Social Security taxes and implicit debt

[National Dialogue Moderator <moderator>]

      A Few Words about Social Security Taxes and Implicit Debt

Don Hutchison ("Q to C. Weaver") is generally right in his
characterization of what happens to an individual's social security
taxes.  Workers' social security taxes are collected by the U.S.
Treasury and credited, in the aggregate, to the trust funds.  (The
Social Security Administration doesn't receive your taxes or even
know how much you pay; SSA knows your earnings since that is what's
needed for calculating benefits.)   If there are surplus revenues
after paying benefits, the excess is invested in government bonds,
thus making the surplus revenues available to finance the general
operations of government.  The bonds give the trust funds a claim
on the general fund to be made good later.  The claims come due
when the trust funds start running cash flow deficits.  The government
then has to come up with the cash--either by raising taxes or
cutting spending, or, if the non-social security portion of the
budget is in surplus, by diverting some of those surplus funds to
social security to help pay benefits.

What workers get when they pay social security taxes is an implicit
promise of future benefits--an IOU from the government that is not
backed up by a government bond or by other assets.  Thus the unfunded
liability.  The formal IOUs issued to the trust funds (the new
special-issue bonds on account of surplus taxes) are dwarfed by
the informal or implicit IOUs extended to workers each year.

That's the way a system financed on a pay-as-you-go basis works.
While there always have been some who have questioned the "fairness"
of this arrangement, it is only recently that the concern has become
more widespread.  Part of the reason, I suspect, is that fairness
seems like a less pressing issue when people are generally faring
very well.  With the passing of time, successive cohorts have not
fared so well and younger workers can expect to fare quite poorly.
Fairness seems like a much more pressing issue.  Increasingly,
there are concerns expressed about the fairness of social security
across and within generations.

Carolyn Weaver