The Truth About the Trust Fund

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Veronique de Rugy hauls out a familiar argument today: we can’t rely on Social Security’s trust fund to keep it healthy for the next few decades.

In practice, [] the trust fund and interest payments it receives are simply accounting fiction. For years, the federal government has been borrowing the Social Security Trust Fund assets for its daily spending. The fund has nothing left in it except IOUs from the federal government. In fact, even the interest is paid in IOUs.

Hence, the only way Social Security will not go into the red this year and in future years is if the federal government pays back Social Security. But since the money has long ago been consumed, it must borrow money from the public or raise taxes to pay its Social Security debts.

It’s true: from a purely fiscal point of view, the Social Security trust fund is a fiction. But while this is true as a bare fact, the implications of this argument are pernicious and need to be vigorously confronted whenever they rear their head in public. Here’s why, in the simplest possible terms.

Back in 1983, we made a deal. The deal was this: for 30 years poor people would overpay their taxes, building up the trust fund and helping lower the taxes of the rich. For the next 30 years, rich people would overpay their taxes, drawing down the trust fund and helping lower the taxes of the poor.1

Well, the first 30 years are about up. And now the rich are complaining about the deal that Alan Greenspan cut back in 1983. As it happens, I agree that it was a bad deal. If it were up to me, I’d fund Social Security out of current taxes and leave it at that. But it doesn’t matter. Once the deal is made, you can’t stop halfway through and toss it out. The rich got their subsidy for 30 years, and soon it’s going to be time to raise their taxes and use it to subsidize the poor. Any other option would be an unconscionable fraud.

1For a slightly more detailed version of this explanation, see here. Note that “poor” is actually shorthand for both the poor and the middle class, while “rich” actually means both the rich and the upper middle class. This distinction comes into play because payroll taxes, which have built up the trust fund for the past 30 years, are primarily paid by the poor and the middle class, while income taxes, which were kept artificially low over that same period and will soon need to raised in order to pay off the trust fund debt, are primarily paid by the rich and the upper middle class.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America will move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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