AARP continues to promulgate the Big Lie in economics: Social Security version

While it’s difficult to verify the exact words or the precise historical record of the exchange, the essence of the story is historically consistent with Franklin D. Roosevelt’s thinking about Social Security.

Here’s the most widely cited version of the exchange:

During the creation of the Social Security program in the 1930s, FDR was advised by his economic team — particularly economist John Kenneth Galbraith and others in the Treasury — that the federal government, as a monetary sovereign, did not need to collect payroll taxes to fund Social Security benefits.

They explained that the government could simply create the money and pay the benefits directly.

Roosevelt is reported to have responded with something along these lines:

“I guess you’re right on the economics — but the politics are what matter here. Those taxes aren’t really needed for revenue. They’re needed to give the workers a sense of personal stake in the system — to give them a legal, moral, and political claim to their benefits.”

“With those taxes in there, no damn politician can ever scrap my Social Security program.”

Now compare that to what AARP wrote in its  May/June 2025 issue of the AARP Bulletin, Social Security and Medicare, by T.R. Reid:

“These two programs (Social Security and Medicare) have protected the quality of life for older Americans,” (AARP’s Nancy) LeaMond observes. “So we need to save them.

“Job 1 is ensuring the solvency of the programs for current beneficiaries, but also for future generations. To do that, we have to ensure that the trust funds are  stable.”

And there it is, the Big Lie, that Social Security and Medicare are paid for by taxes via federal trust funds. It is a lie believed by most Americans, and possibly most federal politicians, most media writers, and even most economists.

But despite common belief, it is a pernicious, harmful, cruel lie.

Even Franklin D. Roosevelt, the creator of Social Security, knew it was a lie, but he allowed it, not for financial reasons, but for political reasons — so that “no damn politician can ever scrap my Social Security program.”

How little did even he realize the depths of ignorance the damn politicians would plumb in order to limit benefits to the common people vs. the rich.

The rich have bribed the media (via ownership and advertising dollars), the economists (via university grants and promises of future think tank employment for professors), and the politicians (via many routes), to feed you false information. This guarantees ignorance through false information from trusted sources.

It is a multi-layered campaign of receipt:

1. Ignorance About Monetary Sovereignty: Unlike state and local governments, businesses, and individuals, the federal government is Monetarily Sovereign. It is the original creator of the U.S. dollar and continues to create dollars at will.

The federal government can never unintentionally run short of its sovereign currency, the U.S. dollar. Even if the federal government did not collect a single dollar in taxes, it could continue creating and spending dollars forever.

2. Ignorance about federal deficits, debt, and borrowing. Federal deficits are the net amount of money that an infinitely rich federal government sends to the private sector to grow Gross Domestic Product. Without federal deficits, the economy cannot grow and instead would fall into a depression.

The federal “debt” is not federal, and it is not “debt.” It is the total of outstanding Treasury security accounts (T-bills, T-notes, T-bonds) the dollars in which are owned by depositors and only held by the federal government for safety.

Those dollars are never used by the federal government for anything. The accounts are similar to bank safe deposit boxes in which the contents are held for safety and not part of the bank’s debt.

The federal government does not borrow dollars; it has the infinite ability to create them from thin air. As the St. Louis Federal Reserve wrote in their October 2011 publication titled “Why Health Care Matters and the Current Debt Does Not”:

“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”

3. Ignorance About Federal Taxes: Federal taxes fund nothing. The purposes of federal taxes are different from the purposes of state/local gov. taxes. The sole purposes of federal taxes are:

• To assure demand for the U.S. dollars by requiring taxes to be paid in dollars
• To control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward
• To deceive the public into believing that benefits must be limited by taxes. This is a belief fostered by the rich to limit benefits to the rest of us.

Contrary to popular wisdom, the rich pay a much lower tax rate than you do. Pay no attention to the tax rate table that say otherwise. The rich have managed to engineer special tax deductions that make the tax tables invalid.

For example: Billionaire Donald Trump paid no federal income taxes at all in 10 of 15 years prior to 2016, In 2016 and 2017, he paid just $750 each year in federal income taxes.

In 2020, he paid $0 in federal income tax. He reported large losses across many years, some in the tens or hundreds of millions, which allowed him to offset future income.

These losses were often carried forward using legal provisions in the tax code. He claimed major business expenses — including for residences, aircraft, and other personal luxuries — as deductions.

(Have you been able to deduct the costs of your home, transportation, meals, clothing, cars, furniture, entertainment, etc.? Trump and other billionaires could.) But Social  Security and Medicare are headed toward insolvency?? Really?

4. Ignorance about Inflation: No sooner does anyone realize that the federal government’s finances are nothing like state and local governments’ finances, than we hear the false claim of last resort about federal spending, “but that would cause inflation.”

Let me be very clear about this: Inflation is not a spending problem, and inflation is not a demand problem. Inflation is, always has been, and always will be a supply problem.

Federal spending does not cause inflation. In fact, federal spending cures inflation when directed at curing the shortages that cause inflation. We discuss this in more detail here.

The inflation myth has been promulgated solely to prevent the populace from demanding the kinds of federal spending and tax relief afforded to the rich — the kind of relief that has allowed billionaires like Donald Trump to pay less federal taxes than you have.

5. Ignorance about Federal Trust Funds: The USA.gov A–Z Index lists over 400 federal departments, agencies, and related entities. This includes executive departments, independent agencies, government corporations, commissions, and government-sponsored enterprises.

