Bush questions worth of Social Security trust fund

WASHINGTON - Using a government filing cabinet as a prop, President Bush on Tuesday played to fears that the Social Security Trust Fund is little more than a stack of worthless IOUs.

But if the IOUs are worthless, so is the "full faith and credit" of the federal government, independent financial analysts said. The reality is a little more complicated than Bush acknowledged, and it goes to the heart of the debate over Social Security's future.

Experts say both sides in the debate over Social Security mischaracterize the trust fund's worth to make the case that the retirement system is essentially sound, as many Democrats contend, or that it's on the verge of crisis, which is Bush's message.

"I don't like the Democrats saying everything is fine any more than I like the Republicans saying, `House on fire! House on fire!' The truth is somewhere in the middle," said Timothy Smeeding, a professor at Syracuse University's Maxwell School of Citizenship and Public Affairs.

Bush visited the Bureau of Public Debt in Parkersburg, W.Va., on Tuesday to highlight the fact that there's no actual cash in the trust fund, even though Social Security has piled up a $1.7 trillion surplus since it was created in the late 1930s. Payroll taxes collected from workers have exceeded benefits paid to retirees every year since 1984.

Instead of socking the surplus away, the government spent it on other programs and promised to repay it later, with interest. The IOUs are in the form of special-issue Treasury bonds that are stored in an off-white, four-drawer filing cabinet in West Virginia.

"There is no trust fund, just IOUs that I saw firsthand, that future generations will pay," Bush said after inspecting the storage site. "Imagine - the retirement security for future generations is sitting in a filing cabinet."

The Social Security Administration has tried for years to downplay fears that the IOUs are an empty promise. The agency's Web site includes a section that addresses the question, "Is there really a Social Security Trust Fund?"

"Far from being `worthless IOUs,' the investments held by the trust funds are backed by the full faith and credit of the U.S. Government. The government has always repaid Social Security, with interest," the agency says. "The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the federal government."

Current projections indicate that the value of the government's promise will be put to the test in 2017, when Social Security payroll taxes will fall short of promised benefits. At that point, the Social Security Administration will have to start cashing in its IOUs.

It's happened before. In 1982, Congress avoided any disruption in benefits by borrowing from other government trust funds and taking steps to shore up Social Security that included raising the tax rate and trimming future benefits. The borrowed money was repaid within four years.

Now Social Security faces new financial strains as the baby boom generation nears retirement age.

"The money has not been set aside, but there is a promise. We're going to have to get that money somewhere," Smeeding said. The government could meet its commitment by raising income taxes or Social Security payroll taxes, by trimming future benefits or by combining the two approaches, and it could issue more bonds - new debt - to raise the money.

Abandoning the commitment to pay off the trust-fund bonds isn't considered a realistic option, even by those who like to say the trust fund is worthless.

"The Social Security Trust Fund is a promise to raise taxes later," said Brian Riedl, a budget analyst at the Heritage Foundation, a conservative research center. "It's worthless in the sense that you cannot pay benefits with the IOUs in the trust fund."

He acknowledges that his proposal to let younger workers invest some of their Social Security taxes in stocks and bonds would do nothing to make Social Security solvent. He hopes that workers could use profits from the accounts to offset cuts in their future retirement benefits under traditional Social Security.

Both sides agree that the key to fixing the retirement program is finding a way to make sure the government can meet its future obligations.

"There is a trust fund backed by the full obligation of the U.S. government, but that doesn't change the fact that we do have a problem," said William Novelli, the chief executive of AARP, a seniors' organization that opposes Bush's plan for private accounts. "We ought to address it now."

"Franklin Roosevelt did a good thing when he created the Social Security system. It's worked. But the math has changed," he told a crowd at West Virginia University after his trip to the filing cabinet. "The longer we wait, the more costly it's going to be to a future generation of Americans."

I'm glad to see Bush getting out there and making this more visual, and easier for average, busy Americans to understand.

You gotta love the SSA's chutzpah. Is the trust fund worthless? "Why, no! Those bonds are backed by the full faith and credit of the U.S. Government."

The same Gov't that is how many TRILLIONS of dollars in debt? The translation of the SSA line should be: "When it comes time to pay our I.O.U. to you, don't worry, we can always jack up everyone else's taxes."

