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September 21, 2014

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Letter to the editor:

Social Security not an annuity contract

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In a recent letter, Gilbert Eisner stated that Social Security is an annuity contract between the wage earner and the “most responsible insurance company in the world, the U.S. government.” Social Security is not an annuity contract but instead a mandatory tax on a citizen’s earnings. It is carried out through the payroll tax.

Some annuities can be transferred after death. When you die, your Social Security benefits cease in most cases. Social Security should be considered to be only a part of one’s retirement. Unfortunately, more than 60 percent of people rely on it as their main source of retirement income.

In 1937, the Helvering v. Davis case (over the legality of Social Security) was brought before the Supreme Court. The government argued that Social Security was legitimate because it was a tax on the citizens.

The court ruled in favor of Helvering, the commissioner of the Internal Revenue Service, saying the federal government had the right under Article 1 of the Constitution, which gives Congress the right to “lay and collect taxes. ...”

Eisner stated that the Social Security will pay out 100 percent until 2030. According to the Social Security statement sent to recipients, the funds in 2033 will pay out only about 75 cents for each dollar of scheduled benefits unless changes are made.

If you contact the Treasury Department, officials will tell you that they do not count the IOUs in the so-called Social Security Trust Fund as an asset on America’s accounting books.

The real story is that the trust fund is made up of IOUs, and that money will come from future borrowing by the United States.

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  1. "The real story is that the trust fund is made up of IOUs, and that money will come from future borrowing by the United States"

    It's true that the trust fund is made up of $2.7 Trillion in Treasury IOU's that are now part of the $16+ Trillion National Debt. As the trust fund is drawn down between now and 2033 it will add NOTHING to the National Debt. By law, the trust fund cannot borrow money from the U.S. Treasury.

    Various changes to Social Security benefits and trust fund income have been proposed and all have been scored. It only takes willingness to solve the 2033 problem now when the changes will be less severe instead of waiting until more radical changes must be made.

  2. Obama's little payroll tax "holiday" did nothing to improve the situation. It was rescinded. There are several painless solutions to the issue: remove the cap on higher income workers, raise the full Social Security retirement age (mine was changed years ago from 65 to 66 years old). A bit more painful, increase the minimum age for drawing benefits from 62 to an age to be determined. I, and many folks I know, began drawing at age 62. By doing so I forfeited 25% of future income through Social Security, but I draw on the front end while still young enough to enjoy retirement. Life's full of little tradeoffs. The main goal for future retirees should be to insure that they can afford to retire in the first place! My wife and I could, and we did. Chained CPI is not the answer, and shouldn't be used as a deficit reduction tool. SS is not responsible for the national debt. The key is to get more folks back to work, who will then pay into the system. A no-brainer.

  3. The IOU's to the Social Security Fund are special U.S. bonds backed by the full faith and credit of the U.S. government, as well as the accumulated interest accruing and paid on them. They are called U.S. Treasury Bonds. Just like all the U.S. marketable securities that are traded on the U.S. and world financial markets every day. If the U.S. government defaults on these special bond issues [and interest earned on them] in the Social Security Fund, as some posters think and say here, what do you think this would do to the marketable securities traded on the world markets and the financial reputation of the U.S.?

    Carmine D

    BTW, the President's budget for 2014 puts a limit on the tax deferred amounts that Americans are allowed to put in annuities. Why? Can't have Americans self-supporting themselves in old age and poor health. That's what the government is here to do for them. Of course the caveat is by taking [read taxing] their money to do it.

  4. Carmine: hope those bonds and the alleged interest on them are actually being used as intended. I have my doubts. If it was just that simple, there wouldn't be all the wailing and gnashing of teeth about Social Security being (or soon to be) "broke".

  5. Gary:

    Read the Trustees' reports and the SSA FAQ page [on-line]. They are the experts. They get paid a lot more than we do to manage and operate the Fund.

    BUT, as I've said here before, I don't collect Social Security although I paid in and am eligible.

    Carmine D

  6. The Social Security trust fund of IOUs is an illusion.The fact that the treasury bonds the trust fund received in return for th 2.7 trillion are NON-MARKETABLE securities---that is, they aren't bonds that can be sold on the global bond market.Which makes them worthless IOUs.

    If they can't be sold on the open bond market,then what we have is nothing that has any value.

