Vail Daily letter: Another IOU
Vail, CO, Colorado
David Le Vine, in his letter published March 21 (“Social Security’s bad rap”), tries to convince us that the federal government is not as inept at handling our money as we all think.
However, he leaves out several important facts. In 1968, Congress, during the Johnson administration, made it legal for the government to borrow from the Social Security trust fund.
The only restrictions were that enough must be left in the trust fund to pay current obligations and that it must be repaid with interest.
This is exactly what has been happening for the past 40 years with the government spending this borrowed trust-fund money on other programs. This government debt to the trust fund is in the form of U.S. government securities. So the $2.5 trillion that Le Vine refers to is actually an IOU and part of our massive national debt.
How is this debt repaid to the trust fund? By taxpayers. So we all have been paying payroll taxes to Social Security and now must pay taxes a second time to repay the money the government borrowed from the trust fund.
There are several arguments that are used by supporters of this tactic:
1. Businesses do this all the time. Except that a business borrows to buy material or equipment to make profits and uses part of that profit to pay back the debt. The government does not do this, as it does not produce anything. Its only source of money is the taxpayer.
2. The money the government borrows from the trust fund and spends stimulates the economy. This is called the “multiplier effect.” Every dollar of government spending will generate $2 to $3 of private-sector expansion. In a Harvard study, it was found that since 1912, for every dollar of government spending, only 80 cents was added to the gross national product. I don’t know how long your business could survive with this negative return.
On Sunday, Congress passed a massive takeover of health care insurance. We will start paying taxes into yet another trust fund as soon as it is signed into law. I wonder how much will be left in four years when the government has to start paying out. An IOU?