But if the IOUs are worthless, so is the "full faith and credit" of the federal government, independent financial analysts said.

Errant nonsense from these "independent finacial analysts".

Of course these IOUs are said to be backed by the "full faint and credit" of the federal government.

That's not the point. The point is this: that is ALL they are backed up by. No assets to be sold. No shares in productive enterprises to pay dividends. No nothing except a promise that future generations can be taxed to make good on the IOUs.

And who says that these present day "independent finacial analysts" are right in their assessment that the future economy and the willingness of our grandkids to be financially raped to pay off our profligacy will be sufficient?

After all, the "US Government" is us. It is our assets - or more precisely our kids' and grandkids' assets - that will be needed to redeem these IOUs.

Those are the same assets that would be needed to fund the Social Security System if the IOUs didn't exist.

So how is it incorrect or even misleading to say that the IOUs are exactly and precisely worthless?

The SSA has always been repaid, but Congress is well and truly able to change the SS benefits an individual receives any time they want to, which is the real issue.

The truth is somewhere in the middle

LOL!

Economic fraud forced on Americans (funded by dead and dying Americans), by the ghoulish culture of death socialists...is not about truth. It is about deception.

Thanks President Bush for your efforts!

Unlike the past several Presidents, George W. Bush is attempting to address this issue he inherited. All those who trash GWB for taking this issue on, is forgetting that this problem has been ignored since the 1950's.

I support this plan to privatize the SS system over a period of years to ensure the Government no longer squanders the money we see deducted from our salaries for Social Security.

The more we hold our elected officials accountable for their actions, the better off we will be.

If the Government had not spent everyone elses retirement fund, Social Security would be fine. But the way that the Congresscritters got themselves on another plan, then spent all the money in this one was no accident.

It was Grand Larceny. The Congress Retirement plan should be San Quention.

Imagine trying to pay back all those billions syphoned off, and then the compound interest due! Who could calculate the totals at this point? Social Security would not be in trouble at all, if the "leaders" of this country were not shoveling the gold out the back door as we all spoon it in the front.

And from the day in 1965 that LBJ "unified the federal budget" so that he could "fight two wars" -- in Viet Nam and on Poverty -- it was only a matter of time until Congress had drained the Treasury.

Just one more reason for privatizing Social Security: keeping Congress' hands out of the till.

So how is it incorrect or even misleading to say that the IOUs are exactly and precisely worthless?

It's misleading because the assumption of private & institutional investors is that the US government pays back its loan obligations. That's like saying that my promise on my mother's sainted heart to give you $12 tomorrow for $10 today is automatically worthless just because it's a promise. If you believe that I'll pay you back it's worth an extra $2 to you. And if I've always paid you back- for more than a century- you've got a good reason to believe that I will this time, so the promise has some value.

The President is halfway right, because the government can make the SSA's Treasury bonds worthless- by declaring that it will never pay them back. That's called defaulting, like what Argentina did.

If we don't want to go there, our government should treat its bonds as debts to be repaid, and our President should stop saying that the bonds the Treasury is selling are "exactly and precisely" worthless- our government needs people buying those bonds.

You answer repeats exactly the same wrongheaded and errant nonsense of the main aritcle that I complained about in my post.

Let's examine: your analogy about YOU loaning ME money shows how you go astray.

Substitute YOU for ME and try loaning money to yourself.

Now, exactly who will pay you back? And which pocket will the money come from? And what difference will it make to you global situation that you have promised to pay yourself back for the money you have loaned to yourself? And what difference does it make that you are or aren't an honest man?

Answer: Nothing. Nada. Zilch.

I fear you missed the entire point of my post.

The newspapers of course don't report what President Bush really said, which was, "...a lot of people in America think there's a trust, in this sense - that we take your money through payroll taxes and then we hold it for you, and then when you retire, we give it back to you. But that's not the way it works. There is no 'trust fund', just IOU's ...." He was explaining, in effect, that we currently do not have individual accounts or account balances, just promises that future taxation will pay our retirement benefits under Social Security. He also pointed out that Congress and Federal employees, already have private accounts which they own, called a Thrift Savings Plan, and added that if such a plan is good enough for Congress and Federal workers, "it ought to be good enough for workers all across the United States." Amen.

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