Is the Social Security Trust Fund a Fiction?
No! If the government exists, and government securities exist, and different accounts have different legal status, and so forth, then the social security trust fund exists.
Every month, my employer dumps a bunch of money into a pipe (I like to imagine it as coins from a big change jar) that has my name on it. Most of that money goes through the main pipe to my checking account. A bit goes down a little pipe to my health savings account. A good bit of it is diverted down a pipe that goes to the federal government. A yet smaller amount goes down a pipe that goes to the DC government. Some goes down pipes to special bins for Social Security and Medicare. Some of that flows back up pipes to SS and Medicare claimants. Some continues into the big pipe to the general fund. The Treasury sends little pieces of paper up one of those vacuum tubes that say that they’ll pay back the money that passed through the Social Security bin and ended up in the general fund.
Now, my health savings account and my checking account are both my accounts. However, there are legal restrictions on what I may do with my HSA. If I buy a big bag of Skittles with my HSA, I will, in some fairly clear sense, owe my HSA $1.99, or whatever it is, even though I would be transferring money from myself to myself.
Similarly, the Social Security Trust Fund and the general fund are different accounts that have different legal statuses. The administrators of the SSTF can, as far as I understand it(and please correct me if you understand it better), do three things: (1) cut SS checks; (2) pay SS administrative costs; and (3) buy securities from the Treasury. The SSTF, as I characterized it, is basically a little stopping off point from the pipes that run from our paychecks to the general fund. The point of this, I take it, is to have a box of change from which to pay SS benefits without having to get legislation appropriating money for SS each year. Because there is no point in having a huge pile of coins sitting in the SSTF being unspent, the rest of the coins are sent down the chute to the general fund, and are replaced with slips of paper (vacuum tubes!) promising repayment from the Treasury.
Now, I don’t see how the SSTF is any more a fiction than my HSA. As John Searle would say, the SSTF and the general fund have different “deontic powers” associated with them, and those powers are real powers underwritten by real institutional facts.
But who cares? Suppose there was no SSTF, and SS benefits were paid out of the general fund, and thus there was no issue of the general fund owing money to the SSTF. The demographic unsustainability of Social Security as it presently exists would be exactly the same. And the regressive and unjust nature of Social Security as it presently exists would be exactly the same. So I can’t understand what’s at stake in the discussion of reality of the SSTF, or whether we have a crisis of the general fund to which the design of Social Security contributes, or a crisis of Social Security, period. What we’ve got is a program that’s just plain bad in normative terms, and even worse in normative terms because it’s unsustainable.
January 7th, 2005 12:53
I think the “fiction” is that the fund is not what most people think (and have been led to believe) it is.
I liked this illustration from Rich Tucker the other day.
January 7th, 2005 13:05
I like the Tucker article.
January 7th, 2005 20:18
Thanks for the link, Gil. I always get a chuckle reading stuff on Clownhall.com
I think the Repugs would do better on SS reform if they seperated the obvious attempt to loot SS in the form of private accounts, from true attempts to fix it by recalculating the formulas.
Though all this debate seems to be be moot. The Repugs seem to have stepped on their dorks coming out of the starting gate on this issue.
I look forward to all the Repugs battling AARP in the coming months. Who’s gonna win Florida in 2008? Hehe.
January 7th, 2005 22:46
The question of the SSTF’s “reality” from the standpoint of SS itself misses the point, I think. The government can bind itself to treat the SSTF and the GF differently for accounting purposes, but doing so will not make the SSTF into an asset from the point of view of taxpayers. It’s still nothing but a claim on future tax revenues. And since what we care about is the magnitude of the total burden *placed on taxpayers* by SS obligations, the SSTF is not real for the purposes typically ascribed to it by the “there is no crisis” crowd: it does nothing to reduce that tax burden.
Maybe, on second look, this is just a restatement of what you said. If so, ignore.
