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Saturday, December 10, 2016

Bogus Social Security History Lesson On The Internet

Like an irritating canker sore that just won’t go away, there is a plague of propaganda on the Internet that lingers and lingers — spreading half-truths and outright lies about Social Security to millions of Americans. At least once or twice a day, someone forwards me an Internet message that claims to be providing a bit of a history lesson about Social Security. But it’s really a lesson in how to take tiny kernels of truth and twist them into big fat whoppers of misinformation.

I’ve addressed this issue before in past columns. That’s because the messages it contains have been out there polluting people’s opinions about Social Security for years. I first saw it maybe 20 years ago, being passed around via fax and snail mail and other pre-Internet forms of communication. For the past 10 years, it’s been a staple of the conservative blogosphere. And like so much misinformation on the Internet, if the message is spread far and wide enough and repeated often enough, no matter how preposterous it is, it starts to take on an aura of authenticity. So it’s time once again to set the record straight.

Although this so-called Social Security history lesson states, “It doesn’t matter if you are a Democrat or Republican, facts are facts” — it quickly reveals itself to be an attempt to convince people that the Democrats have messed up the original Social Security program beyond all recognition. In today’s column, I’ll cover about half of the allegations in the email. I’ll save the rest for next week.

Allegation: “Franklin Roosevelt, a Democrat, introduced the Social Security program. He promised that it would be completely voluntary. It no longer is voluntary.”

Fact: Participation in the Social Security program never was voluntary. Although early Social Security planners, including Roosevelt, gave some thought to making the program a voluntary one, they quickly realized it could never work that way. They figured that if given the choice, the rich would opt out of system, and a large segment of the lower middle class and poor (the very people who would need Social Security the most in retirement) would choose not to participate. Social Security would never have been the success it is today — the best anti-poverty program for seniors the government has ever come up with, giving tens of millions of Americans a stable income in retirement — had it been a voluntary program.

Allegation: “FDR promised the participants would only have to pay 1 percent of the first $1,400 of their annual incomes into the program. Today, people pay 7.65 percent of the first $106,800.”

Fact: Social Security planners, including President Roosevelt, knew from day one that as the program grew, taxation and revenues would have to grow. This is just common sense. Show me one large-scale pension plan or government program anywhere in the world that has the same funding structure it did 75 years ago! And by the way, the Social Security tax rate is not 7.65 percent, as is often stated. The Social Security tax is 6.2 percent. The other 1.45 percent of the payroll tax is used to fund the completely separate Medicare program.

Allegation: “Social Security money would be put into an independent trust fund and therefore would be used to fund Social Security and no other government program. Under Johnson (a Democrat), the money was moved to the general fund and spent.”

Fact: All Social Security monies are still deposited into the Social Security trust funds. But every nickel of those trust funds is, and always has been, invested in U.S. treasury securities. In other words, as Social Security tax collections come into the Treasury Department (and that’s at a rate of about $2 billion per day), those revenues are instantly converted into treasury notes that are deposited into the trust funds. But the actual cash goes into the government coffers and is spent for whatever purposes the government spends money on. But the point is, the Social Security trust funds still hold the Treasury notes. And every month for the past 75 years, the government has made good on its obligations to Social Security by redeeming enough bonds to cover Social Security benefits due.

This is the way the program has always worked. I usually ask critics: If you were in charge of Social Security, what would you have done with all the money? Bought Enron stock? Buried it under a mattress? Putting the money in treasury securities has always been considered the safest way to invest Social Security’s holdings.

So President Lyndon Johnson didn’t “move the money to the general fund to spend it.” What LBJ did do was change an internal government bookkeeping practice. Social Security’s income and expenditures used to be kept on a completely separate set of books. He simply added Social Security’s accounts to the general government budget. But that did not change in any way the method used to invest and spend Social Security money (as explained above).

But let’s be honest. Johnson moved the balance sheets for Social Security money into the overall government budget for one sneaky reason: All the Social Security income made the actual government deficit, caused at the time by spending for the Vietnam War, appear smaller. But please note that no president since, Democratic or Republican, has changed that little accounting trick — for the very same reason: Adding Social Security’s surpluses to the overall government ledgers makes for a rosier (albeit duplicitous) budget scenario.

Next week: more allegations and more facts.

If you have a Social Security question, Tom Margenau has the answer. Contact him at [email protected]

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