Just one minute continues to flog its case for privatization by arguing, for the umpteenth time, that the Social Security trust fund doesn’t exist, and that therefore Social Security will start to go bankrupt in 2018, instead of the more widely accepted figures of 2042 (Social Security trustees) and 2052 (CBO).
What rhetorical sleight of hand do they use to accomplish this? They rely on the Heritage Foundation’s Myth 2, which is one of most appalling cases of sophistry I’ve ever read. Here’s a taste of it:
The Social Security trust fund contains nothing more than IOUs (in the form of special issue U.S. Treasury bonds), which the federal government can repay only though higher taxes, massive borrowing, or massive cuts in other federal programs.
Imagine if I went to the bank and asked to withdraw from my account, only to be told that my money was “nothing more than an IOU,” and that the bank could only repay me by decreasing its own profits or borrowing money from somebody else. I would try to restrain myself from throttling the bank teller (after all, there would be security guards around), and then I would tell her that I realize the bank might want to keep my money, but in fact I would please like to have it back, NOW.
Yes, Mr. Heritage Foundation, sir, a bond is technically “nothing more than an IOU” — a contractually binding document obligating the debtor to repay the creditor. The debtor is obligated to pay, and the creditor is obligated to not give a rat’s ass how the debtor comes up with the money.
The Bush administration has for years used the trust fund as a sort of smoke screen to conceal the real size of the federal government’s deficit, but in 2018, the federal government *will* need to start repaying it. This is not because the Social Security system is in crisis, it’s because the federal budget is in crisis. Instead of accepting responsibility for his massive debt, Bush is shuffling off the blame to Social Security, which had carefully planned to carry a surplus for over 20 years in order to pay for the baby boom’s retirement.
Since the Federal Government controls both the trust fund and the rules under which it makes disbursements, your analogy to your personal bank account is entertaininng You You will surely be fascinated by this description of the trust funds from the 1999 Treasury report on the budget. 1999, you will recall, was pre-BushCo:
These balances are available to finance future benefit payments and
other trust fund expenditures-but only in a bookkeeping sense. Unlike
the assets of private pension plans, they do not consist of real
economic assets that can be drawn down in the future to fund benefits.
Instead, they are claims on the Treasury that, when redeemed, will have
to be financed by raising taxes, borrowing from the public, or reducing
benefits or other expenditures. The existence of large trust fund
balances, therefore, does not, by itself, make it easier for the
Government to pay benefits.
This point is not in dispute among serious economists, BTW - even Paul Krugam tacitly acknowledges it.
(And sorry if this comment is shot with typos - the comment bbox is not formatting properly on my computer screen, so I am sort of typing half-blid.
Link to Treasury comment:
http://frwebgate3.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=0468036541+1+0+0&WAISaction=retrieve
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I suppose at this point the debate is a matter of semantics. The “Trust Fund” is real in the sense that, as pointed out on Just One Minute,
But Congress could make a new law defaulting on any government bonds, not just the Social Security Trust Fund. The Trust Fund is as binding as any other federal law.
The bigger point is the more serious one. We are going to face a budget crisis in 2018. Whether we blame “Social Security” or “Bush’s tax cuts” is a matter of politics, not policy.