Social Security is one of the most financially burdensome social welfare programs ever devised. This entitlement accounts for about 24% of federal spending every year. While the system is clearly unsustainable, our elected officials in both parties are unwilling to reform it.

Currently, somewhere around a quarter of our national debt is owed to the Social Security Trust Fund. So those that say that politicians raid the Social Security Trust Fund to pay for other things are not entirely correct. Social Security still gets funded and paid because by law it is a separate tax outside of other federal revenue. In reality, it is the national debt that increases and with it the interest owed on that debt (the debt now totaling nearly $20 Trillion and the interest on that debt is about 6% of annual federal spending). Just take a second to re-read that. In order to afford our current federal spending, we actually borrow from ourselves out of the Social Security Trust Fund surplus (which was set up to hold Social Security contributions until they were paid out as benefits- but which the law mandates can only be held as U.S. treasury bonds). This increases the national debt in order to mandatorily spend 24% of our annual budget on Social Security benefits, which then drives the need to borrow more money from the Social Security Trust to pay for other programs thereby increasing the national debt and so on and so on and so on… Don’t worry my head hurts too. I don’t have a PhD, but that sounds somewhat unsustainable. Look on the bright side though; if we ever default on our national debt, at least we are just screwing ourselves out of something we were all gullible enough to believe we were entitled to.

So is there a way to fix this mess? Yes but it might be too late. We must get the money away from the politicians and to the people entitled to it. Annual surpluses in the Social Security Trust Fund should not be borrowed by the federal government, in the form of treasury bonds, as the current law mandates. Instead, that surplus money should be given directly to the people it is meant for in private accounts, which the individuals cannot touch until they start collecting Social Security benefits.

Right now, the system serves as a way for politicians in both parties to rack up debt and spending without being held to account. Since it is owed to Social Security, people regard it as a simple IOU. However, it is not an IOU, the Social Security Trust Fund owns bonds, and the truth is that those debts are just as real as the ones owed to China. When Social Security begins having to pay more in benefits than it amasses from taxes, the fund will come collecting on those bonds in order to compensate. The vicious cycle of borrowing will get that much more unsustainable.

We need to rethink the entire premise of Social Security and phase it out. When there are more people drawing benefits than working, there are only two possible actions of recourse to cover the difference. Either raise taxes or raise the national debt. This would be painful even if Social Security had been managed responsibly in the past. However given how that went, the future effect of Social Security on the financial well being of the country will be truly catastrophic if we lack the courage to make massive changes to something we feel entitled to receive.

As always, the New Third Way is in favor of personal freedom and responsibility. We know what best to do with our money, including how to prepare for retirement. The government cannot even balance a budget (or simply produce one in some years), so why on earth would we rely on them to financially plan our retirement? I sure won’t, and I hope you don’t either. Thanks for reading.