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Ask the Advisor:What Interest Does the Government Pay For Borrowing From Social Security? I have a question concerning the $1.48 trillion in Social Security Trust Fund monies that the government is using (and owes to the Trust Fund). What interest if any, does the government pay? � W.P.S From the editor, Mary Johnson: According to the Social Security trustees, the portion of Social Security payroll taxes that�s not required to pay current benefits is �invested� in �special obligation bonds� and the real cash revenue is immediately used for other government operations. In their 2004 annual report, the trustees said the �assets� held were $1.5 trillion by the end of 2003. In 2003 those �assets� earned an interest rate of about 6% that totaled $75.2 billion� 13% of the total �income� received by the Trust Funds last year. It�s important to understand exactly what these �assets� really are, however. They are not bonds that can be bought and sold in the open market. They are IOUs from the U.S. Treasury. Although the Social Security Trustees treat these IOUs as resources to pay benefits, that $75.2 billion in interest is not real cash, but more IOUs. It does not represent the means to pay benefits, nor a specific amount in benefits earmarked for a specific beneficiary. When the government needs to redeem those IOUs (as we will for the Medicare Part A Trust Fund starting this year) the government will either have to borrow more, raise taxes, or cut other spending � including potentially cutting of benefits. The government has cut benefits several times in the past. At the present, under the Supreme Court ruling in Flemming v. Nestor, workers and retirees have no legal ownership over their Social Security benefits. In recent months The League became the first seniors� organization in the nation to endorse H.J. Res. 88, legislation introduced by Representative Gene Taylor (D-MS) that would require a Constitutional Amendment to lock Social Security, Medicare, civil service and military retirement trust funds away from the federal budget deficit. Congressman Taylor submitted for the Congressional Record a letter of support from George Smith, Chairman of TSCL. In his letter Chairman Smith said, �Because of the way the government counts the surpluses that we have in various trust funds, the deficit appears to be less than it really is. I believe if the American people would see the true size of the deficit, there would be an end to business as usual in Washington.� His letter went on to state, �If legislation only were to be enacted, we believe that Congress and the White House would ignore or work around the law. This is why it is imperative that a constitutional amendment be ratified.� May 2004 | ||||||||
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