Friday marks the 80th anniversary of President Franklin Roosevelt’s signing of the Social Security Act, meant to enable the elderly and jobless to avoid poverty. Over time Social Security has evolved, and currently the government owes over half a million dollars per taxpayer in unfunded liabilities to Social Security.
Here are four beliefs that many people and politicians have about the Social Security program that are not true:
Myth One
The money the government collects for Social Security is set aside and held by the government in a “trust fund” for this purpose.
Even though it is sometimes referred to as a “trust fund,” the money for Social Security is not set aside or invested. Many people believe this because the “personalized Social Security statements” the government makes available detail your payment history and projected benefits. In reality, however, Social Security checks that are currently in the mail to retirees are written with funds from current workers’ taxes.
Myth Two
The part of a paycheck taken out for “Social Security” is spent on Social Security benefits.
The government spends Social Security money right away wherever it needs the funds, so money taken for “Social Security” isn’t going into a special account or being put aside in any way.
“Benefits are not directly related to or committed upon the receipt of earnings or the payment of taxes,” said Stephen Goss, the chief actuary of the Social Security Administration.
Myth Three
The government guarantees that it will pay you back what you have invested in Social Security when you retire.
Congress calls Social Security a “benefit;” and as such it can change the laws affecting what, if anything, you will receive — at any time. In the government’s view, it only owes the checks that it has written — not the ones it has promised to write.
It is “the government’s right and ability to alter potential future benefits,” testified Goss. “Until benefits become due and payable, there is no binding commitment over which a worker has control and so no liability can be recognized.”
Myth Four
The government owes $2.7 trillion in Social Security benefits.
That’s the number the government reported in 2014 — but in actuality, the government owes a staggering $27.9 trillion in unfunded Social Security liabilities over the next 75 years. That huge number is not reported as part of the national debt due to the fact that the federal government keeps benefits owed completely off the books.
The government’s “cash accounting” allows the government to ignore these huge future liabilities, which means it doesn’t yet have to recognize the burden. The IRS doesn’t allow a corporation that makes over $5 million dollars to use Congress’ method.
“This sort of accounting was designed for short term decisions but obviously paying Social Security benefits for decades to come is a long term decision,” said Sheila Weinberg, founder and CEO of the think tank Truth in Accounting. “You shouldn’t make long term decisions using short term methods.”
“The reason Social Security is called a ‘trust fund’ is because that’s what Congress decided to call it,” said Weinberg. “They’ve never held the money in trust. The trust fund is going to run out of money because they’ve already spent it, and the balance of Social Security is an accounting gimmick. It’s a fictitious concept.”
