K-12 tax & spending climate: Entitlement Liabilities Are a Graver Threat to the Next Generation of Americans Than Climate Change

John Phelan:

On January 31, 1940, Miss Ida Fuller received a check for $22.54. She was the first person to retire under the Old-Age, Survivors, and Disability Insurance (OASDI) scheme, better known as Social Security. At the time of her retirement in 1939, she had paid just $22 in Social Security taxes. Ms. Fuller lived to be 100, cashing over $20,000 worth of Social Security checks.

If she had only paid $22.54 in contributions, where did the $20,000 Ms. Fuller received in Social Security payouts come from? It came, as it does now, from the taxpayers of the day. As of 2019, your employer deducts 6.2 percent of your wages up to $132,900 a year, matches this amount, and sends it to the Social Security Administration (SSA). The SSA deposits this with the Treasury, which spends it and receives Treasury bonds in return. This is the fabled trust fund that guarantees Social Security.

But these Treasury bonds are simply IOUs redeemable against the income of tomorrow’s taxpayers. When one of the Treasury bonds held by the SSA falls due for payment, the Treasury can only get the funds to meet this liability by taxing, borrowing (taxing the taxpayers of tomorrow), or printing money (imposing an inflation tax). In each case, what really guarantees Social Security is not the money you paid in but the earnings of today’s or tomorrow’s taxpayers.