Outside editorial: The myth of the Social Security trust fund

Posted: Thursday, December 16, 2010

The following editorial first appeared in the Kansas City Star:

Some defenders of Social Security are mistakenly objecting to the tax compromise between President Barack Obama and Republican leaders on the grounds that it threatens the program.

The proposed deal, which must be approved by Congress, would lower the payroll tax for workers by 2 percentage points, from the current level of 6.2 percent. The National Committee to Preserve Social Security and Medicare says this would mark "the beginning of the end of Social Security as we know it."

Hardly. It makes no sense to view Social Security as a program entirely separate from the government's general budget. Payroll taxes are supposedly earmarked for Social Security, but Congress has been tapping this revenue stream for years, while handing out IOUs - "special issue" Treasury bonds - to the Social Security Trust Fund.

A lot of people speak of those IOUs as if they can be pulled out and exchanged for money to pay for benefit checks. They can't. As the Clinton administration budget of 2000 explained, the securities in the Trust Fund "do not consist of real economic assets that can be drawn down in the future to fund benefits."

Those special-issue bonds can only be redeemed by raising taxes, cutting spending elsewhere or borrowing - exactly what the government would have to do if the Trust Fund didn't exist. The Trust Fund, said the Clinton budget message, "does not, by itself, have any impact on the Government's ability to pay benefits."

This year, for the first time since the 1980s, the payroll tax didn't produce enough money to pay current benefits, forcing officials to tap general revenues. The tax compromise can be attacked or defended on a variety of grounds, but portraying it as the "end of Social Security as we know it" is over the top.

Here's the real point: This year's shortfall in the payroll tax is a reminder that unless Social Security is reformed to more closely align future costs with likely available revenue, the program will end "as we know it" of its own accord.



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