The New York Times reports on President Bush’s most recent effort to promote Social Security reform:
He visited the Treasury Department’s Bureau of the Public Debt accounting office here on Tuesday, a trip orchestrated to show that there is no physical vault containing workers’ payments into Social Security.
“You see, 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,” Mr. Bush said. “But that’s not the way it works.”
“There is no ‘trust fund,’ just I.O.U.’s that I saw firsthand, that future generations will pay – will pay for either in higher taxes or reduced benefits or cuts to other critical government programs,” Mr. Bush said.
It is indicative of the fraudulent basis on which Social Security has been sold to the American people since the 1930’s that the President has to go to a vault in the Treasury Department to explain that peoples’ money isn’t being stored there. To its credit, the Times acknowledges that President Bush is correct:
Although there is literally a trust fund that can be found in the federal budget, Mr. Bush was on solid ground when he said it was basically “just I.O.U.’s.”
The Social Security trust fund is an accounting device representing the billions of dollars in government bonds that were bought over the years as Social Security taxes have exceeded benefits. In the next decade, benefits will begin to exceed taxes, and the government is supposed to redeem the bonds in the trust fund to meet the cost of benefits.
But Social Security will then be competing with all other costs of the government from the military to farm subsidies, and there is nothing to stop Congress from reducing benefits so that fewer bonds need to be redeemed.
That is a refreshingly honest description of the “trust fund.” The Democrats, however, were in no mood for candor:
Democrats called Mr. Bush’s remarks irresponsible, saying the president was essentially warning that the United States might not repay its borrowed debt. Representative Peter A. DeFazio of Oregon accused Mr. Bush of saying that “this nation’s financial house is in such disarray that the rest of the world might as well stop doing business with us.”
This is frankly idiotic. In the first place, the Dems cannot deny that what President Bush said was true; their point seems to be that no one should tell the truth about Social Security. Second, President Bush plainly did not warn that the U.S. may default on its obligations; he warned that there are only three ways in which the government’s IOUs to itself can be redeemed: through higher taxes, reduced spending in other programs, or reduced Social Security benefits. This statement is, in fact, a tautology; but it is one that the Democrats will never acknowledge, and they apparently think their voters are so dumb that they don’t need to.
The matter of the Social Security “trust fund” is really not complicated. It contains notes from the federal government to itself. These are not assets. If I write you a note for a million dollars, my note is an asset. It may not be worth a million dollars, but it is an asset that has value, and you would properly put it on your financial statement when you apply for a loan at a bank. The banker would want to know something about my net worth–ha!–but he wouldn’t question that my note to you is an asset. But if I go to that same banker and show him a financial statement that shows a note from me to myself as an asset, he will think I am a prankster and throw me out of his office. An IOU from me to you is an asset; an IOU from me to me is not. That’s really all you need to understand about the Social Security trust fund. It’s not complicated, but the Democrats seem to think they can prevent voters from figuring it out.