The Social Security Trust Fund: A Dangerous Illusion?

Not only will the federal budget register a $1.75 trillion dollars deficit in 2009, but the Obama administration is going to add to the public debt another $4.9 trillion over the next years. Furthermore, the recession brings about an even worse entitlement crises. Darren Gersh, Washington, D.C. bureau chief for the Public Broadcasting Service (PBS), finds that early retirements, cost of living adjustments and lower payroll tax receipts will bring an end to Social Security surpluses.

The Congressional Budget Office estimates a Social Security surplus of $16 billion this year and of $3 billion in 2010. Overall, the recession is estimated to shave more than $150 billion from Social Security surpluses over the next three years.

Darren Gersh received some positive information from Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare. Barbara Kennelly considers there’s nothing to worry about as Social Security has a $2.5 trillion trust fund. Heritage scholars David John and Brian Riedl consider this information to be illusory.

David John and Brian Riedl acknowledged the existence of a Social Security Trust Fund that exists since 1930. The trust fund was created to store money and later pay it to baby boomer retirees. But the scholars pointed that since 1939 Social Security is required by federal law to invest any extra funds in Treasury bonds. This means that the Treasury already spent the money and repaying Social Security will be impossible. And so, the taxpayers will be the ones to fund Social Security with enough cash to cover more than 40 million baby boomer retirees.

As the scholars pointed, the situation is similar to that of a family that constantly takes from its retirement fund and pays for expensive vacations. When the family members begin to retire, they will find only paper IOUs instead of retirement funds.

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