Editorial: Social Security/There is a trust fund
February 13, 2005 ED0213
Last Wednesday, speaking at the Commerce Department, President Bush said of Social Security, "Some in our country think that Social Security is a trust fund -- in other words, there's a pile of money being accumulated. That's just simply not true. The money -- payroll taxes going into the Social Security -- are spent. They're spent on benefits and they're spent on government programs. There is no trust."
There's no easy way to say this: The president is wrong or is deliberately trying to mislead the American people. His careless use of language is especially damaging because, just when voters and Congress need to make careful decisions about Social Security, it feeds popular misconceptions that the trust fund is a myth and unnecessarily undermines confidence in the system's finances.
Here's what the Social Security Administration says on the topic: "Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security. These bonds totaled $1.5 trillion at the beginning of 2004, and Social Security receives more than $80 billion annually in interest from them."
It's no accident that Social Security is running surpluses today. A 1983 commission headed by Alan Greenspan, now chairman of the Federal Reserve, recommended increasing the payroll tax so that a surplus would develop to offset the drain on Social Security when baby boomers begin to retire. It's true, as Bush indicated, that most of the payroll revenues coming in today go out again immediately in benefits to retirees and the disabled. But not all of them. Social Security has to find a safe, secure investment for millions of dollars of annual surpluses. If skeptics think that U.S. Treasury bonds are a fiction, where would they invest the money?
It's true that Washington will have to find the funds to repay those bonds, starting about 2018, when Social Security needs the money. But what Bush implied Wednesday was that the U.S. government will default on those bonds. That is an incredibly irresponsible action for a president even to suggest. We can only imagine how it will be viewed by the Bank of Japan, the nation's big insurance companies, and millions of individual investors who collectively hold $4 trillion in similar Treasury bonds and who fully expect to be repaid.
Moreover, as some have pointed out, the president's approach hints at being simply unconstitutional. Amendment 14, ratified in 1868, says in Section 4 that, "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." The president, need we point out, has taken an oath to preserve, protect and defend the Constitution.
To be sure, repaying the trust fund bonds when Social Security needs the money will be a fiscal challenge. But that's exactly why President Bill Clinton sought to run budget surpluses in the late 1990s and insisted that Congress dedicate the money to paying down federal debt. It worked: Federal debt held by the public dropped for four consecutive years, from 1998 to 2001, the first time that had happened since 1969.
It is also why the Bush administration's fiscal policies are so disastrous for the nation. The money he gave out in tax cuts, mostly to upper-income taxpayers, was money the government already was duty-bound to use for repayment of those bonds held in the Social Security trust fund. It was money destined to pay the old-age benefits that will keep many seniors out of poverty.
The huge deficits Bush continues to rack up, moreover, will make it exceedingly difficult to repay those bonds. It appears that is by design, to make possible the dismantling of the Social Security program. Bush is selling snake oil, and the American public should refuse to buy it.
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