by John Koraska

April 30, 2005  Updated: July 6, 2006

 

For Social Security updates please visit my new website US Public Policy

 

 

This article exposes the biggest tax and welfare fraud in the history of the world; but, you'll not likely  read about it in the papers or see it on TV. No one wants to talk about it! The federal government is leading the nation toward the biggest catastrophe in the history of the world. The terrorist threat pales in comparison.

 

There is not now, nor has there ever been a surplus of Social Security Trust Funds except in the minds of Washington propagandists, the media and their brain-washed constituencies. The so-called current "surplus" (more money coming in via the FICA tax than is paid out to beneficiaries) in the Old-Age, Survivors and Disability Insurance (OASDI) Trust Funds is grossly misleading. A review of the facts prove there is an actual "deficit".

 

Current OASDI assets (government IOUs) are offset by an equal amount of US Treasury debt. More importantly, the so-called "assets" are accounting deceptions. The OASDI Trust Fund assets and projected surpluses (through 2018) reflect gross amounts of combined Federal Insurance Contributions Act (FICA) taxes reported to the Social Security Administration. These gross amounts have not been adjusted for corporate expensing of FICA taxes that significantly reduce the actual net (cash) revenue received by the U.S. Treasury. This accounting scheme is one of the most disingenuous deceptions ever perpetrated in the history of mankind. That it could occur in the "land of the free" is even more puzzling. The OASDI Trust Fund "Surplus" Myth is just one example of misleading government accounting.

 

Every dollar of the $1.86 trillion (2005) in proclaimed Social Security accumulated OASDI surpluses generated by the 1983 tax increases has been looted and spent for other purposes, and the looting continues on a daily basis.  The government has reportedly replaced the real money it took from the Social Security Trust Fund with non-marketable “special-issue” government securities that are essentially worthless.

 

Note: The irony is the government is spending "gross" FICA income like it is real time deposits; but "net" FICA income after "business expensing" falls short of current Social Security expenditures. To further complicate matters, future benefits are calculated on combined "gross wage contributions" that overstate "net income" by more than a third. So, the question arises, how can Social Security Trust funds loan money to the US Treasury when Social Security is running a continuous negative net cash flow?  And how can future beneficiaries expect to get paid what they are being promised when it can be proven that current Social Security expenditures exceed current "tax adjusted" net income? Ask your congressman or senator to explain it to you.

 

Early in 2005, on nationally televised tours to sell the idea of creating PRA accounts to save Social Security, President Bush said this:

 

"In the year 2018, the system starts to go into the red. In other words, more money going out than coming in.

 

Now, one of the myths about Social Security is there's a pile of money sitting there accumulating, because you put money in, the government saves it for you, and then when you retire you get it out. That's not the way the system works. Every dime that goes in from payroll taxes is spent. It's spent on retirees, and if there's excess, it's spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of government to the next. This is a pay-as-you-go system." President George W. Bush

 

The President has it WRONG!

The Social Security Trust Fund - Well has already run dry! 

 

DEFICIT "ESTIMATES"
 

In 2004, employers reported paying $261.2 billion and employees reportedly paid $259.8 billion into the Social Security Administration OASDI Trust Funds. The gross total amount of $521.0 (employee & employer FICA taxes) billion reported as FICA tax income to the Trust Funds is approximately $182 billion more than the tax adjusted amount of an estimated amount of $338.8 billion in (OASDI) cash revenue received by the U.S. Department of the Treasury.

 

Self-employed citizens were credited with a gross amount of $31.2 billion into the OASDI Trust Funds. I am unable to estimate the net (cash) amount received by the U.S. Treasury because the FICA tax expense deduction for the Self-Employed is commingled with other expenses and total wage income is commingled with other sources of income that is not subject to the FICA tax. Nevertheless, it may be stated that the net cash amount is significantly less than the gross amounts reported to the Social Security Administration due to expensing half the FICA tax.

 

Social Security beneficiaries (subject to this additional income tax) were credited with paying $15.7 into the Trust Funds without accounting offsets (meaning Treasury received this same amount in cash dollars).

