Putting the Squeeze on Social Security

By Gus Tyler

Published June 18, 2004, issue of June 18, 2004.
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The Social Security system upon which millions of retired Americans depend for their daily bread is in danger. And it is not due to any inherent faults within the system itself. Indeed, the Social Security system is, by far, the most successful profit-making operation that Uncle Sam ever has run.

Created in 1935, the system began to pay out benefits immediately to those retiring without waiting to accumulate surpluses. How was that possible? It was a pay-as-you-go system. The contribution of those employed carried those retiring. Today, the system has multiple sources of income. It has accumulated assets of approximately a trillion dollars. It gets approximately a 6% return on that investment — or approximately $60 billion a year. It also draws income from taxes paid by retirees on the benefits they receive.

Despite these pluses, there is one great minus. Its name is George Bush, whose policies may well turn the profitable plan into a pitiable pauper. Here’s how.

By law, all the assets of the Social Security system must be invested in federal government securities. The reason is that those who wrote the law knew only too well from their recent experiences with The Great Depression that no corporation — no matter how high and mighty — was the safest place to put money. They wanted the money to be invested someplace where the “full faith and credit” of Uncle Sam stood behind every buck.

The assumption was that Uncle Sam would have the money to rescue the Social Security system if its current income began to fall behind its current expenses. But in light of the incredible deficits that the Bush administration is now piling up that will add trillions to the debt burden of Uncle Sam, it is highly dubious that Bush or his successor will have the means to meet the government’s sworn obligations.

The only way out, in this squeeze, as in other times with other countries, would be to do what Germany had to do after World War I; namely, relieve its embarrassment by resorting to the printing press and turning out paper money that is hardly worth the paper on which it is printed.

This was not supposed to be what Bush promised and predicted. He told the nation that his tax cuts to enrich America’s riches would drip down to everyone and would so stimulate the economy that Uncle Sam’s income would rise and the Treasury would be registering surpluses. Actually, the tax cuts did just the opposite. The gift to the richest has been depriving the U.S. Treasury of multibillions. And, some of the first victims will be those on retirement and those soon to retire.

But that is only part one of the ruinous Bush-backed policies. He has been advocating a policy of allowing workers to withdraw from the system that invests their contributions in U.S. government securities and to put their money into Wall Street. In effect, he is suggesting that corporate securities are safer than his very own U.S. Treasury securities. If so, why should anyone buy U.S. Treasury “securities”?

But — a big “but” — every dollar that a worker entrusts to Wall Street is a dollar less contributed to the Social Security Trust Fund. That would speed up the Social Security Trust Fund’s need to appeal for help to a U.S. Treasury that would itself be a helpless, hopeless, heap of papier-mâché.

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