  7. If this is all true, then I want my money back from this illegal Ponzi scheme.

  8. Excuse me but Gil Eisner was correct; now it's time for Social Security 101. Social Security is indeed an annuity and there are far more redemption options than most private annuities. The mechanism for funding Social Security is irrelevant to that determination. The government does not consider the Social Security Trust Fund an asset because by law the federal government bond obligations it holds cannot be sold on the open market; they are only redeemable by the trust fund. When will Social Security need to lower payouts? Everyone from the CBO, the AARP and the Motley Fool have an opinion. Most say about 2030 but then again President Bush never saw the Great Recession coming either now did he? Social Security is an easy monetary problem to fix, Medicare not exactly the same.

  9. The letter writer is mostly correct. One point! Benefits are also transferable to a spouse and children under certain circumstances. My father was very old when I was born and he got sick and died when I was young. I received part of his Social Security benefit to help pay for my college education.

    What sits in the Social Security and Medicare trust funds are specifically designated treasury securities. They belong to a class of debt known as intergovernmental debt. They are not IOUs. Intergovernmental debt makes up 40% of our national debt. When my wife's Social Security check gets deposited on the third Wednesday of the month securities are bought and sold to make that transaction happen.

    Social Security is not the problem. Medicare is the problem. A couple pays in on average about $100,000 and takes out about $350,000. That spread needs to be closed by changing the way Social Security and Medicare are funded. You can't take it out of the pockets of the elderly. They have nothing.

  10. Part of the reason for the worry about this is that the government has spent this $2.7T from the trust fund on various other programs over the years. We are now in a phase where we are drawing down the trust fund as the baby boomers retire. If the trust fund was to be depleted over the next 20 years, then that means that $2.7T in debt must be paid off or replaced with $2.7T in other debt. So, on top of the $6T-$10T that is proposed we add to debt over the next decade, we would also have perhaps a $1T of outside debt required for retiring Social Security debt.

    They saw part of this coming in the 1980s and thus we had some changes to the system then to build the trust fund for this period. Some similar changes could reduce the rate at which the fund diminishes. Chain CPI does little to help things and it already seems as though the existing CPI underestimates actual increases in costs of living. But government has incentives to understate inflation since higher inflation numbers tend to increase costs and reduce revenue through indexing.

    One of the key points from the comments is that we need to get people back to work. More people working means more people paying payroll taxes and hopefully a little longer life for the system. And that really means private employment since we need to be growing the economy and not shifting money from one pocket to the other.

  11. Typical venal comment published daily in the Sun. Lets concede the new deal to the wealthy no accounts. Jackie Robinson was a Republican, Are the Obamas related to him ? - just asking

  12. Over the past several years there have been, by my admittedly fuzzy math, more than 10,000 comments in the Sun regarding Social Security but only 4 that were not simply repetitive. We are not at the point of no return but we certainly need to make some decisions about Social security:
    1. Keep it or dump it?
    2. If keep, what will be the scope?
    3. How much will it cost to properly fund that scope?
    4. How to allocate the costs?

    5. If dump, replace it or ignore a public involvement?
    6. If replace, with what?
    7. What are the costs of a replacement?
    8. How will those costs be allocated?

    My own view is that SS is one of the more successful public initiatives right up there with WW2 and the Marshall Plan. It should be universal, everyone who works participates, everyone who retires gets a benefit. Financial stability involves raising the level at which contributions are maxed while maintaining modest benefits. Social Security is just that, social, not necessarily solely economic.

  13. But Michael: of COURSE SS doesn't consider the IOUs in the trust fund as "assets" of the Federal Government! They are non-negotiable, hence have no identifiable market value to use in valuing them. SS can take no action to pressure the government into redeeming one of them. If Congress decides to write them off, then SS actually IS close to broke. Finally, they are also not considered in totaling the LIABILITIES of the Federal Government.

  14. The ability of the government to print money is infinite. People will be getting their Social Security and Medicare as long as this country exists.

    As I've stated numerous times medical costs need to be moderated. A health insurance plan has gone from $100 a month to $15,000 a year in the last 30 years. I won't even get into how much the average hospital bill has gone up. Dramatically reducing healthcare costs would eliminate the unfunded liabilities in Medicare and Medicaid. Dealing with Social Security would be very simple after that.

  15. To all: A public option, ie; Medicare for all, was part of the initial Affordable Care Act. It was taken off the table by pure politics and the heavyweight lobbying by the Medical Insurance INDUSTRY and the "Big Pharma" INDUSTRY. Let there be no mistake; as long as lobbyists for these INDUSTRIES hold sway over our elected "representatives", Medicare is the only answer for the masses. This country has one of the most expensive and corrupt medical systems on the planet.

