Social Security Retirement Program Briefing Old-Age, and Survivors Insurance (OASI) Trust Fund & Federal Insurance Contributions Act (FICA)
Preface
There have been many books, articles and published analyses of the US Social Security retirement program. The laws and accounting of the program are so complex, disingenuous and misleading there are often many conflicts on how the system really operates. This is a subjective, comprehensive review of the program. It needs editing and I cant edit myself. Also, this briefing is NOT complete! I need help to produce a visual model to depict real cash flow so that Joe Six Pack (JSP) can comprehend how the system really works.
It is the purpose of this brief to resolve those conflicts and erroneous perceptions. I believe the financial health and future of the program as described by the Social Security Trustees presents a false picture. I do not think they have identified systemic defects on how cash flow is calculated that leads to an erroneous presentation of OASI Trust Fund Assets. I believe the objectives of the Trustees are well intended. They state what they believe to be true. I believe they are wrong.
The best intentions and efforts of 100 wise men and women cannot resolve a problem they cannot identify. John T Koraska, December 5, 2010
OASDI charts prepared by the Social Security Administration (SSA)
http://www.ssa.gov/OACT/ProgData/assets.html
Assets grew from about $47 billion at the end of December 1986 to about $2,585 billion ($2.6 trillion) by the end of September 2010.
SSA
Note: The following flow-chart might explain why perceptions of the program differ & why it is so difficult to explain. If this is the simple version, I dont even want to try to decipher the complete one.
Office of the Chief Actuary (SSA) Flowchart for tax deposits & adjustments:
The flowchart below gives a simplified overview of how taxes, and adjustments to those taxes, flow into the Social Security Trust Funds. The main players in the process are employers, the Social Security Administration, and the Department of the Treasury. In the flowchart, "FICA" refers to taxes on wages defined in the Federal Insurance Contributions Act, and "SECA" refers to self-employment taxes defined in the Self Employment Contributions Act. See the table below the flowchart for other acronyms.
SSA collects wage data from three sources. W-2s processed by SSA provide individuals' wage information by calendar year. Employee tips and wages, not reported by employers, but reported on employee tax returns (Form 4137); IRS processes the data and sends them to SSA. Forms 941 processed by IRS provide aggregate wage data by calendar quarter. IRS sends the processed data to SSA four times per year. SSA certifies aggregate earnings (wages and self-employment income) in letters sent quarterly to Treasury. Each such certification letter contains data for prior years, back to 1937, to the extent that the current earnings data differ from amounts previously certified. As there are generally fewer corrections (positive or negative) to earnings for years that are further in the past, certified earnings amounts become progressively smaller for years that are further in the past, and may include negative amounts. SSA combines quarterly 941 data to provide annual totals comparable to the other wage data reported annually. In general, SSA then certifies the data from the source that provides the higher wage amount for a calendar year. Each certification letter shows wage data by calendar year, except for the most recent year shown. For this recent year, data are shown for the most recent reported quarter and data for other quarter(s) of the year (if any) are combined. Each letter also shows self-employment income by calendar year only. To adjust FICA taxes for a particular quarter, taxes from the latest certification letter are compared to the estimated tax liability amount established by Treasury. This FICA tax liability for the quarter is subtracted from taxes on all wage data reported in a certification letter, including amounts for all previous quarters or years, and the difference is transferred either to or from a trust fund. The initial adjustment for a particular quarter occurs about one year after the close of that quarter. SECA taxes are adjusted similarly, except that the initial adjustment for a particular year is normally made in the last calendar quarter of the second following year. The calculation of tax adjustments are done independently by Treasury and SSA. When agreement is reached, Treasury takes the steps necessary to transfer the funds. BLS Bureau of Labor Statistics, Department of Labor BPD Bureau of Public Debt, Department of the Treasury FMS Financial Management Service, Department of the Treasury IRS Internal Revenue Service, Department of the Treasury OMB Office of Management and Budget, Executive Office of the President OTA Office of Tax Analysis, Department of the Treasury SSA Social Security Administration NOTE: Develop a comprehensive Chart that includes all Adjustments to OASI Trust Fund Revenues INSERT WHEN COMPLETED OASI Trust Fund Asset Income & Asset Adjustments Revised data & charts are based on my interpretation of related law . Trust Fund Identification CBO Trust Fund Definition Summary : http://www.cbo.gov/doc.cfm?index=3974&type=0 the Congressional Budget Office No. 5, November 4, 2002 The Impact of Trust Fund Programs on Federal Budget Surpluses and Deficits Summary Although currently the federal budget is in deficit, federal trust fund programs as a group appear to be running a surplus . Under the Congressional Budget Office's latest budget projections, the combined income of the trust funds is estimated to exceed their cumulative expenditures by $3.4 trillion over the next 10 years. However, much of trust funds' income comes not from sources outside the government but from credits from one government account to another, or intragovernmental transfers. Consequently, such transfers have no effect on whether the government is running an overall surplus or deficit. In assessing the cash flow that trust fund programs generate, if one considers only the portion of their income that represents receipts to the government, the trust funds are projected to run a cumulative deficit of $1.2 trillion over the next 10 years. Trust fund accounting, which credits intra-governmental