Biggest Embezzlement of All Time
July 23, 2001
Stanley C. Simon
The IRS collects income taxes, FICA, and other taxes. The
income taxes go into the General Fund, where they are spent
on various government expenses and paying government obligations
held by the public. FICA taxes go into the Social Security
Trust Fund, where they are spent to pay OASDI benefits. Any
excess of the FICA taxes collected over the amount needed
currently to pay OASDI benefits is used to buy government
bonds. This transfers the money into the General Fund, where,
again, it is spent on various government expenses and paying
government obligations held by the public.
As a result of changing demographics, actuaries expect OASDI
benefits paid to exceed FICA taxes collected starting about
2011. The government bonds owned by the Social Security Trust
Fund should be sufficient to cover the shortfall for about
15 years. The money to pay these government bonds will come
from the General Fund, ie., from income taxes. After about
2026, the Social Security Trust Fund will be bankrupt.
On June 24, 2001, President Bush's economic speech writer,
David Frum, appeared on C-Span's Washington Journal, where
he said, "There is nothing in the Social Security Trust Fund
except accounting entries." Also on June 24, 2001, the Secretary
of the Treasury, Paul O'Neill, appeared on ABC, where, of
the Social Security Trust Fund, he told Sam Donaldson, "Private
pension plans are required by law to be funded with real assets."
Private pension plans which own government bonds think they
own real assets. Indeed, because the bonds are backed by the
full faith and credit of the United States, the plans think
they own the safest assets available. The Social Security
Trust Fund is required by law to invest its surplus in government
bonds because they are the safest assets available.
These remarks by Frum and O'Neill imply that the goverment
bonds owned by the Social Security Trust Fund will not be
paid when the money is needed to pay OASDI benefits. Perhaps
they think the President will be unwilling to propose a budget
that includes enough income taxes, or that Congress will be
unwilling to impose enough income taxes, to pay these bonds.
It is easier for the Bush Administration and the Republicans
in Congress to justify the tax cut if they do not intend to
pay these bonds.
The Social Security Trust Fund now owns over $3 trillion
in goverment bonds. In 2011 it will own much more. If the
General Fund defaults on these bonds, it will be the biggest
embezzlement of all time.