Can we talk? Good, let's talk about retirement.
If you have a job that requires you to pay into Social Security you are being robbed, literally. Money is being extracted from both you and your employer under false pretenses, and the worst part is that the thief, the federal government, is getting nothing for the effort. Yes, you will get a retirement income if you work long enough and that income will be roughly based on how much money you made while working, but it won’t be the money taken from you that funds your benefits.
Social Security (and Medicare) deductions are said to be used to pay current retiree benefits and to create a surplus that can be used to purchase bonds, supposedly to allow workers to take advantage of interest paid on Treasury securities. Sounds like good planning so far, right? The problem with this plan lies in the basic structure of federal financing and monetary policy that never uses “revenue” for any purpose except to retire the debt that created it.
The federal government never “has” money because it doesn’t need or use revenue. It is the monopoly issuer of the money, so it never has to “get” money to spend. This is a good thing because spending must always precede collecting for any purpose or there is nothing available to collect. This was an important part of the government’s fiscal and monetary structure when we used the gold standard, but with a fiat currency, not so much. The purpose of Treasury bonds, or any other form of taxation/revenue of the federal government, was to draw down money that had already been created and spent into the economy to protect the gold reserve and prevent inflation.
Bond proceeds are destroyed by the accounting entity called “debt” as soon as they enter the government sector. Bond sales were used to level out the money supply between spending and the collection of taxes. It was an advantage to the government to have a temporary method of keeping the total supply of money below the value of the gold reserve while still allowing it to spend as much as possible into the economy to fuel growth.
Bond investors are paid a small interest premium for delaying the use of the money they were paid for resources until the bond matures. Maturity times of bonds vary according to how long the government believes will be necessary to collect taxes to reduce the total money supply to cover the additional amount represented by the bond. While the outward appearance of any borrowing process would be that the borrower “uses” the proceeds to spend, the opposite is true at the federal level. The money is created first to be available to purchase bonds with, so our government never actually “borrows” from anyone.
This was all made moot when we left the gold standard but bonds are an attractive anchor for investors and they allow the Fed leverage to set interest rates, so they were retained from their gold standard days. The problem is that Social Security claims to use those bonds to “store” money collected, which is impossible beyond accounting tricks that list them as both assets and liabilities of Treasury. Destroyed money cannot be spent, so bonds are not really suitable as storage as bank CD’s are.
The bottom line to this is that repaying the money represented by the bonds requires new money creation that adds to the deficits and debt. If we are to be concerned with either, which is mostly political propaganda, it makes no sense to “save” in a way that requires money creation to repay. It would be much easier to simply create the money to pay retiree benefits as needed and not reduce their spending power by collecting “regressive” taxes from them over their entire working life. The net accounting for the government is the same with or without the tax except for a reduction in the debt as taxes are collected.
The original purpose of using Treasury bonds in this way was stated by FDR to give workers a sense of ownership of their retirement benefits so that conservatives, who detested the program from its beginning, would be deterred from whittling away the benefits. For politicians to increase that tax, knowing full well that it created no benefit to retirees, and then use the “fund’s” imaginary accounting sleight of hand to justify cutting those benefits when they are needed is a sad testimony for our current government, seemingly agreed upon by both major parties.
