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Monday, January 10, 2005

Social Security Plan: All Trust and No Fund

The “lock box” has always been empty.

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In The Debates: a Twice-Repeated Lie, I wrote:

“Go to the United States Treasury?s own website ( http://www.publicdebt.treas.gov/opd/opdhisto4.htm ) and you will see that at no time during the Clinton Presidency did the outstanding debt of the Federal government ever go down.? In fact, during President Clinton?s last four years, the total Federal debt rose from $5.225 trillion to $5.674 trillion.

What was going on was a sleight-of-hand shell game.? The Treasury took all temporary surplus tax funds coming into the Social Security system accounts and immediately spent a portion of them on other government programs in order to keep those expenditures from counting against the Federal deficit.? The remaining excess funds in the Social Security accounts were used to buy publicly-held Federal debt.

To replace those funds diverted from Social Security to other government programs, the Treasury issued new, non-marketable debt and put it into the Social Security fund accounts.

The net result was that the increase in the total Federal debt never slowed down, but the increase occurred in non-marketable debt held in the Social Security account.

To understand this better, think of it this way.? If you had high credit card debt, you could pay down part of it by taking a second mortgage loan on your home.? To say that you had paid down your debt would be a flat lie.? You merely substituted a home mortgage loan for your credit card debt.? In the same way, President Clinton borrowed from the Social Security system to repurchase some of the debt held by the public.”

The Heritage Foundation’s Rich Tucker presents another description of the slight-of-hand that makes the deception even clearer.  In Social Security: All Trust and No Fund he writes:

“Various reports claim Social Security is safe and secure. In their annual report this year, the program?s trustees insisted it would be able to pay benefits through 2042. A recent Congressional Budget Office report is even more optimistic. It says Social Security is solid through 2052.

But these reports pretend there is money in the Social Security trust fund, which actually is all trust and no fund.

The fact is, Social Security is ?pay as you go.? It always has been. That means it relies on today?s taxpayers to pay today?s benefits. Which works well as long as there are more taxpayers than beneficiaries. Indeed, for years we?ve been taking in more than we?ve been paying out. The extra money is supposed to go into that trust fund. It doesn?t.

Instead, the Treasury spends the difference on roads, sex-education programs, parks and whatever else the federal government buys. The trust fund gets an I.O.U., which is stored in a fireproof safe to be made good some day with future tax money.

But starting in 2018 the math changes. The system will owe more in benefits than it will collect in taxes.”

Posted by Thomas E. Brewton on 01/10 at 05:03 PM
Economics • (0) Comments
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