A Trust Fund Truth
Cato's Tanner does concede that the Social Security Trust Fund will pay benefits until 2037. He claims, however, that "that figure is misleading, because the Trust Fund contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much the government owes the system." So government bonds backed by the full faith and credit of the U.S. government, a government that has never defaulted on its obligations in its entire existence since 1776, are not actual assets? Really? [bold added]
Lind's feeble attempt at ridicule does not understand that bonds which are assets to an investor are liabilities to the issuer. The SS Trust Fund holdings would show up as BOTH assets and liabilities on an overall government balance sheet. Tanner is correct: It's like writing an IOU to yourself, holding the IOU doesn't make you any wealthier. Any money going to SS payments from the trust fund will come from general tax revenues or additional future borrowing (deficits), not from some magic treasure chest.
Really, debunking the lies about SS should not require this lack of intelligence at Salon. And worse yet, pretending that the US government is immortal and that the dollar is invincible is probably a really bad idea.
I haven't seen the actual designation on these often-mentioned bonds. Are they not T-Bills set against SS? They are not entirely imaginary, I presume.
More to the point, the trust fund represents not general revenue but the stream generated by SS taxes, right? Those may enter the general stream, but it is that input that is adequate for rather a while, isn't it?
We don't issue T-Bills worrying that we may default on them. We do worry about covering them with controllable deficits, but Lind is right that we have a good record so far. Imagining that there is something beyond simply planning to make good on obligations, some uber-bank where our fund could reside, seems the illusion.
May 20, 2009 8:37 AM | Reply | Permalink
Is an IOU to yourself "entirely imaginary"? It's nothing more than an internal accounting trick or a quantitative reminder.
That you can sell your IOU to someone else doesn't relieve you of paying them off via outside revenues eventually (of course you can borrow more to pay off maturing bonds but that leaves the general fund still carrying the load).
The trust fund was built up by payroll taxes, yes. The money was spent, leaving self-IOUs in its place (as was intended). There is little to no cash in the trust fund.
No, the input to the trust fund is very close to zero per year at this point. It is projected to go up a little for a few years then go radically negative after about 2015. At that point general taxes will have to be diverted or raised to "buy back the IOUs" so the trust fund will have cash it can send to SS recipients etc.
May 20, 2009 1:53 PM | Reply | Permalink