January 8th, 2005 19:58
The so-called “trust fund” holds Treasury securities. What is a Treasury security? Nothing more than a promise to raise revenue in the future. So the “solvency” of Social Security is premised on nothing more than the promise of the federal government to raise taxes in the future.
Splendid.
Consider a counterexample. If your parents own a Treasury bond, then yes that is a future asset to you (as your parents’ beneficiary).
But a mountain of IOUs exchanged between your mother and your father are not going to make your future inheritance any bigger.
Stated yet another way, putting coins in your piggy bank means something. Putting handwritten IOUs promising to pay yourself in the future means nothing.
The SSTF is exactly like that — just empty accounting entries exchanged between two parts of the federal government, backed by absolutely nothing.
Vladimir and Estragon Explain Social Security Reform
January 10th, 2005 11:37
All paper money is is IOUs from the government, also.
So, I suppose if the SSTF was held in cash, then all of you would be arguing the exact same thing.
The question of worth comes down to: What is someone willing to pay for the item? If the SSTF managers decided to sell all the treasury bonds they have on the open market right now, and buy gold bullion (or perhaps oil?) instead, how much would they end up with? That’s the current value of the SSTF. Of course, that value could change over time, if people were more or less likely to buy the treasury bonds.
It’s called a market.
January 11th, 2005 15:29
Oh, for God’s sake, Will, stop playing dumb. The reason we’re forced to go through this tedious metaphysical debate about the reality of the SSTF is that proponents of SS reform are going around claiming that Social Security faces a funding crisis around 2018. For example, the WP quotes White House SS “point person” as saying, “In 2018, Social Security has a legal claim above and beyond the revenues it is collecting.” Now, that’s true, according to current projections. 2018 is when SS is supposed to have to start dipping into the trust fund to meet its obligations.
But this fact is being parlayed into describing the situation as a crisis that calls for immediate solution. Even the Post’s Weisman calls 2018 “a day of reckoning” when it’s no such thing. It’s merely the projected date when payroll tax revenues are exceeded by obligations. The system isn’t expected to run out of trust fund money until 2042 (according to the Social Security Administration) or 2052 (according to the Congressional Budget Office), and you can get even more varied estimates if you plug in different rates of growth.
Since it’s very hard to get something done politically based on projections about what might happen forty or fifty years in the future, proponents of Bush’s agenda want to ramp up the sense of urgency by saying the trust fund is a fiction and the real crisis point is 2018. If you accept the reality of the trust fund — which is to say, if you believe the Treasury securities held by the trust fund have roughly the value everyone thinks they have — then the day of reckoning doesn’t come until at least 2042.
For an illustration of the 2018/2042 dishonesty in action, here are a couple of paragraph’s from today’s Bush speech on the subject:
On any reasonable reading, these two paragraphs tell a big untruth: that in 2018, when the money going out exceeds the money coming in, the government will have to either raise payroll taxes or reduce benefits. If the SSTF is real, the government will have to do no such thing, because it will be able to start sending those little slips of paper back down the vacuum tubes to Treasury and getting little coins in return.
As to whether Social Security is sustainable past 2042 or 2052 or whenever, that’s another argument. But this 2018 thing is pure bullshit.
January 11th, 2005 19:16
Nice post, Dave. Unfortunately, logic and facts won’t stop the Republicans and their submissive ‘libertarian’ lackeys from looting Social Security.
Consider:
90% of Bush voters think Saddam Hussein was behind the 9/11 attacks
80% think Saddam had Weapons of Mass Destruction
40% think Saddam used those WMD on our troops when we invaded Iraq.
It’s a simple plan that works over and over. Bush lies, Rupert Murdoch(the guy who pays for Will’s screeds and Cato) passes the lies off as facts on Faux Noows, and the rich get richer.
In four short years, Bush & Co. have made America totally dependent on Saudi Arabia for oil and China for funding. Thank God we only have two years of this left. The Repubs will likely lose their majority in the House in 2006 because in their rush to get their habnds on the Social Security money, their true nature has become apparent to even their most lumpen supporters.