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The doom and gloom about Social Security, and the claims that it needs radical restructuring, derive from the way Franklin D. Roosevelt's administration explained the system to the public. To avoid accusations of "socialism," citizens were made to understand that the pensions they would get would consist of their own money that they had put into a trust fund.
The trust-fund story made it politically easier to start the system and maintain support for it. But that story has made it vulnerable to the prediction that it is going bankrupt and will have to be radically changed. After all, if the pensions come out of the trust fund, and the fund will shrink to zero in about 2033, as predicted, then isn't the system unsustainable?
In fact, the pension payments that Social Security makes are financed 100 percent out of current taxes on the still-working population. In most years, the receipts from the payroll tax have been more than sufficient to pay scheduled benefits. In times when they have been insufficient, money from the income tax is used to pay benefits. If benefits aren't paid out of the trust fund, then what, if anything, does it do?
The trust fund consists of a collection of federal government IOUs in the drawer of the Social Security system. Whenever the money collected by the payroll tax exceeds the amount spent on pensions, the extra money is sent to the Treasury, which spends it on other programs and sends Social Security an IOU. When the amount collected by the payroll tax is insufficient, Social Security sends some IOUs back to Treasury, which uses money collected by the income tax to help pay that year's pensions.
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