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Social Security must be tackled now, not later

Posted: May 30, 2011 - 6:51pm

“I paid cash for my Social Security insurance!!!!,” read the anonymous email. “Just because they borrowed the money, doesn’t make my benefits some kind of charity or handout!!”

This person writes as if he had a contract, as he would with a product bought from an insurance company, but he doesn’t. He has a political claim, which is not as definite. As political claims go, it is one of the better ones, and he is pretty sure to get a benefit. But Congress can change the deal on him, and if he is under 45 or so, it probably will. It has done so before.

There was a court case about this. A man named Ephram Nestor, an immigrant from Bulgaria, retired in 1955 on $55.60 a month. A year later he was deported for having been a communist, and Social Security cut off his benefits.

In 1960, the U.S. Supreme Court had to decide whether he had a contract. The court said he did not. In Flemming v. Nestor, it said no worker has such a contract.

Social Security is not a program to invest an individual’s money, but a social program for one generation to pay for another. And because it is “designed to function into the indefinite future,” the court said, Congress has to be able to adjust the taxes and benefits.

That doesn’t mean your benefits are “some kind of charity.” If you paid, your claim is better than that. But you don’t have a constitutional right to a specific deal.

And for some Americans the deal will be changed — because Social Security is now running in deficit.

The Social Security “fund” amounts to a political claim to fill $2.6 trillion of the deficit with money from somewhere other than the withholding tax. But it is a claim only, not a means of payment.

“The money isn’t there. It doesn’t exist,” said Rep. Adam Smith, D-Wash., who met with The Seattle Times a few weeks ago.

He is right. It’s not.

From the mid-1980s to 2009, Social Security collected more than it needed to pay in benefits. The government spent the money and replaced it with bonds — in other words, IOUs.

If you or I had the bonds, we would be trillionaires. But Social Security is the government — and an organization’s IOUs are not an asset to itself.

It can sell the bonds inSome people seem to think the government can earn money by holding its own bonds. The Strengthen Social Security Campaign sends out a news release claiming that Social Security had a $69.3 billion “surplus” last year. But this counts the interest on the bonds — and the government cannot earn money by paying interest to itself.

Counting real money from real people, Social Security ran in the red in 2010. It was an event forecast for many years, the start of a trend. Until the benefits are lowered or the withholding taxes raised, Social Security will be in the red from now on, meaning that it will be a net drain on the federal budget. That makes it a problem now.

It is not an insoluble problem, nor the biggest one the federal government has. It does not mean the system collapses or that young people get nothing. It does mean that the financial and political questions are ripe now, and should not be put off until 2036.

• Ramsey is a columnist for The Seattle Times.

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