Washington numbers are miraculous - and ridiculous 03-25-2011

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Column by Jim Flynn

Of all the deceits perpetrated by government, one of the longest running has been the fiction that FICA taxes are premiums on health insurance policies and retirement annuities – guaranteed by the largest insolvent insurance company in the world, the U.S. Treasury.

The histories of Social Security and Medicare are lengthy. One anecdote reveals the general flavor. When President Franklin Roosevelt’s Secretary of Labor submitted the Social Security program for his review in 1935, he discovered the program was not fully self-supporting, as he had ordered. It would need general treasury subsidies by 1965.

Mr. Roosevelt ordered his number jugglers back to work, and in just a few days the plan he presented to Congress projected a $47 billion surplus by 1980 without any subsidies from the general treasury. In Washington, numbers can become miraculous overnight.

By the 1960s, President Lyndon Johnson was looking for ways to finance an endless war in Vietnam and create the Great Welfare Society. LBJ figured there had to be surplus FICA tax money somewhere in Washington, but even the FBI couldn’t find it. So Johnson did the next best thing. He had accounting for FICA receipts transferred to the general treasury books in order to balance his bloated budgets.

Thereafter, doing what it does best, Congress spent FICA taxes as soon as they were collected. FICA income became just another source of tax money to be spent for all sorts of good ideas. Every Washington politician has a list of good ideas.

To keep things looking kosher on the books of the Social Security Administration (SSA), Congress suggested they keep track of how much FICA money the Treasury had borrowed. SSA dutifully made notations in a large ledger kept in an otherwise empty filing cabinet (the mysterious, mythical lock box). No IOUs were necessary. After all, no branches of government are more trustworthy than Congress and the U.S. Treasury.

When trolling for votes, Congress can make even miraculous numbers disappear.

In 1956 they had added disability benefits without a tax increase. In 1961 they added early retirement – no tax increase. In 1975 they added cost-of-living adjustments, without a tax increase. Mr. Roosevelt’s pipe dream of a $47 billion surplus by 1980 had evaporated in the highest priority of Congress – buying votes to get re-elected.

By 1977 SSA advised Congress their projected money miracles were dissolving, so Congress appointed a commission to fiddle with the formulas and tinker with the taxes.

In 1981, after lengthy deliberation, the Greenspan Commission recommended tax and benefit changes which would guarantee pay-as-you-go solvency and surpluses for the next 75 years. All would be well at U.S. Treasury Insurance Company of America until 2058 – another Washington miracle!

Alas, the miracle was short-lived. SSA now has $2.6 trillion in surplus IOUs. That’s money which would have to be borrowed by one branch of government to pay back another branch of government - sort of silly when given some thought.

Miracles are also tricky. In 2009 SSA said their surpluses would continue to accumulate until 2016. Just a year later, in 2010, they ran a deficit. That’s the 26th time since 1947 that Social Security has received millions of dollars of support from general revenues of the Treasury. And that’s why Social Security is called an entitlement. Nobody knows how much will be spent from year to year.

Entitlements of various kinds, including Medicaid, food stamps, agricultural subsidies, and other open-ended federal support programs are presently 47 percent of total federal spending. By 2020 they will be 64 percent, and by 2030 up to 70 percent. By then U.S. Treasury Insurance Company of America will be out of business. And so will the U.S.A.