Today’s Wall Street Journal exposes the lie that is the so-called “Social Security Trust Fund” – and further reveals the disgraceful flippancy with which politicians and their go-fers mislead the public about it. Here’s a slice:
President Obama famously played to grandma’s Social Security fears this week, saying in an interview about the debt-ceiling talks that “I cannot guarantee that those checks go out on August 3 if we haven’t resolved this issue because there may simply not be the money in the coffers to do it.”
To which a friend of ours replied, whatever happened to the trust fund?
That’s the fund that, according to our politicians, is holding all those Social Security taxes that workers pay. Why can’t Congress or Mr. Obama dip into that $2.6 trillion cash hoard to pay benefits until this debt-limit business gets sorted out? After all, as White House budget director Jack Lew put it in a February USA Today op-ed, “Social Security benefits are entirely self-financing.”
Not quite. As everyone in Washington knows, the trust fund contains not cash but IOUs. Payroll taxes don’t go to some vault in Fort Knox, and they certainly aren’t invested. When Social Security runs a surplus, Congress spends the money immediately on something else and then the government claims its owes a debt to itself. Where the money will come from to pay these IOUs is anybody’s guess—though Mr. Obama is hoping it will be higher taxes.
Trust fund balances only exist in “a bookkeeping sense,” as Bill Clinton’s budget director put it in 1999.
Ignoring the question of whether or not failure to raise Uncle Sam’s current statutorily set debt ceiling will oblige him to default on paying creditors (or, what is a different thing, to reduce his spending), clearly and unquestionably fraudulent (or inexcusably reckless) are the many claims made over the years that the bonds in the Social Security ‘trust fund’ are real wealth held by the Social Security Administration, thus protecting it and its beneficiaries from any fiscal problems that might beset Uncle Sam.
An I.O.U. that you write to yourself and that you yourself hold might be a useful accounting device, but it is not wealth. Unfortunately, many politicians and bureaucrats enamored with Social Security lie (the word is not too strong) repeatedly about the nature of these bonds and what they imply about the solvency of Social Security.
Here’s more of what Pres. Obama’s Director of OMB, Jacob “Jack” Lew, wrote this past Spring in the pages of USA Today about the ‘trust fund’:
Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries.
When more taxes are collected than are needed to pay benefits, funds are converted to Treasury bonds — backed with the full faith and credit of the U.S. government — and are held in reserve for when revenue collected is not enough to pay the benefits due. We have just as much obligation to pay back those bonds with interest as we do to any other bondholders. The trust fund is the backbone of an important compact: that a lifetime of work will ensure dignity in retirement.
Mr. Lew is either a liar or he is incompetent at understanding even the most basic tasks and features of bookkeeping, finance, and clear thinking. His own boss earlier this week inadvertently gave strong evidence to this effect.