I looked over your site. Good job. You've done a lot of homework since we >last corresponded about the missing $310 billion. I feel somewhat enlightened.
However, I must take issue with one point. You tell your visitors, >"In 1996....You were over-taxed by Social Security $69 billion. "
Not so! Americans were dramatically UNDER-TAXED for Social Security in 1996.
Let me explain.
Although Social Security is widely perceived as a retirement savings instrument, it is actually a pure as a pay-as-you-go system. In other words, today's taxes entirely fund the payments to today's beneficiaries. Now, here's the rub: For the last several years, due to a very large baby boomer workforce, cash inflows have exceed outflows. As you point out, the excess cash is applied to public debt (without being duly reported as part of the deficit). Hence, this $69 billion is spent for the benefit of the current generation, not saved at all. Therefore, the system is purely pay-as-you-go.
Anyway, the problem is this: Based on current benefit formulas and actuarial estimates, the government is promising the baby boomers WAY more in benefits than they are paying into the system, even if you count the current cash surplus. Then, to accept your statement, one must accept that it's okay for the huge baby boom workforce to pay ONLY enough to cover a relatively small Great Depression generation of retirees and that the relatively smaller Generation X ought to be willing to pay the whole freight for a huge contingent of retired boomers (on top of the existing debt burden the current generation is passing on to them).
So because boomers are paying much less into the system than they have been "promised" to receive, the government is running up huge "unfunded liabilities" (as they are called). Basically our government is promising to pay out roughly $10 - 14 trillion MORE in benefits over the next 30-or-so years than it plans to tax us (yes, I said "trillion"). Hence, the 90's child can expect to pay massive lifetime taxes (estimates range as high as 80% of lifetime income) unless benefits are significantly reduced from what has been promised. Remember, retirement entitlements are not "government programs" that go into some administrative black hole. They are purely cash transfers -- from us, to us. So we are promising ourselves far more that we are willing to pay, and passing the bill down the generations. And almost no politician can touch it without dying at the polls. We have met the problem...and it is US!
This goes to the very heart of the lunacy of our Social Security system. It has been called a Ponzi (pyramid) scheme, which is not too far from the truth. Overall retirement benefits per beneficiary keep going up (due to benefit rate increases, longer lifespans, increased healthcare costs, etc.). As you cited, payroll tax rates are being ratcheted up too, but not in advance of benefit increases. The result is this: Every generation soaks the next one. The reason: Because during their working years they pay in at the lower rate and draw out later at the higher rate. Like a Ponzi scheme, the last guy in gets the big screw!
Another point: You state, "Federal government's expenditures are always in deficit, while the various trust funds are always in excess. Shouldn't it be just the other way around, with things like Social Security and Medicare operating at breakeven and the federal government operating in the black and cutting taxes when possible? Or making payments against the national debt?"
First of all, trust funds are by no means "always in excess." In a few short years a flood trust-fund-red-ink will overtake us all. But whether trusts fund are in excess and the general fund is in deficit is, in the final analysis, a moot point. The distinction is pure accounting fiction. What matters is the overall net. As long as the government spends more ON us than it collects FROM us (including enough make retirement benefit plans "actuarliy sound") then our kids get the screw. Accounting schemes only confuse and mask the reality of the situation, allowing for tricks like underreporting the deficit, and the myth that Social Security has ANY actuarial basis whatsoever.
One more (somewhat arcane) point: It is often asked, "Why doesn't the Social Security Administration invest in the private sector, where the returns are higher?"
This sounds like a magic way out. It's really not. Consider how it would work. The general fund would have to make up the difference by issuing more debt to the public, which would draw private savings out of private enterprise. An equal amount of trust fund money would fill the void in private enterprise, in the processes making our federal government an ever larger stockholder in the private sector. (Do you fear creeping socialism? I do.) So while the trust funds indeed earn a higher return, the private savings that has been diverted to public debt would earn a proportionally lower return. So, to the aggregate economy, it's a wash (except for the overhead cost of reshuffling the system).
I applaud your mission. You're on the right track, and I appreciate your attention to this important issue. (I love your animated bomb graphic!) Hopefully I have been coherent and maybe even a bit enlightening. I welcome your reply or any further discussion of these issues.
Tim Scott The Concord Coalition of Georgia, Fifth District CoordinatorWebmaster >http://www.afn.org/~concord/coalition/georgia.htm