Wednesday, April 06, 2005

The Portrayal of the Social Security Trust Fund...

I just read a news piece in the San Diego Union Tribune with the headline Bush portrays Social Security fund as worthless paper (UT). The portrayal of Bush's media stunt is very interesting.

Using a government filing cabinet as a prop, President Bush yesterday played to fears that the Social Security Trust Fund is little more than a stack of worthless IOUs.

I saw the video of the President at the Bureau of Public Debt yesterday and the "prop" he used was the actual filing cabinet where the actual special-issue Treasury Bonds are kept in folders. This article continues by glossing over the nasty truth about the Social Security Trust Fund.

The Social Security Administration has tried for years to downplay fears that the IOUs are an empty promise. The agency's Web site addresses the question, "Is there really a Social Security Trust Fund?"

The SSA's answer: "Yes."

Another SSA Web section address concerns that the bonds are of little value.

"Far from being 'worthless IOUs,' the investments held by the trust funds are backed by the full faith and credit of the U.S. Government."

The full faith and credit of the U.S. Government is its ability to raise tax revenues. However, this is not a definitive asset, like gold or real estate, which is exactly why both domestic and international investors pay close attention to the U.S. public debt and the deficit spending that created it.

So, as the story points out, the U.S. government is taking in more Social Security payroll taxes than it is paying out in Social Security benefits. The President was at the U.S. Bureau of Public Debt to demonstrate that these surpluses are not equating to cash in the bank, so to speak. This surplus cash is spent on things like the military and education while the Social Security Trust Fund is back-filled with IOUs, otherwise referred to as special-issue U.S. Treasury Bonds. What makes these U.S. Treasury Bonds "special-issue" is that they can only be held by the U.S. government. In other words, the Congress is converting the revenue surpluses of the Social Security program into public debt in order to cover deficit spending on other programs.

Congress created the real magic by declaring the Social Security accounts completely "off-budget" in 1990, which precipitated the perverse situation of the late nineties where politicians were proclaiming "surpluses as far as the eye could see" while the government was actually increasing the public debt to cover continued deficit spending.

National Public Debt

09/28/2001 $5,807,463,412,200.06
09/29/2000 $5,674,178,209,886.86
09/30/1999 $5,656,270,901,615.43
09/30/1998 $5,526,193,008,897.62
09/30/1997 $5,413,146,011,397.34
09/30/1996 $5,224,810,939,135.73

As we can see, the government had to borrow more money to cover deficit spending in each year of the so-called "budget surpluses". Our politicians were able to declare this debt as a surplus because borrowing against the Social Security Trust Fund is "off-budget". I guess the point of this post is the dishonesty of the so-called realists in this entire debate over Social Security. The entire reason there is an "upfront cost" to converting some Social Security revenues to privately held investments is precisely because the past and current Social Security surpluses are already spent.

President Bush was right to go the Bureau of Public Debt to view the Social Security Trust Fund because the Social Security Trust Fund is precisely that, a public debt. He was also absolutely correct in referring to the Social Security Trust Fund as IOUs because U.S. Treasury Bonds are exactly that, IOUs issued by the government.


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