Rep. Spratt isn't the only one using this approach to criticize
President Bush's proposed budget. Senate Budget Committee Chairman
Kent Conrad, D-N.D., and various news organizations have issued
similar warnings. The president's proposed budget "jeopardizes the
future of Social Security," The New York Times said, because
its trust fund "would be siphoned away."
Actually, it would do nothing of the sort. Congress could go out
tomorrow and spend every dime of the Social Security surplus, and
it wouldn't affect the program's future security one bit. Or they
could wall it off -- put every penny in the proverbial "lockbox,"
for that matter --and the program's future would still be about as
financially sound as an Enron profit report.
The reason is as simple as it is startling: There is no Social
Security "trust fund" -- at least, not in any conventional sense of
the phrase. The taxes that come out of your paycheck on a regular
basis aren't deposited into an account with your name on it, as
many people believe. The money is immediately paid out as benefits
to current retirees, and whatever is left over is mixed together
with other tax funds and used to finance other government
programs.
The same thing will happen when you retire: People who are
working at the time will be paying your Social Security
benefits.
For the past 20 years, Social Security has collected more in
taxes than it has paid in benefits. But the extra money hasn't been
set aside for your retirement -- it's been spent. When the
government ran deficits, as it did for most of these years, the
Social Security "surplus" was spent on other government programs.
When the overall budget began running surpluses in 1998, these
funds went toward paying down the national debt.
So what's in the Social Security "trust fund"? Special
government bonds that function, basically, as IOUs. When Social
Security starts running deficits, as it's projected to do beginning
in 2016, it will have to start redeeming those IOUs.
By 2021, according to current projections, the government will
have to redeem some $100 billion a year in IOUs (in today's dollars
without inflation) to pay promised benefits. By 2026, the price tag
will reach more than $200 billion a year. By 2031, it will exceed
$300 billion annually. And by 2038, the "trust fund" will run out
of "money" completely.
Of course, federal lawmakers won't allow that to happen. But to
keep paying current retirees, they'll have no choice but to hike
taxes, slash benefits or legislate another delay in the retirement
age.
Yet there is another choice. President Bush's Social
Security commission, chaired by Sen. Daniel Patrick Moynihan,
D-N.Y., recommended personal retirement accounts that would let
workers build up true nest eggs for themselves. Unlike Social
Security, these accounts would really exist, with each worker's
name affixed to genuine assets that could be passed on to his or
her heirs.
We'll no doubt be hearing a lot in the future about the prospect
of setting up such accounts, and reasonable people can disagree
about how they should be structured. But before we get to that
stage, we have to jettison this fiction that Social Security has a
real-world trust fund that must be protected if the program is to
survive.
Indeed, it is that misperception, and not the president's
budget, that "undermines the security of the nation's social safety
net," as The New York Times puts it. For it allows Congress
to think that reform efforts can be safely postponed. They can't.
And the sooner we recognize the "trust fund" for what it is, the
sooner we can start having an honest debate.
David John is a senior policy analyst for Social Security at The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute.
Distributed nationally on the Knight-Ridder Tribune wire
