NEW YORK, Sept. 29, 2003 (PRIMEZONE) -- FEATURE ARTICLE -- The following commentary is by David John, a research fellow in Social Security and financial institutions for The Heritage Foundation:
The sad truth about the Social Security trust fund is that it is really just a way to increase income taxes. Unlike private sector trust funds, Social Security's does not actually contain any money, stocks or other items that most of us consider to make up a trust fund. Instead, it is filled with IOUs that a future Congress will have to raise your taxes to repay.
It is true that for the last 20 years, Social Security has been collecting more taxes than it needs to pay benefits. These additional taxes were supposed to be saved and used to pay baby boomers' retirement benefits. Unfortunately, they were spent instead.
Excess payroll taxes that are not needed immediately to pay benefits are loaned to the government in return for special-issue treasury bonds. The bond acts as an IOU and promises to provide general revenue funds in that amount plus interest when Social Security needs additional money to pay benefits. After the trust fund has been credited with the IOUs, Social Security's extra tax collections are treated just like any other tax and spent to pay the government's bills.
This is not a recent development. Social Security has operated this way since the mid-1930s. Now the day of reckoning is coming faster than most of us would like. In less than 15 years, Social Security will begin to spend more in benefits each year than it will receive. At that point, it will begin to return the trust fund bonds to the Treasury Department and ask for cash that it will use to pay benefits.
Within about five years after Social Security first needs to cash in the trust fund, Congress will have to come up with more than $100 billion a year. Shortly after that, the amount will climb to more than $200 billion a year. Over time, it will be in the trillions of dollars.
Where will the money come from? The short answer is our taxes. Those bonds will be repaid from extra income taxes collected from those who will be working in those years. This means that in addition to paying 100 percent of your own Social Security payroll taxes -- and enough income taxes to pay for a federal government that is at least the size of today's -- you will be paying more income taxes to pay back the trust fund bonds that are being issued today.
So the next time a politician tells you not to worry about Social Security because there are loads of bonds in the trust fund, all he or she is saying is that your taxes are going to go up -- way up.
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