Here’s What Would Happen If Congress Paid Back All the Money It “Took” From Social Security
18th July 2018
The author suggests that it wouldn’t be good. However, there are at least two significant lies in this article.
Likewise, there’s the pervasive myth that Social Security’s cash is dwindling because its funds are being disbursed to undocumented immigrants. In reality, only American citizens who’ve earned the prerequisite 40 lifetime work credits are able to collect a benefit. If anything, it’s actually the other way around, with some undocumented workers contributing into the program via the payroll tax without ever having an opportunity to collect a benefit.
Yeah, well, supposedly only American citizens can vote in elections, too. That Polyanna view has been proven false and when Sanctuary Cities get around to allowing non-citizens to vote it will be formally false as well. I doubt that Social Security has tighter security than the voter rolls.
The second issue is that without allowing the government to borrow money, Social Security would be saying goodbye to one of its three funding sources: interest income. For those of you harping on Congress to pay interest to Social Security, the federal government already is. The average yield across its numerous maturities is currently 2.9%. If Social Security were simply to hold cash, the program would be giving up an estimated $78 billion to $83 billion in annual income, according to intermediate-cost model estimates, between 2018 and 2027. This would almost certainly push forward the program’s asset reserve exhaustion date from its current projection of 2034.
The problem is not that keeping Congress’s mitts off of Social Security money would starve it of interest income; the problem is that Social Security could get better returns elsewhere. The theory is that Social Security is supposed to invest in totally secure investment vehicles, and what could be safer than U.S. government bonds? The flaw with that is that it just shifts the money from one U.S. government pocket to another, and allows Congress to go on a spending spree with the promise that ‘we’ll pay you back later’. The Social Security ‘Trust Fund’ therefore winds up being just another general obligation of the U.S., which is exactly the position it would be in if they just spent the money as it came in and didn’t go through the whole hand-waving exercise of laundering the money through government bonds.
Getting 2.9% interest income is pretty anemic. The S&P 500 got a 22% return in 2017; AT&T, the classic ‘widow and orphan’ stock, is currently paying a dividend of over 6%. NO OTHER PENSION FUND HOLDS ITS ASSETS ENTIRELY IN U.S. GOVERNMENT SECURITIES. That ought to tell you all you need to know. Hence the classic complaint that if the money we paid in Social Security taxes were put into a 401k, we’d all be better off. I’ve run the numbers — I certainly would be better off.
Supposedly sites like The Motley Fool feature articles by people who know what they’re talking about. I’m here to tell you that It Ain’t Necessarily So.