…promising to pay the money back, with interest, if it is ever needed to pay promised benefits.
This process, which occurs every year, is known as The Raid on the Social Security trust funds. Every poll shows that the American people overwhelmingly detest The Raid, but it continues because Congress does not want to stop spending the money gained each year. The $6.5 trillion taxpayer liability that will begin in 2017 represents the additional accumulated cost of The Raid. So taxpayers first paid taxes to create the IOU, and then they will pay a second round of taxes to redeem it. Sounds fair, doesn’t it?
Blind defenders of the Social Security status quo argue that the IOUs Social Security gets back for The Raid are official government bonds, just as reliable as any other government bond held by investment and retirement trusts across the country. But the real issue is not whether the bonds will be paid back. The problem is that it will be enormously difficult for the taxpayers to pay them back-an additional $6.5 trillion on top of what they already pay in payroll taxes. This enormous tax burden may lead the government to cut some Social Security benefits, which would effectively repudiate some of the bonds.
Indeed, savings and investment are nowhere a feature of the Social Security system. The majority of the funds paid into the system each month is immediately paid out in the form of benefits to current retired beneficiaries. Any surplus is spent by the federal government in return for IOUs sent to the Social Security trust funds. That is why Social Security is actually a tax and redistribution system, rather than a savings and investment system.
Because Social Security operates this way, it is not a good deal for working people in the long run. Even if Social Security somehow pays all its promised benefits, the real rate of return (the return net of inflation) on all the taxes paid into the system over the years would be… (And he goes on. The book is Real Change by Newt Gingrich).