"He started it."
"No, she started it!"
Like a pair of squabbling children, congressional Democrats and Republicansare engaged in a name-calling spat over whether one party or the other istrying to "raid" the Social Security trust fund. But like most sucharguments, this one is full of sound and fury and signifies nothing.
Currently, the Social Security system is running a surplus, taking in morein taxes than it spends on benefits. That surplus is used to purchasegovernment bonds -- the only purpose to which it can be put. The purchaseof those bonds generates general revenue for the federal government andthat money is spent on the operations of the federal government. That is abad system, but it is how the trust fund was designed to work. The funddoes not hold cash, never has held cash, and was not designed to hold cash.
Starting in 2014, the situation will reverse. Social Security will nolonger run a surplus but instead will run a deficit. Social Security willbegin spending more on benefits than it is taking in through taxes. Tocontinue to pay those benefits, it will have to start redeeming the bondsin the trust fund. But, as President Clinton's own fiscal year 2000 budgetadmits, those bonds are not real economic assets. Rather, "they are claimson the Treasury that . . . will have to be financed by raising taxes,borrowing from the public, or reducing benefits or other expenditures."
In financing terms, the Social Security trust fund is an irrelevancy. Come2014, when Social Security's payroll tax income falls below its benefitobligations, the program will need large infusions of tax dollars. Theexistence of the Trust Fund means only that until 2034 those dollars willcome through increased income taxes rather than increased payroll taxes.But the number of extra dollars needed is absolutely unchanged. In thewords of humorist P.J. O'Rourke, "Having a government Trust Fund is exactlythe same thing as not having a government Trust Fund."
None of the proposed "lockboxes," "safes" or "vaults" currently beingdebated will change this reality. There is no way to actually leave theSocial Security surplus in Social Security. The surplus must be used topurchase bonds, the purchase of the bonds will generate revenue for thegovernment, and that revenue must be spent. What both the president andcongressional Republicans are actually proposing, in various forms, is touse the revenue generated by the purchase of the bonds to pay down thenational debt rather than to finance new spending or tax cuts. This may ormay not be good policy, but it will not change by so much as a single daythe date at which Social Security will begin to run a deficit. Nor will itchange the amount of new tax money required to continue to pay SocialSecurity benefits.
What this pointless and silly debate should demonstrate is the need to getSocial Security completely out of the hands of politicians. SocialSecurity taxes should be invested in real financial assets, not governmentpromises to raise future taxes. That means that individual workers shouldbe allowed to divert their payroll taxes to individually owned accounts,similar to their IRAs or 401(k) programs. That would be a "lockbox" thatwould really work, a Trust Fund that could never be raided.
It's time for the leaders of both parties to stop trying to score cheappolitical points and face up to the fact that America's largest retirementprogram is in trouble. It's time for the American people to tell Congressto grow up, stop the name-calling, and give us a new, better and privatizedSocial Security system.