Sending the excess to individuals for investment might have worked, but somehow I doubt that’s what Al Gore had in mind for the money.

So I’ve been sitting on that knowledge and, especially, that particular quote since 1975, trotting it out (usually to little effect) when someone talks about how “Congress stole the money from the trust fund.” The global point is that Social Security has been lousy public policy since its inception.

(It was also dishonestly sold as “insurance” during the mid-1930s to get it enacted by Congress. See the late John Attarian’s 2003 book _Social Security: False Consciousness and Crisis_ or check out his ~half-dozen pertinent articles at the Lew Rockwell website.)

Perhaps the “trust fund” monies **could** have actually been invested in the private, wealth-producing economy, but the net financial flows have, until recently, been so large that you can just imagine what a political football the necessary investment choices would have been.

Of course, money is fungible, and if Congress had been devoting resources — whether nominally coming from the Social Security inflows or not — to capital investments (e.g. public infrastructure, applied research [perhaps ... that can be a political football, too!], …) instead of, mostly, current consumption, the country would now be facing less of an abyss.

To call Social Security a “Ponzi scheme” is, ultimately, to recognize that its problems (and Medicare’s problems) are rooted primarily in demographics. In short, promises were made that can’t possibly be fulfilled. (I haven’t studied Paul Ryan’s “Roadmap” plan in sufficient detail yet, but I have the impression that some parts of it are escapist. However, I’m delighted by his seriousness and focus, so much a contrast to most of his colleagues — and most citizens.)

Beyond that, the last tinkerings of the Social Security taxes were:

- The FICA/SECA tax rate went up to 12.4% (the FICA split evenly between employee and employer) in 1990 as part of the 1986 rewrite of tax law, itself an implementation of the 1983 “forever” fix.
- The rate of the taxation of benefits last went up in 1993, as part of Bill Clinton’s biggest-up-until-PlaceboCare/Cap-and-Tax tax hike.
- The split between the two halves of Social Security was last adjusted for 2000 (the DI portion went up to 1.8% of total FICA/SECA from 1.7%, again with FICA split evenly between employee and employer, and the OASI portion going down to 10.6% from 10.7%).

Other than Bush, Steve Forbes, and Paul Ryan, nobody offered any serious reform to Social Security in the last decade.

I have heard people praise Social Security and Medicare as examples of socialist programs that work. They have good benefits but, the fact that each is going bankrupt, demonstrates that they do not work. I may buy a Rolls and realize that it is a wonderful car but that would mean little after a visit from the repro-man.

And Social Security revenues have ALWAYS been thrown into the general fund, no matter what they call the accounting method. It was always that way, by design and for lack of suitable alternatives.

From _The Cost and Financing of Social Security_, by Lewis Meriam and Karl Schlotterbeck (Brookings Institution, 1950), p. 155:

“The establishment of the Trust Fund has given an aura of soundness and solvency to the OASI [Old-Age and Survivors Insurance] system. Many believe that this reserve fund ‘earns’ income in the same sense as do private insurance reserves; that, if need be, all claims could be met by liquidation of the reserves; and that an individual, with his final payment of OASI taxes, will have paid in full for his retirement benefits.

“The operation of the OASI Trust Fund is NOT [emphasis in original] similar in character to that of a private insurance company. Private insurance reserves (…) are usually invested in projects that directly participate in or promote the production of goods and services. These investments are procreative in character and thus ‘earn’ income. Furthermore, they are assets of the insurance company reserve, but they are liabilities of OTHER [emphasis in original] enterprises. The OASI Trust Fund is invested in federal government securities. Since the money is used by the government in meeting its regular expenditure requirements, no real reserve is created. The obligations of the government (liabilities) deposited in a trust account do not represent assets; they merely record future obligations which can be fulfilled only through the levy of future taxes upon the economy in general. The Trust Fund is thus a fiction — serving only to confuse.

“The explanation of the failure to establish trust fund assets analogous to those provided by private insurance companies is presumably that the sums ultimately involved are so stupendous that available investment securities of productive enterprises would not be adequate for the purpose. The deposit of its own liabilities in a so-called reserve fund thus appeared as a happy solution to the problem.”

¡Viva la fiesta de té