Our Social Security System is bankrupt. In fact, there is not enough money in the entire world for the United States to make good on its entitlement promises to its present and future retirees. And one of the key reasons for this is that the government uses a fraudulent, incompetent accounting method to report its costs.
As a CPA, it is frustrating to hear Social Security repeatedly being described as a pay-as-you-go (“PAYGO”) system, which gives credence to something that is terribly incorrect. PAYGO operates by calling all social security payments received by the Government in a year as income, and all monies paid out as expenses. It does not account at all for the fact that millions of workers are earning billions of dollars of Social Security pension every year, but since it will only be paid to them in the future, PAYGO ignores it! It would be as if your local mom & pop store promised its employees a retirement pension, but never recorded it as an expense and never put aside any money to pay for it when it would come due. This is not only totally unacceptable to the accounting professions, the SEC, and the Department of Labor, but it would be a criminal violation with jail time for any corporate officer allowing it.
The fallacy of calling it PAYGO is that it reports employees contributions as income, but the purpose of these payments is to pay for their ultimate retirement pension – yet none of this obligation to pay future benefits is recorded.
We need to be including in our current budget the amounts we are promising to pay in the future! The promises that we’ve made in the past — what we are paying out today — are not a part of this year’s costs – these are old liabilities and are part of our already existing debt. The US debt is currently being reported as just over $19 Trillion. When the real social security debt is added, the true National Debt becomes almost $60 trillion. (As an aside, Medicare payments and benefits are treated the same as Social Security – if the unrecorded Medicare existing debt were also properly included, the National Debt would be over $100 Trillion – way more money than exists in the entire world!)
It is clear that these promised benefits have ZERO chance of ever actually being paid. And the longer our legislators allow this fraud to continue, the worse it will be for ourselves, our children, and our grandchildren.