Our Dumb Trust Fund

Ever wonder why we need a trust fund for Medicare and Social Security, but not for other stuff? Congress creates spending obligations all the time – as it did recently with the Farm Bill. So if the US can borrow to meet its obligations to Monsanto and ADM, cant it also finance granny’s hip replacement and grandpa’s groceries? Hell yeah.

It’s all just taxes and spending. We could just as easily have a Farm Bill Trust Fund and-or a Defense Contract Trust Fund – and if they get depleted, Congress could send big companies a big apology instead of a big check. The difference is that – unlike defense contractors or hedge fund managers or the usual beneficiaries of Congressional largesse, for whom the US has incurred a sizable debt – the US by law cannot borrow to pay for medical care or pensions for the elderly. That stuff has to be paid for in advance – and here’s the kicker: it has to be paid in advance by wage earners.

And thus we have the farce known as the Social Security and Medicare Trust Funds. They have unnecessarily taken TRILLIONS out of the paychecks and pockets of ordinary wage-earners – shifting the tax burden off of the relatively wealthy who pay ordinary income taxes – onto low-wage-earners who primarily pay payroll taxes.

Faux News is fond of recrapping their grand old dropping – that 50% of all Americans pay no income taxes. Faux Newsmodels, it seems, have never inspected a McWorker’s W2. On it, they’d discover that payroll taxes (AKA FICA) are applied as a FLAT TAX ON INCOME, from dollar one, on up to $114,000 – no deductions, no exceptions. You may be a student, you may be on Food Stamps, you may be making $7.25 per hour – tough luck, bub, pay up. Combining the shares paid by employee and employer, it amounts to a flat tax of 15.3%. Hedge Fund Managers – if you’re curious – pay a flat tax of 15%.

FDR’s original rationale for the trust fund was innocent enough: to keep those tax receipts separate from general revenue, so the government couldnt use them for other purposes. But that admirable aim has been perverted, and Social Security has been changed from pay-as-you-go into pay-in-advance, socking it to the working poor.

As any CFO will tell you: it’s way better to have the benefit of something today, while paying for it tomorrow. Tax-deferment is big business – when it comes to paying taxes, later is better.

ADM and Monsanto dont have to worry about the solvency of some government trust fund to be assured that their corporate welfare checks arrive on time. Congress can be relied upon to send them their Christmas Bonus via a “Farm Bill.” And deficits dont matter – as long as the money’s going to their campaign donors, Congress is happy to throw it around. Unemployment Insurance? Cant afford it. Social Security? Gotta pay in advance. Agriwelfare? Step right up!

Ironically, this is a special time for the Trust Fund. For most of the past 30 years, the Trust Fund served to jack up taxes on low-income wage-earners. For now, the Trust Fund is roughly breaking even. But when the debate begins again, as it always does, the usual Very Serious People will make Grand Claims that we (meaning: you) need to shore up Social Security and-or Medicare for the next 75 years – by jacking up payroll taxes on working people today. It’s a lie.

Old age insurance, disability and health care for the elderly is no different from defense spending or cushy tax regimes for the super rich – it involves taking money from some people and giving it to others. Rich folks get the benefit of financing – poor people should too.

Refs:

http://www.theatlantic.com/health/archive/2012/03/overhauling-the-farm-bill-the-real-beneficiaries-of-subsidies/254422/

http://mediamatters.org/research/2011/04/12/fox-still-pushing-falsehood-that-half-of-americ/178594

http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

PS David Cay Johnston devotes a chapter of “Perfectly Legal” to attacking the rationale behind the Social Security Trust Fund – 10 yrs since he wrote it, its still worth a read, as is the entire book.

PPS It really doesnt matter if the assets in the Social Security and Medicare Trust Funds are worthless IOUs (as right-wing wingnuts insist), or the safest securities on planet Earth (per their worldwide capital market valuation). If they’re worthless, then the debt they represent is also worthless – which conveniently reduces the debt by $5T, creating lots of extra borrowing room. If the assets are real, you dont need the extra borrowing room – you’ve got assets. The value/valuelessness of the Trust Funds is a red herring –

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