Motley Fools

One would think that anyone who makes their living writing about money and finances would know all about those subjects. And one would be wrong.

Today’s exhibit: The Motley Fool

I admit that the Fool has lots of good advice about money and finances, but they appear to be quite ignorant when it comes to understanding how government finance works. Here is just one article that raises the alarm about the impending catastrophe facing Social Security. Granted, you’ve heard the same horror story from many other sources, but the Fool would do its readers a great service if they would simply learn enough to get it right and stop spreading unfounded fear.

The simple fact is that the federal government can fund all promised Social Security benefits forever. In fact, it can pay for increased benefits if we want it to. No FICA taxes required.

Don’t take my word for it. Take it from former Federal Reserve Chairman Alan Greenspan (video):

“There is nothing to prevent the government from creating as much money as it wants and paying it to somebody.”

Granted, you don’t hear that much from anyone, but it’s absolutely true. Greenspan was not lying.

But, you say, what about all those Social Security taxes you’ve been paying all these years? When he established the program, FDR thought those taxes served a useful political (not financial) purpose (source):

When he established the Social Security program, FDR included separate payroll taxes going into separate Trust Funds to supposedly pay for it That was a ruse for political reasons; it had no economic rationale. The federal Trust Funds are an accounting fiction, “created on the books,” not a separate pool of money. (LBJ repeated the ruse with a dedicated Medicare payroll tax and Trust Funds.)
Whether the earmarked taxes/Trust Fund ploy was a shrewd political tactic, a poison pill, or both, we shall see. But a ruse it was. In cinematic terms, it’s a MacGuffin—something put in the plot that looks like it’s important, but really has no effect on the outcome at all. FDR’s administration admitted this in a 1937 lawsuit: “The proceeds of both [payroll] taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.” And FDR himself acknowledged it quite openly in 1941, when an advisor challenged him to dispense with the fiction and eliminate the payroll taxes:
“I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics”.
So, the FICA payroll taxes are an economically unnecessary political device, based on pay-your-taxes-to-fund-your-benefits fiscal conservatism, that FDR thought would insulate the Social Security program from right-wing attacks.

Obviously, FDR’s ruse has not stopped right-wing attacks. And right-wing thinktanks, paid economists and owned university economics departments have worked phenomenally well at convincing average Americans that they need to sacrifice benefits and pay more taxes to “save” Social Security. The Motley Fool, whether by ignorance or malice, contributes to that lie.

You might ask why anyone would begrudge retired Americans from receiving robust SS benefits. It’s really quite simple. If the federal government is prevented from paying the benefits that retirees had been expecting, those retirees might well have to borrow money to survive. That means interest payments to banks and their wealthy owners. If you owned a bank, you’d love that approach, too.

Hey, Fools! Learn how government finance actually works, and start educating your readers instead of trying to scare them. They’ll thank you.