Very few federal agencies are (supposedly) funded through trust funds. The largest and most well-known trust funds include:

• Social Security Trust Funds: Managed by the Social Security Administration, supposedly funded by payroll taxes.

• Medicare Trust Funds: Managed by the Centers for Medicare & Medicaid Services, supposedly funded by payroll taxes, premiums, and general revenues.

• Highway Trust Fund: Managed by the Department of Transportation, supposedly funded by fuel and excise taxes.

• Unemployment Trust Fund: Managed by the Department of Labor, supposedly funded by federal and state unemployment taxes.

• Civil Service Retirement and Disability Fund: Managed by the Office of Personnel Management, supposedly funded by employee and agency contributions.

In total, there are approximately a dozen major federal trust funds. So, only a small number of agencies are supposedly funded through these mechanisms.

The Supreme Court is not supposedly funded via a trust fund. Nor is the Executive Branch (The White House). Nor is Congress itself. Nor are the military services. Why, out of 400 federal departments, agencies, etc., are there only about a dozen trust funds?

Trust funds are not used because the government needs the money. They’re used because Congress wants to: Create political protection for specific programs (e.g., Social Security, Medicare), give the illusion of self-funding (“you paid in, so you earned it”), and limit or earmark spending, to avoid general budget fights — not for any financial reasons.

As the Peter G. Peterson Foundation wrote:

A federal trust fund is an accounting mechanism used by the federal government to track earmarked receipts (money designated for a specific purpose or program) and corresponding expenditures.

The largest and best-known trust funds finance Social Security, portions of Medicare, highways and mass transit, and pensions for government employees.

Federal trust funds bear little resemblance to their private-sector counterparts, and therefore the name can be misleading.

A “trust fund” implies a secure source of funding. However, a federal trust fund is simply an accounting mechanism used to track inflows and outflows for specific programs.

In private-sector trust funds, receipts are deposited and assets are held and invested by trustees on behalf of the stated beneficiaries.

In federal trust funds, the federal government does not set aside the receipts or invest them in private assets.

Rather, the receipts are recorded as accounting credits in the trust funds, and then combined with other receipts that the Treasury collects and spends.

Further, the federal government owns the accounts and can, by changing the law, unilaterally alter the purposes of the accounts and raise or lower collections and expenditures.

Note the last line, which is worth repeating: “The federal government unilaterally can alter the purposes of the accounts and raise or lower collections and expenditures.

While Congress, the media (including AARP), and the economists pretend to fret over the coming “insolvency” of the Social Security and Medicare “trust funds,” the simple and honest fact is this:

Congress and the President could prevent or cure any “insolvency” simply by voting to do so.

They could vote to add a few trillion dollars to the fake trust funds, or they could vote to do away with the trust funds altogether and pay for Social Security and Medicare the same way they pay for the POTUS, the SCOTUS, or Congress.

At one time, there even was the suggestion to create a multi-trillion dollar platinum coin (which the Treasury specifically is allowed to do) and to deposit that coin in the Social Security trust fund account, to prevent insolvency. This solution was rejected because. . . because it would have demonstrated the Big Lie about federal financing.

When did you ever hear that the President was running short of money? Or that SCOTUS couldn’t pay for the justices’ salaries? Or that Senators couldn’t be paid?

Answer: Never, and you never will.

There has never been a time when the Supreme Court, the Presidency, the military, or Congress was said to be “facing insolvency.”

Why? Because those agencies are funded directly by Congressional appropriations from the General Fund of the U.S. Treasury, which is not constrained by tax revenue or borrowing.

The Social Security and Medicare programs were deliberately designed to resemble savings accounts. This has enabled politicians and media to manufacture a crisis narrative: “We’re running out of money!” But that’s accounting fiction.

The difference is purely political, not financial:

Agency/Program	Funding Mechanism	Ever faced “insolvency”?	Why or Why Not
Department of Defense	General Fund (appropriated)	Never	Congress always appropriates what it wants
Congress itself	General Fund (appropriated)	Never	Congress won’t default on itself
Supreme Court	General Fund (appropriated)	Never	Treated as an essential government function
Social Security	Trust Fund + FICA tax	“Facing insolvency”	Artificial limit imposed by political design
Medicare (HI)	Trust Fund + payroll tax	“Facing insolvency”	Same as above — not a real constraint

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For years, you have been told about the Social Security and Medicare crisis, which is exacerbated by Congress’s and the President’s ridiculous decision to tax your benefits.

Why would a federal government, that neither uses nor needs tax dollars, tax the benefits it gives to the populace? For only one reason: To widen the Gap between the rich and the rest. “Rich” is a relative term. The wider the Gap, the wealthier the rich.

So to make themselves wealthier, the rich bribe Congress to pass laws that widen the Gap, bribe the media to promulgate those laws, and bribe economists to justify those laws. And that is why you see persistence in the Big Lie.

SUMMARY

The Big Lie in economics is that federal taxes and borrowing fund federal spending.

The Big Truth in economics is that even if the federal government didn’t collect a penny in taxes, and continues not to borrow dollars, it could keep spending forever, without causing inflation.

The so-called “crisis” in Social Security and Medicare solvency is a lie invented by the very rich, to widen the income/wealth/power Gap between them and you. There is no crisis other than a crisis of truth.

Your information sources and leaders are lying to you, and they will continue lying until you demonstrate that you will reject their lies. Vote the liars out of office. Stop using the lying media until they expose the truth. Stop funding universities that teach the lies.

Then one day, you will pay the same taxes as Donald Trump.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

MONETARY SOVEREIGNTY