Magazine article Newsweek

A Lot of Trust, but No Funds: You Don't Have to Totally Agree with Bush's Social Security Commission to See That Its Analysis of the System's Financial Problems Is Right On

Magazine article Newsweek

A Lot of Trust, but No Funds: You Don't Have to Totally Agree with Bush's Social Security Commission to See That Its Analysis of the System's Financial Problems Is Right On

Article excerpt

One of Washington's biggest industries is producing documents that nobody reads, for good reason. But showing that every rule has its exception, the presidential Social Security commission last week produced a two-page gem: an explanation, buried in its 30-page preliminary draft, of why almost everything that almost everybody thinks about the Social Security trust fund is wrong. Tune out the predictable partisan noise--the Bushies and their fee-hungry Wall Street allies praised the draft, many Democrats and member-hungry advocacy groups hated it--and turn to pages 16 and 17. You find a wonderfully clear discussion of why the trillion-dollar Social Security trust fund doesn't help solve the system's long-term financial problems. And why letting the fund grow to $5 trillion, as currently planned, won't help either. (You can find the report at http://www.washingtonpost.com/wpsrv/onpolitics/transcripts/ssreport071901.pdf)

I know it sounds silly to say that a trillion-dollar trust fund is useless. Let me explain why that's the case. Let's say that you set up a $1 million trust fund to pay for your retirement. But instead of putting in $1 million of cash or stocks, you give the fund a $1 million I.O.U. from yourself. When your Golden Years arrive, you want the million bucks. To get it, you need to fork over $1 million to redeem the I.O.U. The fact that the fund has the I.O.U. doesn't make it any easier for you to come up with the money.

The Social Security trust fund, which is part of the federal government, holds Treasury securities--I.O.U.s from the federal government--to meet its future obligations. Treasury bills are perfectly fine investments. But when they're held in federal trust funds, Uncle Sam has the same problem redeeming them that you'd have redeeming your own I.O.U.s in your personal trust fund. To quote the Clinton administration's fiscal 2000 budget, government trust funds "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, have any impact on the government's ability to pay benefits. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.