  16. Sam:

    We've had this discussion before for nothing. But here it goes again. Just because something can't be bought and sold on the financial markets does not mean it is not valuable. It just means that the buyer and seller [U.S. government] is the same. The IOU's to the Social Security Fund which accrue and pay interest, are U.S. savings bonds, called Treasuries, and backed by the full faith and trust of the U.S. government just like the U.S. marketable securities that are traded on the open markets. Don't take my word, read the Social Security Trustees' Reports and Social Security Administration Questions and Answers page about the SS Fund. Both of which I posted here for you, at your asking, in the last week.

    Carmine D

  17. Byrenrobert,

    "Of course Social Security dosen't consider the IOUs in the trust fund as "ASSETS" of the Federal Government! They are NON-NEGOTIABLE,hence have no identifiable market value to use in valuing them."

    I couldn't agree with you more,you can't put value on something when there is none.

  18. Adding 15-20 million illegals to free social security benefits is not going to help. Redo the numbers and it's simply unsustainable. For decades we've paid Canadians and other foreigners who legally "contribute" into SS. Estimates are $4-5 trillion additional to the deficit.... Plus mega trillions to local government and school districts. That's not including Obamacare and ER services. So while citizens pay their own way via exchanges, insurance, penalties, taxes, we'd get to pay for illegal health care at UMC, ER's, SS disability...

  19. Sam:

    Look up the definitions of "asset" and "liability."

    An IOU, as in U.S. Bond, is a liability of the giver [government] and an asset to the receiver [person who gets it]. It is a promise to pay in the future. When it is paid, it becomes an asset to the receiver. It's like the mortgage on your car/house. It's a liability TO YOU [the owner] not an asset [they don't belong to you until you pay for them]. It's an asset for the lenders [banks who own]. Now tell me Sam, are your cars and house worthless?

    The cash in the SS fund is not an asset to the government. It doesn't belong to the government. It belongs to the people who paid it. It's their asset. The government has a liability to pay it back just like the IOU U.S. Bonds.

    Carmine D

  20. Carmine,

    "Now tell me Sam are your cars and house worthless?"

    Very good question.Actually they are not worthless,infact I can sell them both on the open market for cash because they both have a value,and are marketable.

    The Social Security trust fund IOUs have no ASSETS and are NON-MARKETABLE,and can't be sold in the globle bond market.No matter how hard you try you can't make them MARKETABLE.Don't take my word for it Senator Tom Coburn A Republican Okla. just like you says exactly the same thing along with many other Senators from both parties.

  21. No you can't, Sam. You don't own them. They are not assets to you. They are liabilities. The banks own them. They are assets to the banks. They are worthless to you. You can't do anything except use them IF you pay for them. It's like renting an apartment. Is that worthless too?

    Carmine D

  22. BTW, Senator Coburn is an excellent doctor, but a terrible accountant. Note he made that statement in 2010 and never said it again. Right? Take a hint, Sam from Senator Coburn.

    Carmine D

  23. You will argue with anyone who doesn't agree with you,even a fellow Republican.Take a hint from what's really going on in the world.

  24. Surely you jest? The Trustees, all Democrats, are warning of the impending insolvencies of the Medicare and Social Security Funds, and Democrats, like you, accuse Republicans of Mediscare! And the Trustees have unequivocally stated, in fact written under their signatures, that the $2.7 T is in the fund with interest being earned on it, and you disbelieve them! Remember Sam when you point a finger at others, 3 point back at you.

    Carmine D

  25. You can't make worthless IOU's from the Social Seurity trust fund marketable.They cannot be sold on the globel bond market. No matter how you try and word it.Congress can at antime decide to write them off,and move on. Remember Carmine when you continue to distort the truth and point the fingers at others,3 points back to you.

  26. Carmine,

    Look up the definition of "worthless."

  27. I afraid to Sam. I don't want to find your name there.

    Carmine D

  28. Carmine,

    I've said this many times Carmine about the name calling by you.It just goes to show how weak you really are.If you can't win, you do what your best at name calling.I do feel sorry for you.

  29. Thank you, and I for you.

    Carmine D

  30. No need to thank me just try and get some help.

  31. Practice what you preach, Sam.

    Carmine D