No, social security is not the piggy bank of Congress – The Motley Fool

For better or for worse, social security is the most important social program in our country. It is responsible for preserving tens of millions of beneficiaries of poverty each month and has been instrumental in establishing a financial base for retired workers, the long-term disabled and the survivors of deceased workers. .

It's also a program responsible for the myriad of myths and misconceptions. According to the latest Social Security Administration Board report that predicts serious problems for the program in the near future, the American public, whether it knows it or not, points fingers and plays the game of reproaches. In particular, the federal government has been identified as responsible for the social security mess. And while I do not disagree with this statement, the public blames Congress for the wrong reason.

Source of the image: Getty Images.

Social security is not the personal piggy bank of the federal government

One of the most popular theses among the public is that Congress has mismanaged, stolen, raided, hijacked or otherwise escaped with the money that hardworking Americans have invested in the social security program. Browse virtually all popular social security articles on social media and you will inevitably find a comment (or 10) on the fact that if the legislator "makes money that he stole, with interest, the program would be fine ". Notice it, it's a bit of paraphrasing and ad-libbing on my part, but there is no denying that the American public believes that it is the main source of social security problems .

However, the truth is that Social Security is not the piggy bank of Congress. In reality, the social security program and Congress have a symbiotic relationship that benefits both entities in the long run.

Every year since 1982, social security has generated a net financial surplus. In other words, its revenues generate more than its expenses via the benefits payments, administrative expenses and the Railroad Retirement exchange payments. This extra money does not just rest in a safe collecting dust. If this were the case, capital would be misused as it would eventually lose inflation almost every year. Under the law, the net cash surplus must be invested in bonds and special issue debt certificates. So, instead of holding cash, the Social Security & Trust Trust holds nearly $ 2 trillion worth of bonds.

Describing things in terms easier to understand, the SSA lends money to the federal government in return for an annual interest payment. It's so simple.

Source of the image: Getty Images.

This is a mutually beneficial arrangement

Some people simply do not like the idea that the federal government borrows money from the Social Security Trust, especially because it is their hard-earned money that is used to finance various federal budget items, such as defense spending and wars. . But if we take a step back and look at this arrangement, it is actually beneficial for both parties.

On the one hand, the federal government has easy access to a multibillion-dollar loan capacity that it can use to fund everything from defense spending to education. In the federal budget, there is not a single item in the budget where borrowed funds from Social Security end up, so saying that it will only fund wars would not be accurate. The advantage of having this borrowing capacity means that you do not have to rely on foreign countries to buy billions of dollars of US debt to finance the federal budget.

On the other hand, being able to lend to the federal government allows social security to generate interest income on its asset reserves. Given the various maturities and returns of its investments, the Social Security Fund generates a return of 2.87% on an asset of $ 2.89 billion in September 2018. Last year, $ 85.1 billion $ 996.6 billion dollars raised by the program was income. In short, the federal government is already paying interest on borrowed money.

In addition, these loans are guaranteed by all the confidence of the US government, which means that there is virtually no chance of default. Every cent that should be in the confidence of social security is accounted for by its investments.

Source of the image: Getty Images.

Here's why you should blame Congress

Rather than reprimanding Congress for borrowing money from Social Security, head the Capitol Hill legislator for thumbs up while two quick fixes are currently under study.

Democrats in Washington have long been supportive of raising or removing the 12.4% taxable income tax cap. In 2018, earnings earned up to $ 128,400 are subject to the payroll tax, while any amount over that amount is exempt. In 2016, revenues of $ 1.2 trillion escaped the payroll tax on social security, according to the SSA. By increasing or eliminating this tax, additional revenue would be collected, which could help fill the estimated $ 13.2 trillion cash gap facing the program between 2034 and 2092.

At the same time, Republicans have proposed raising the maximum retirement age of up to 67, which should be reached by 2022, perhaps reaching 70 years. This would require future generations of workers to wait longer before receiving their full pension, or to accept a larger reduction in their monthly payments if they claim earlier. In both cases, this would reduce the lifetime benefits paid to future retirees, saving the program money and eliminating the shortfall until 2092.

Both solutions operate autonomously, which is why neither party has been encouraged to cooperate with the opposition. However, a combination of the two solutions would probably work even better. Unfortunately, political pride prevents this from happening.

If you (justifiably) want to blame Congress for something, blame its lack of initiative to work together to resolve the most important social agenda in the United States when clear solutions already exist.