 

Additionally, the Trust Funds were credited with $89 billion (U.S. Treasury IOUs at an average 5.8 percent) in interest income on the 2003 OASDI Trust Fund reported balance of $1530.76 billion. The reported surplus of $156.1 billion credited to the OASDI Trust funds in 2004 increased the reported OASDI Trust Fund balance to $1686.8 billion ending December 31, 2004. (This $89 billion may be discounted as a Trust Fund asset because it is effectively cancelled by an equal amount of U.S. Treasury debt.)

 

In 2004, OASDI paid out $501.6 billion in gross cash benefits. As indicated above, $15.7 billion of cash benefits were recaptured by the income tax on Social Security benefits thus reducing the net cash amount to $485.9 billion, paid to beneficiaries. This exceeds the total estimated $370 billion net (cash) receipts of the U.S. Treasury by approximately $115.9 billion. This $115.9 billion represents the real government cash-flow deficit of OASDI Trust Funds for 2004. The combined difference between the alleged $156.1 billion OASDI Trust Fund surplus and the real U.S. Treasury cash-flow deficit may be estimated at $272 billion. (The $89 billion in interest accrued by the Trust Funds is not included in these calculations because, as indicated above, this same amount is offset as new debt to the Treasury and no actual cash changes hands.)     http://www.socialsecurity.gov/OACT/TR/TR05/III_cyoper.html#wp84548 

 

All this is understandably confusing. Perhaps restating the statistics in a different manner will make it easier to comprehend:

 

TRUST Fund "Surplus Assets" vs U.S. Treasury Cash Flow

 

$485.9 - billion net cash paid out to OASDI beneficiaries ($501.6 total cash distributions less $15.7 billion returned in taxes on benefits)

 

$338.8 - billion net cash combined employee/employer received by Treasury after Corporate expensing of FICA taxes at the rate of 35%.

 

+ $ 31.2 "billion gross FICA contributions by Self-employed (this number has not been netted out by FIT- FICA expense deductions due to a lack of data)

 

=$370.0" billion NET (OASDI) cash received by Treasury

 

$485.9 paid out MINUS $370.0 paid in EQUALS -$115.9 DEFICIT!

 

The total net cash of $485.9 billion paid to OASDI beneficiaries exceeds the total net cash revenues of $370 billion by $115.9 billion. The $115.9 billion is the NEGATIVE cash flow to Treasury as compared to the $156.1 billion 2004 reported as surplus by the Social Security Administration. The combined difference of $272 billion represents the estimated discrepancy in government cash-flow accounting of OASDI Trust Funds.

 

Additionally, in 2004, the U.S. Treasury Department paid $41 billion in Earned Income Tax Credits (EITC) to more than 22 million taxpayers. Statistics reveal the average EITC check is $1864 per claimant. Since a corporate employer my deduct 35% of the combined $1639 FICA tax collected on behalf of a minimum wage worker, the FICA cash sent to the Treasury is reduced to $1065. After corporate accounting adjustments it may be stated that an eligible EITC beneficiary with a couple of kids gets the combined gross FICA tax returned to him plus a cash bonus for filling out the forms. The billions in matching, wage related FICA taxes credited to the OASDI Trust funds establish future legal claims for benefits for this group of non-taxpayers.

 

With this fuzzy math, the Un-funded liabilities of the OASDI Trust funds are under stated by TRILLIONS of dollars. As stated above, the Treasury is already paying out more in cash for beneficiaries than it receives from workers for these purposes and the TRUST FUNDS reflect U.S. Treasury IOUs (Plus interest) on money either already spent or never received by government in the first place.

 

The President, in his nationally televised appearance on April 28, 2005 repeated that: "The Trust Funds were an accumulation of IOUs and that the surplus cash had been spent on other items in the budget."

 

The Presidents statement again ignored the fact that the U.S. Treasury General Fund has since 1983, paid out more net cash than it receives for these purposes. Which is just another way of saying Congress has become so confused, it actually spends some of the SAME money that has already been refunded to workers (via the Earned Income Tax Credit) and some of the SAME money NEVER collected (because of the "business expense deduction") from corporations in the first place. Incumbency appears to provide its own reward.

