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Our Social Security system is in crisis.

Daniel Mitchell of the Heritage Foundation reports that “Social
Security benefit payments soon will exceed payroll tax revenues.
Beginning in about a dozen years, these annual cash-flow deficits will
begin to climb rapidly, soaring to $100 billion in 2015 and $500 billion
in 2025.” Even more
staggering is his conclusion that “promised benefits exceed projected
revenues over the next 75 years by an astounding $20 trillion — and
that is after adjusting for inflation.”

If you think this is intended to alarm, you are correct. We have a
catastrophic problem threatening the very solvency of our children’s
generation, and we have barely begun to address it. Carrie Lips of the
Cato
Institute tells us: “When today’s first-graders enter the workforce in
2015, Social Security revenue will not be enough to pay all legislated
benefits. At that time, the Social Security Administration will have to
redeem bonds by pulling $42 billion from general revenue. By 2035,
Social Security will require $786 billion from general revenue — almost
twice what the
government spends on Social Security today.”

From its inception, Social Security revenues from payroll taxes
have not been invested, as is the case with private funds, but
commingled with general revenue and spent as soon as received. The
Social Security fund is a phantom fund. The only assets it contains are
IOUs (bonds) issued by the government when it borrows from the fund.

As interest accrues on those bonds, the government simply issues
more bonds to the fund. But as Mitchell points out, the IOUs are not
real assets. Even the Congressional Budget Office admits, “Trust funds
have no particular economic significance; they function primarily as
accounting mechanisms.”

The problem lies in the fact that all of the IOUs in the Social
Security fund are offset by equal liabilities from the general revenue
fund. When one arm of government borrows from another and immediately
spends the money, the government’s net worth is not increased. It would
be like a husband continually borrowing from his wife and claiming he
was thereby enriching their marital estate.

The IOUs are virtually worthless because they are owed by another
arm of government that has already spent the money. To pay back the
fund, it will have to raise taxes, borrow money from the public or
reduce other federal expenditures. So, as Mitchell notes, “The best
possible interpretation of the Trust Fund is that the IOUs are a measure
of how much taxes will have to be raised in the future.”

Clinton’s plan purports to prolong the solvency of Social Security
by channeling the lion’s share of the budget surplus to the Social
Security
fund. For the record, if revenues from Social Security are factored out,
there is no surplus, but rather an estimated deficit of $19 billion this
year. Besides,
the plan is just smoke and mirrors because it does not propose to place
any
actual money from the “surplus” into the fund, but merely to issue more
IOUs to it.

But even if it did, Ronald Utt of Heritage notes that “the large
budget surpluses projected by the CBO ($1.6 trillion over the next 10
years) would make only a small dent in Social Security’s unfunded
liability, which
amounts to $18 trillion in today’s dollars.”

Many scholars agree that one of the best ways to solve the problem
is to privatize all or part of Social Security by allowing workers to
divert a
portion of their payroll taxes into private retirement accounts, which
will
be actually invested and available upon retirement.

According to Peter Ferrara of Americans for Tax Reform, with
partial privatization, “at even below average stock market returns,
workers of all income levels would retire with large trust funds paying
them several times the benefits promised by Social Security.” Plus, it
would erase the “$9.5 trillion unfunded liabilities of Social Security,
eliminating more real
government debt than paying off the national debt.” Ferrara also
predicts
that privatization would result in dramatic reductions in payroll taxes
and
government spending.

President Clinton’s plan to save Social Security is a ruse. Rather
than solving the problem, it exacerbates it by diverting our attention
from
working on real solutions. Republicans will shoulder equal blame for
this problem unless they muster the political courage to challenge
Clinton on his
illusory plan and advance a meaningful one of their own.


To find out more about David Limbaugh, and read features by other
Creators Syndicate writers and cartoonists, visit the Creators Syndicate
web page.

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