Social Security should concern you

Why talk about Social Security when Medicare is on life support? Because having examined the problems in Social Security professionally for many years, I find myself almost as concerned.

Social Security, the nation's biggest social program and an operation that has helped finance the rest of government for 25 years could become a cash drain much sooner than projected. From the data I am seeing, Social Security could run red as soon as this year.

Let's step back in time to 1935. Franklin D Roosevelt set up Social Security to look like an insurance company and a funded benefits program when in fact it is neither. It is not a Ponzi scheme either, as detractors like to call it. Ponzi schemes use money from today's investors to pay yesterday's investors and lie about it. Social Security is an intergenerational plan with today's workers supporting today's retirees (and the disabled and survivors) in the hope that their children will support them.

What I love (and I mean that sarcastically) about Social Security is that it exists in its own little world. In their world, taxes are called contributions (not voluntary). The trust funds, which in the real world mean real wealth bestowed upon beneficiaries, are nothing but IOUs from one arm of the government to another. Solvency, in the real world, means that assets are greater than liabilities, but with Social Security's wacky accounting, it means a positive balance of IOUs in trust funds.

The truth is that the trust funds are just an accounting entry. It is Social Security's cash flows that pay benefits, not some big savings account somewhere. It is a pay-as-you go system based on the taxes being paid by those currently employed to those who are collecting benefits.

Let me explain what the trust fund actually is to understand why I am concerned. Currently this fund holds about $2.5 trillion in treasury securities and is projected to grow to $4 trillion even as Social Security takes in far less cash in taxes than it spends in benefits. The fund gets interest from the treasury in IOUs. In other words, this fund is paper, not cash.

For those who think that money collected from their paychecks is sitting at Social Security until it is their turn to collect, I have bad news. Some of your money is going to pay current benefits, some to fund the rest of government.

So what happens when it is your turn to collect?

The Social Security trust fund will ask the Treasury to redeem government securities. How would the Treasury get the cash to make the redemption? They would have to sell new Treasury securities to outside investors like China. That means that your benefits would move from the debt that the government owes itself to debt owed to outside investors. That increases the national debt, something we should all take very seriously.

Remember when I said that Social Security has an accounting system all its own? Their bean counters never predicted the current unemployment we are having now. The idea that Social Security has surpluses that will last for many years is not a reality in the world of real accounting. Current unemployment is much higher than ever expected and that means a lot fewer people paying into the system. Fewer paying, more collecting, and that is before the glut of 80 million baby boomers start trying to collect benefits. I am not liking what I see. Neither are our young people, who see little hope of ever collecting anything.

Due to space limitations, I am going to continue the series on Social Security in greater depth next time. I believe knowledge is power. When the subject of Social Security comes up, most people know little or nothing about its inner workings.

The same holds true for our health care system, but the problems are far more complex. The hard to dispute truth is that the Social Security trust fund isn't social or secure, has no funds and cannot be trusted.

I know retooling our health care model is the current hot topic and no one really wants to hear more bad news, but the biggest bailout of all may be on the horizon and we must handle it the right way.

• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at carol

_perry@worldnet.att.net or 267-5358.