There is a lot of confusion about S.S., Medicare, FDIC and other trust funds.

They were all required to loan their excess funds to the general fund to get interest that would keep the need for higher taxes or fees down. This has worked in theory as we would have been bankrupt in the trust funds years ago.

What didn’t happen however, was that the general fund was mismanaged. Most nations with a positive account balance, still borrow for long term projects but, could pay them off from the positive account balance.

That means that money borrowed from trust funds, should they be needed, don’t increase the deficit if repaid. It isn’t that we borrowed the money as much as that we borrowed it and a whole lot more. Had we not had the trust fund money lent to the government, we would have had much higher payroll taxes long ago. As it was, even with the loans and interest, Reagan had to raise payroll taxes 54% due to longevity drawing more and more from the funds while our wages and taxes on wages wasn’t keeping up due to under reporting CPI that kept COLA increased lower.

Of course the biggest mistake was not going with personal account annuities like FDR had planned social security to be structured as. Congress never let the program evolve into that from the first years when people who only paid in for a few years got full benefits.

Quote from FDR
At this time, I recommend the following types of legislation looking to economic security:

1. Unemployment compensation.

2. Old-age benefits, including compulsory and voluntary annuities.

http://www.freerepublic.com/focus/f-news/1335740/posts
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Back to interest on trust funds. It is a better rate than what we pay on public debt but, we borrow it back (as required by law) and it ends up as just an accounting entry and is meaningless now due to the deficit and our negative cash flow in S.S. What wasn’t supposed to happen for another five years or so, is here with us now due to this crisis and 70 years of bad monetary and economic policies.

- JanPaul

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