cover' for past fund siphoned-off of about $600 billion) to Federal Reserve legally registered government debt securities (T-Bonds, T-Notes) as the same status as all current debt issued to the public. Further, in the future all interest earned by the trust will be paid in cash (not internal IOUs) such that the trust may invest in fully marketable securities (more T-Bonds, etc.)
  2. In fairness to our young families, should we not require that seniors pay the full cost of any increase in Medicare costs (via a combination of increased monthly premiums and increased deductibles), just as private sector citizens must do when private insurance rates increase? (for those seniors with extremely low incomes some subsidy rebate should be charged to welfare - - not to Medicare taxes on working families)?
  3. Federal, state & local government employees should not be exempted from being a part of social security and medicare taxes and the problem of sustaining benefits. They must not have plans more generous or more protected than non-government retirees. Either we have one, fully-funded government system or we have none.
  4. And, what about the un-funded contingent liabilities estimated for social security at $7 Trillion plus for $13 Trillion for medicare (see Debt Summary Table)? If private companies are required to fund pension and health insurance plans, why does the Federal Government not play by the same rules? Had this been the case, these issues would have been resolved long ago - - - at a cheaper cost and with more equity between generations. Why not??
  5. Additionally, is it good management to mix social security/medicare with the SSI welfare programs? These should be separated from the Social security Administration and included with other welfare programs - - mixing pensions & welfare creates a mess.
  6. Considering the built-in inefficiencies inherent in any government administered program, and the inability to further operate this social security pyramid scheme, should we not consider various privatization methods? The 'chickens have come home to roost,' just as it has for citizens of Albania (recently in the news) experiencing the collapse of their own government's pyramid scheme. Many methods for financing the start-up of a complete social security privatization program should be explored, including extracting the waste in the public education system by completely privatizing the very system which has also failed to deliver the quality as done for past generations. This might save $2 trillion in current dollars over 12 years ($44,000 waste per student, grades 1-12), as documented in the Education Report). No 'stone' should be left un-turned in the quest for equitable solutions.
  7. Considering the fact the 1994 Trustee's Report showed the social security system would be kaput 22 years earlier than did the 1984 report (obviously they fixed nothing), these reports and corrective actions claimed cannot be trusted. We must demand a new report EVERY 6 months - - not every 8th year - - as confidence is low and time is running out.
  8. Could a reason for non-action to restore cross-generation equity be that seniors have effective congressional lobby organizations while families and their children do not? Politicians fear the senior vote that could cost them their careers, but they have no fear of children - - because they can't vote. It's nice for them to say 'we care for the children', and then refuse to take firm corrective action for their future.


Let us repeat our recommended actions, from bottom of the prior page

  1. Cost of Living Adjustments: Cease all cost of living adjustments for social security pensions, since such guarantees are not government-guaranteed to working people who are paying FICA. (And, do so in the 'full light of day,' instead of under political cover of special CPI commissions recommending revisions to historic methods of measuring CPI. Such would effectively mean a reduction in senior income with all 'savings' flowing to other spending programs - - as reported in the CPI section of the Grandfather Inflation Report.). That's 'cooking the books,' not solving problems in the open - - a form of cowardliness, deceit and cover-up. All savings from COLA adjustments should be transferred to the trust fund, not spent on non-pension programs.
  2. Cost Increases: Require seniors to cover all increases in medicare cost, by a combination of adjustments to premium charges, deductibles, and revised benefits. Increasing the deductible right now would not only bring back a bit more balance compared to working people, but would increase medical cost-consciousness by seniors - - thereby increasing price competition - - which would in turn benefit all citizens, including working families.
  3. Trust Fund: The government should immediately cease the deceptive, shell-game practice of siphoning-off surplus social security trust funds for purposes other than for senior pensions. (All else should be labeled 'welfare' and covered elsewhere). And, the government should reduce other spending sufficient to repay to the trust fund the $1.8 billion so far siphoned -off for non-pension spending - - and/or convert all existing internal IOUs now residing in the trust fund to fully marketable treasury bonds issued and regulated by the Federal Reserve like all other such bonds now issued to the public - - or place the equivalent ownership of free & clean government real estate into the trust with the government to pay a net-net open market rent in cash to the trust fund each month. The trust fund should hold only fully marketable assets that can be liquidated on the open market, without requiring new taxes and new debt of the federal government. All trust funds must be invested in fully marketable securities, a combination of official treasury bonds (no IOUs) and private sector equities.
  4. FICA tax: Reduce FICA taxes to eliminate surplus payments, unless the above (item 3) 'siphon an spend' game is stopped and past siphons are repaid in full with hard, marketable assets.
  5. Non-pension part of Social Security: It has been stated that approximately one out of three recipients of social security pay-outs are non pensioners, including SSI. This one-third should be removed from the Social Security system, and transferred to the welfare programs and funded with non-FICA taxes.
  6. Privatize: Implement a phased-plan to completely privatize the entire Social Security/Medicare program, aimed toward citizens being responsible for their own retirement savings - phasing down FICA rates accordingly. Any residue remaining should be in the form of welfare for those qualifying. Economist Martin Fieldstein states: "conservative assumptions imply that Social Security privatization would raise the well-being of future generations by an amount equal to 5 percent of gross domestic product (GDP) each year as long as the system lasts."
  7. Private Savings: Develop a fair program, with choices, to motivate citizens to create their own old-age pension & medical insurance program, within the private sector - and, consider a scheduled phase-out of the government system and FICA & medicare taxes. Government should encourage and council, but not mandate. In the end, it is a question of choice with individual responsibility to provide for ones future. (the demographics are not there to justify loading the backs of the young, of which there are fewer and fewer per retiree). [keep in mind the poor trends of personal rates of savings ].
  8. Stop calling it Social Security: If these will not sufficiently resolve the approaching demographic bulge time-bomb, then immediately declare social security and medicare as Poverty Programs, and move to means-testing immediately. Do politicians have the guts to bite the bullet and call a spade a spade?


  • Some of the author's generation believe he is 'shooting himself in the foot' by preparing this report.
  • Not so! He believes most of his generation want to become more proud of our legacy for our children & grandchildren.
  • At this point, we are not proud. And, we are not afraid to 'bite the bullet' to become more proud. We must become the lobbyist for the young. That's a reason for this report.


SUGGESTION - companion reports:

For a larger picture, review the brief companion reports below:

Or, RETURN to PAGE 1 of the Social Security Report

THEN - - see other related reports from the: HOME PAGE of Grandfather Economic Reports, for a complete listing of ALL reports of the series, showing economic conditions facing young families and youth, compared to prior generations.

Exchange information: Michael Hodges via E-mail

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