transfers to trust fund programs, is designed to show legal measures of spending authority and outlays, not the government's receipts and expenditures for such programs. Currently, trust fund measures of income and expenditures are distorting the effects that the programs have on the federal budget. Their apparent surplus relies on both actual receipts and the government's promise to pay money to itself. In fact, more money is going out of the Treasury for trust fund programs than is coming in, and this imbalance only grows larger as one looks out into the future. Trust Funds in the Budget Trust fund programs differ in a number of ways from other government programs. Many trust fund programs, including Social Security and Medicare, have distinct revenue authorities to finance, or help finance, the benefits that they provide or functions that they serve. And that income, when received by the Treasury, is accounted for by crediting federal securities to the trust fund accounts. Notably, those securities represent the government's promise to pay money to itself. For some of the larger funds, the securities basically serve as spending authority: as long as the fund has a balance, the Department of the Treasury has the legal authority to make program expenditures. Further, trust fund balances may change continuously as the programs receive new distinct tax revenues and fees and as interest on their security holdings accrues.(1) The receipts themselves are deposited in the Treasury, and program expenditures are made from the Treasury. So while trust fund programs' sources of spending authority and accounting may differ from those of other federal activities, the programs affect the overall financial condition of the government in the same manner as all other programs--through the income and expenditures of the Treasury. Overall, federal trust fund programs now appear to be running a large surplus, and the rest of the government is running a deficit. People may therefore have the impression that the excess income generated for those programs is supporting activities beyond the ones for which they were intended or, perhaps, that if it was not for these programs, the government's overall (or unified) budget deficit would be larger. Under the Congressional Budget Office's August 2002 budget projections, the combined income of the various federal trust funds is projected to exceed their expenditures by $219 billion in fiscal year 2003, and all other activities are expected to run a deficit of $364 billion. An overall budget deficit of $145 billion represents the difference between the two projections. The quick conclusion that one might draw is that federal trust funds are favorably affecting the budget and that other governmental activities are draining it. . Note: What CBO failed to comment on was what happens when gross (not adjusted for the 35% refund because of the Wage Expense Deduction) FICA revenues reported to and dedicated to OASI become less than cash benefits paid to beneficiaries. That is where we are now! .. Defining (35%) Business Wage Expense Deduction (that includes FICA & FIT taxes) w/chart IRS Publication 535 QUOTE: 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. 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 means employees pay income taxes on the Contributions (FICA tax). The US Constitution authorizes a tax on income. It does not authorize a tax on a tax. Further, it provides a legal means for employers to get tax refunds of approximately 1/3 of the FIT & FICA taxes confiscated from employee paychecks.
Defining OASI Trust Fund Interest Income on claimed Assets
According to SSA the OASI Trust Fund has earned interest on surplus revenues of http://www.ssa.gov/OACT/STATS/table4a3.html#income This is a table need to put it on excel so I can compute total interest earned by the OASI trust fund since 1987
Defining Total Adjustments to Gross OASI Income (net income chart)
Note: What the above chart illustrates is after adjustments of net cash flow there have been no Surpluses to place in the OASI Trust Fund. There is no $2.5 Trillion of assets in the trust fund Real or imagined (marketable assets or US Treasury IOUs. The barrel is less than EMPTY!
Defining Gross and Net OASI Assets Chart
According to SSA, OASI Trust Fund assets have increased from $23 Billion in 1987 to $2.5 Trillion in 2010
Net OASI Trust Fund Income Chart
Note: The above chart reflects net income after reducing the gross amount of OASI income
By the Business wage expense deduction and removing proclaimed interest income. It confirms the net income chart, above that total expense has exceeded net income since the last Social Security reform in the mid 1980s.
US Treasury (IRS) Uses Reverse Accounting to determine Individual Federal Income Taxes (FIT)
To reconcile the Gross Amounts of FICA taxes reported to the Social Security Administration (SSA) with the Net Amounts of FIT & FICA tax collections the US Treasury Secretary has resorted to Reverse Accounting! This is footnote (5) to Table 1, discovered on page 41 of the Internal Revenue Service (IRS) 2003 Data Book.
Quote: (5). Collections of individual income tax are not reported separately from Old Age, Survivors, Disability, and Hospital Insurance (OASDHI) taxes on salaries and wages (under the Federal Insurance Contributions Act or FICA, and on self-employment income under the Self-Employment Insurance Contributions Act or SECA). The OASDHI tax collections and refunds shown in Table 1 are based on estimates made by the Secretary of the Treasury pursuant to the provisions of Section 201(a) of the Social Security Act as amended and include all OASDHI taxes. Amounts shown for the two categories of individual income tax were derived by subtracting the OASDHI tax estimates from the combined total collections for the two taxes (refund estimates were not made for these two categories). Unquote
From the above, it appears government accounting is so convoluted they dont understand it themselves. That happens when the same money is counted twice, and dedicated funds are diverted from their intended destination. Commingling individual FIT and FICA Taxes at the source has led to the accounting confusion.
All the charts included in this briefing rely on some estimations because valid data cannot always be verified. As this data becomes available, corrections will be made.
