A simple rule change to remove the cap on when income is subject to the Social Security tax would go a long way to balancing revenues with outflows.
Don’t shoot the messenger, because I’m very much on your side of this, but economics at the macro level with a sovereign fiat currency simply doesn’t function like that. Increasing taxes cannot “pay for” anything except as a mostly meaningless accounting entry. It’s actually all much simpler than we are led to believe.
Spending at the federal level “creates” our currency and collecting it back in any form “cancels” it. One cannot “pay for” anything with taxation or borrowing at the federal level. Simple logic says that it is impossible to collect or borrow what doesn’t yet exist and basic knowledge of dual entry spreadsheet accounting would inform one that money and debt cannot co-exist in the same accounting sector at the bottom line.
America’s elected leaders have been removing the money from the Social Security Trust Fund for some time now.
The trust fund has no money because Treasury bonds were never intended to be revenue for the government that needs no revenue to spend on whatever Congress decrees. Their major function was to defend the gold reserve when we did that nonsense, but FDR ended the convertibility of the currency to gold domestically in ’34 to allow fiscal policy space to mitigate the depression and recapitalize the economy.
The rule requiring Treasury debt to be issued to cover spending deficits was left in the Federal Reserve Act (1913) to provide a floor for investors and welfare for banks within the system. However, Treasury only moves private sector reserves to another form of money (bonds) that gains interest upon maturity. They reduce the liquidity of the money supply by lowering the debt, so they are never available to be spent and they must be re-capitalized on maturity via “debt service” in the non-discretionary budget regardless of purpose.
In reality, the Social Security Trust Fund is actually empty having been spent on the Bush/Cheney upper income tax cuts, invasions and occupations of Afghanistan and Iraq, and numerous military engagements all across the globe.
The military budget appropriation is not the entirety of its spending. It also is able to spend without the issuance of Treasury bonds any time Congress abdicates its authority to create US dollars to the Executive branch with war power declaration or emergency funding. In such cases, no “debt” is issued and the Fed simply makes sure the checks don’t bounce. That is, however, a separate topic for later. Just be aware that this amount since 2000 is actually larger than the national debt represented in Treasury bonds that lights politicians’ hair on fire. It is just “off the books” (to quote W. Bush).
The excess tax revenues could now be spent by looting the Social Security Trust Fund replacing dollars with IOUs.
A Treasury bond “IS” an IOU. It makes no sense for the government to borrow its own currency that it creates on-demand from itself. Removing demand (currency) from access to the gold reserve made some sense when we had a gold reserve, but not any longer. It now just cuts into the purchasing power of the middle class with no real return later that doesn’t have to be funded with new currency creation anyway.
Americans want these entitlement programs to go on despite the financial obstacles and despite the fact they are a pure expression of socialism. Americans need and want a social safety net. Working Americans are owed these dollars.
The many countries that provide retirement benefits for their citizens use a variety of methods to distribute them, but none require the level of investment from workers that the US does. Most simply assume it to be a benefit of a civilized society and pay benefits from general spending. Only the US makes it necessary to provide a “legal claim” to one’s retirement, which is the only purpose served by the payroll deduction. Trust me though, if not for that Republicans would have eliminated all benefits long ago.
Allen Greenspan explains this all to Paul Ryan under oath here.