Tag: trust fund

Friday Links

  • When is an entitlement not an entitlement, but a command? When a federal judge contradicts herself, of course.
  • As the Arab League’s influence over its own member states wanes, of course they support the creation of an international no-fly zone over Libya.
  • Of course, there’s really no such thing as a “Social Security trust fund.”
  • Should the United States and Saudi Arabia remain allies? Of course—but Washington should probably re-think the terms of the partnership.
  • Of course, when George W. Bush was president, you couldn’t go anywhere in Washington without seeing an anti-war protest. Where have they all gone?


The Washington Post Misleads Readers about Medicare & Social Security Funding

Here’s a poor, unsuccessful letter I submitted to the editor of The Washington Post:

The Post’s economic reporters need to convey to readers that the Medicare and Social Security “trust funds” contain zero funds [“Medicare Funds to Last 12 Years Longer than Earlier Forecast, Report Says,” August 6].

This is not up for dispute.  When those programs’ revenues exceed outlays, Congress puts the excess in general revenues and spends it.  Congress marks the event by leaving an IOU to itself in these “trust funds.”  Those IOUs are not “funds,” any more than an IOU that you write to yourself is money.  These so-called “trust funds” therefore have no bearing on the (in)solvency of Medicare and Social Security.

Yet every year, the trustees for these programs claim that they do, making the Medicare and Social Security trustees reports an annual, ritualized lie that the U.S. government broadcasts to the American people.

Properly educating reporters, editors, and politicians about the Medicare and Social Security “trust funds” is a decades-long project.

The Social Security and Medicare ‘Trust Funds’ Are a … What’s the Word?

Yesterday’s New York Times editorialized:

It’s the time of year when the trustees of Medicare and Social Security release their annual reports on the programs’ financial health. And that means Americans are likely to be bathed in a fog of political rhetoric that makes it hard to sort out fact from fiction.

Here’s the bottom line…

The Times then proceeded to bathe its readers in fog:

According to the reports, the date of insolvency for Medicare’s hospital fund was pushed back, from 2017 to 2029, because of cost-saving measures in health reform. As for Social Security, without any changes, it will be able to pay full benefits until 2037 and partial benefits after that, the same estimate as in last year’s report, despite temporary setbacks from the recession…

A lot of attention will be paid to the finding in the Social Security report that payouts will exceed revenues in 2010 and 2011…That doesn’t endanger benefits, because any shortfall can be covered by the trust fund.

No.  It.  Can’t.  Because there are no funds in the Social Security “trust fund.”  There are no funds in the Medicare “trust fund.”  As Fortune magazine’s senior editor-at-large Allan Sloan explains in today’s Washington Post, those “trust funds” contain nothing but “funny money.”

In a 2006 blog post titled, “Sometimes, Governments Lie,” I offered the following proposition:

If the government knows that there are no assets in the Social Security and Medicare “trust funds,” and yet projects the interest earned on those non-assets and the date on which those non-assets will be exhausted, then the government is lying.

That still seems correct to me: the whole idea of the Social Security and Medicare “trust funds” is a lie.  An institutionalized, ritualized lie that the U.S. government tells the American people. Perpetuated by both political parties, and others with an interest in hiding the reality of these programs’ unfunded liabilities from voters.  One that many journalists uncritically repeat.

Social Security: Debating the Ostriches

Over at Salon, Michael Lind takes me to task for raising the alarm about the latest Social Security Trustees report showing that a) Social Security’s insolvency date is growing closer, and b) the system’s unfunded liabilities have increased dramatically since last year’s report.

Like most of those who resist having an honest debate about Social security’s finances, Lind relies on a combination of economic flim-flam and political sophistry to obscure the true problem. For example, Lind points out that when I quote the Trustee’s assertion that the system’s unfunded liabilities currently top $17.5 trillion, that “assumes there are no changes made between now and eternity.” Well, duh! All estimates of US budget deficits assume that spending won’t be cut or taxes raised enough to eliminate the deficit. In fact, when I get my Visa bill and it shows how much I owe, it doesn’t tell me anything about whether I will or can pay that bill in the future. Obviously, if we raise Social Security taxes, cut Social Security benefits (or create personal accounts), we can reduce or even eliminate the program’s unfunded liabilities.

Lind then returns to the hoary idea of the Trust Fund. He objects to my characterization of the Trust fund “contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much the government owes the system.” This, he says, is the same as saying “government bonds backed by the full faith and credit of the U.S. government, a government that has never defaulted on its obligations in its entire existence since 1776, are not actual assets?” He points out that millions of Americans invest in government bonds through their retirement programs and consider them assets. “Are U.S. government bonds “actual assets” when they are part of IRAs but not “actual assets” when they are owed to the Social Security system?” he asks.

That’s right. If I write you an IOU, you have an asset and I have a debt. If I write an IOU to myself, the asset and debt cancel each other out. I haven’t gained anything, else it would be a whole lot easier to pay my bills. When Lind invests in a government bond, he has an asset and the government has a liability. But when the government issues a bond to itself (ie. Social Security), the asset and liability cancel each other out. There’s no net increase in assets.

But don’t take my word for it. This is what Bill Clinton’s budget had to say about the Trust Fund in FY2000:

These Trust Fund balances are available to finance future benefit payments…but only in a bookkeeping sense….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 Trust Fund balances, therefore, does not by itself have any impact on the government’s ability to pay benefits.

Lind then switches course and says, ok, forget about the Trust Fund. Think about Social Security like we do about defense spending. “Why do we never hear of the “unfunded liabilities” of Pentagon spending – the third of the big three spending programs (Social Security, Medicare, defense) that take up most of the federal budget? Defense spending comes out of general revenues, not a dedicated tax.”

Actually, that is a valid comparison. Both defense and Social Security spending for any given year are ultimately paid for out of that year’s tax revenue. The composition of the tax revenue is largely irrelevant. And, when taxes don’t equal expenditures, we get budget deficits. Those deficits will eventually have to be paid for by raising taxes or cutting spending.

Current projections by the Congressional Budget Office suggest that unless we reform entitlements programs, government spending will reach 40 percent of GDP by mid-century. Paying for all that government will be a crushing burden of debt and taxes for our children and grandchildren.

No amount of obfuscation by defenders of the status quo can obscure that fact.

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