Social Security trust fund is real

In his May 14-15 letter to the editor, Tim Boley M.D., is right about a couple of things. The “government” is us, and death and taxes are certain. However, when he claims that there is no such thing as the Social Security trust fund he is either confused or dishonest.

The trust fund is real. This isn’t just a matter of the government owing the government. To understand the significance of the trust fund one has to consider the two types of federal taxes on income; the one we call payroll tax, and the regular income tax. Payroll taxes pay for Social Security and Medicare. The regular income taxes pay for everything else. These two taxes are paid by different mixes of taxpayers.

Most of the payroll tax is paid by the poor and middle class. The Social Security part of the payroll tax is 12.4 percent of wages. Wages over $90 thousand, and income from interest, dividends and capitol gains are free from payroll taxes, so the higher your income, the smaller your tax rate.

Because of this, the rich pay a very low tax rate. The Social Security payroll tax rate for a physician making $300 thousand a year would be 3.7 percent instead of his receptionist’s tax rate of 12.4 percent. The CEO of the bankrupt United Airlines made $1.1 million last year making his effective payroll tax rate 1.0 percent. A rich person living on inherited investments, instead of working, pays no payroll taxes at all.

On the other hand most of the revenue from regular income taxes is paid by people at the upper end of the income scale. The doctor and CEO in our example might pay a 30 percent income tax rate while their receptionists pay at a much lower rate. Some really poor working people may pay no income tax at all.

The Social Security trust fund is made up of the surplus payroll taxes paid in over the last two decades. The tax increase that led to this surplus was done deliberately to build up a savings account (trust fund) that would fund the the baby boomers’ retirement. This was suggested by Alan Greenspan and made sense to any fiscally conservative person.

We wouldn’t have a significant Social Security problem if the the government (us) hadn’t decided to borrow from the trust fund and promise to pay it back later, rather than using income tax revenue to pay for government spending. So instead of cash we have the equivalent of government bonds in the trust fund. The government owes this money to the trust fund as surely as it owes others that hold government bonds.

For Dr. Boley to say there is no trust fund makes no more sense than for him to say that he has no money saved because he invested in U.S. treasury bonds instead of stashing money in the mattress.

To summarize, the money in the trust fund came from “payroll” taxes paid mostly by the poor and middle class, whereas the cuts in income taxes made possible by borrowing this money went mostly to high income people.

True to form in looking after the rich, the Bush administration now doesn’t want to repay the money borrowed from the trust fund. President Bush has repeatedly said the trust fund will be bankrupt in a few years implying the surplus in the trust fund isn’t really there.

The same Alan Greenspan who argued to raise the payroll tax and build the trust fund now, along with President Bush, apparently thinks we shouldn’t pay back this money taken from the trust fund and should instead cut benefits to baby boomers and other retirees.

The Bush administration is very keen to make families who have filed for bankruptcy take responsibility for their debts and has recently managed to pass a law to put the squeeze on them. His position on taking responsibility for the money borrowed from the Social Security trust fund seems to be different.

The argument that the trust fund isn’t real or shouldn’t be paid back is clearly an argument to reduce income taxes paid mostly by the rich, instead of repaying the money borrowed from the trust fund which came mostly from the middle class and poor.

When such inconvenient facts are mentioned, Republicans often whine about class warfare. The real class warfare is not paying back the trust fund and instead reducing Social Security benefits. These proposed cuts would mean little to the rich but are vital to keep a roof over the heads and food on the table of those who are not rich.

John Alexander, of Old Town, is a retired civil engineering professor at the University of Maine.