 

The President and the Congress continue to confuse gross FICA credits reported to the Social Security Administration - with Net Cash received (after business expense deductions) by the Treasury. What they believe to be gross Trust Fund assets and growing surpluses are in reality NET cash-flow deficits and unsustainable, compounding debt by the U.S. Government.

 

Corporations reportedly paid $189.4 billion in Corporate Income taxes in 2004. Needless to say, the net effect of Corporate expense deduction of workers' wages that include FICA and FIT taxes PLUS the deduction of  corporate matching FICA taxes, far exceed the corporate income taxes in 2004. From this analysis, it is certain the U.S. Treasury would actually receive more revenues if the Corporate Income tax were eliminated.

 

The good news is we don't have to wait until 2017 to see what happens when benefit payments exceed payroll tax income, nor until 2041 when the Trust Funds reportedly go bankrupt. It is already broke and life goes on! Nor, do we have to wait until the contributor/beneficiary ratio drops below 2:1. It already has. Congress and the Administration seem to have forgotten the General Math they should have learned in the 3rd or 4th grade. Says a lot about an American education!

 

Also says a lot about Equal Justice Under Law! Why is the U.S. Supreme Court mum on this issue? Is it because the law of the land with regard to Social Security, Medicare, SSI and Medicaid may be found unconstitutional and the "Court" doesn't want to deal with it?

 

No less a legal scholar than Judge Robert Bork (appearing before the National Press Club on September 6, 2005 and aired on C-Span on September 12, 2005) stated emphatically that "Social Security is Unconstitutional".

 

Deduction of employee FICA and FIT Taxes as Wages

IRS Publication 535 (2004), Business Expenses

http://www.irs.gov/publications/p535/ch06.html

IRS QUOTE:  6. Taxes ..... Employment Taxes:

If you have employees, you must withhold various taxes from your employees' pay. Most employers must withhold their employees' share of social security and Medicare taxes along with state and federal income taxes. You may also need to pay certain employment taxes from your own funds. These include your share of social security and Medicare taxes as an employer, along with unemployment taxes.

 

You should treat the taxes you withhold from your employees' pay as wages on your tax return. You can deduct the employment taxes you must pay from your own funds as taxes. Example provided by IRS (THINK ABOUT THIS): You pay your employee $18,000 a year. However, after you withhold various taxes, your employee receives $14,500. You also pay an additional $1,500 in employment taxes. You should deduct the full $18,000 as wages. You can deduct the $1,500 you pay from your own funds as taxes.  UNQUOTE

 

Note: This IRS example for Employers clearly demonstrates that the GROSS amounts of FIT and FICA taxes deducted from your paycheck ARE NOT sent to the US Treasury or the Social Security Administration as you have been led to believe. Only, the NET amount (gross amount less nominal corporate tax rate) is sent to the Treasury. Since most corporations are taxed at 35 percent, the Treasury is deprived of this portion of the FIT and FICA taxes paid by employees.

Simply stated: More than ONE THIRD of the FICA and FIT taxes removed from YOUR paycheck goes into the pocket of your employer.

 

WORKERS - Do this:  Multiply FIT and FICA  taxes withheld from your own paycheck by 35% to get an estimate of how much your employer is pocketing at your expense. Multiply that result by the 161 million people working in OASDI-covered employment in 2006  and you can estimate the magnitude of this LEGALIZED FRAUD. This is the crux of the problem and may explain  how  the US government is bankrupting itself while subsidizing international corporations whose only allegiance is to the "Bottom Line". 

 

For more information on employment taxes, see IRS
Publication 15 (Circular E).

 

Reverse Accounting

 

To cover up huge discrepancies between gross OASDI revenues reported to the SSA and the net OASDI tax collections by the IRS, the US Treasury resorts to reverse accounting. The IRS totals individual FIT and FICA taxes withheld from paychecks. The Treasury Secretary estimates total FICA taxes, subtracts the FICA estimate from the total, and identifies the remainder as individual federal income taxes.

 

 

The Social Security Surplus Myth (Art#14)