Krauthammer Trots Out The Falsehood That Social Security Trust Fund Is "A Fiction"


In his column, Charles Krauthammer called claims that Social Security is solvent until 2037 a "breathtaking fraud" and said that the Social Security trust fund consists of "little pieces of paper" that "amount to nothing." In fact, the Social Security trust fund consists of U.S. Treasury securities that are backed by the full faith and credit of the federal government and are generally considered to be "one of the world's safest investments."

Krauthammer Claims "The Social Security Trust Fund Is A Fiction"

Krauthammer: Trust Fund Is "A Fiction"; It Contains "Nothing" But "Pieces Of Paper" That Are "Worthless." From his syndicated Washington Post column:

The relative ease of the fix is what makes the Obama administration's Social Security strategy so shocking. The new line from the White House is: no need to fix it because there is no problem. As Office of Management and Budget Director Jack Lew wrote in USA Today just a few weeks ago, the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks.

This claim is a breathtaking fraud.

The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction.

If you don't believe me, listen to the OMB's own explanation (in the Clinton administration budget for fiscal 2000 under then-Director Jack Lew, the very same). The OMB explained that these trust fund "balances" are nothing more than a "bookkeeping" device. "They do not consist of real economic assets that can be drawn down in the future to fund benefits."

In other words, the Social Security trust fund contains - nothing.

Here's why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it's kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury - and is spent. On roads, bridges, national defense, public television, whatever - spent, gone.

In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called "special issue" bonds.

Special they are: They are worthless. As the OMB explained, they are nothing more than "claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures." That's what it means to have a so-called trust fund with no "real economic assets." When you retire, the "trust fund" will have to go to the Treasury for the money for your Social Security check.

Bottom line? The OMB again: "The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government's ability to pay benefits." No impact: The lockbox, the balances, the little pieces of paper, amount to nothing.

So that when Jack Lew tells you that there are trillions in this lockbox that keep the system solvent until 2037, he is perpetrating a fiction certified as such by his own OMB. What happens when you retire? Your Social Security will come out of the taxes and borrowing of that fiscal year. [The Washington Post, 3/11/11]

Securities In Trust Fund Are "As Safe As U.S. Savings Bonds" And Are "Not Casual 'IOUs' "

Social Security Administration: "[S]pecial-Issue Securities Are ... Just As Safe As U.S. Savings Bonds Or Other Financial Instruments Of The Federal Government." From the website of the Social Security Administration:

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 special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government. [, retrieved 3/11/11]

Co-Director Of Social Security Works: "These Are Legal Instruments, Not Casual 'IOUs.' " Nancy J. Altman, co-director of Social Security Works, told Media Matters:

Congress has always required that whenever Social Security runs a surplus, it invests that surplus in the safest investment on Earth -- interest-bearing Treasury bonds backed by the full faith and credit of the United States. There are several dozen civil servants at Treasury and the Social Security Administration keeping meticulous account of monies owed to Social Security. If the United States failed to pay the interest or the principal when demanded, it would default on its obligations, something that has never happened in the history of the United States. These are legal instruments, not casual "IOUs." [3/11/11]

Century Foundation's Anrig: Trust Fund "Will Be Paid Back ... By Taxes Collected In The Future -- Just As The Government Has Paid Back Interest And Principle On All Securities" It Has Ever Issued. Greg Anrig of the Century Foundation wrote on its group blog, Taking Note:

Backed by the full faith and credit of the U.S. government, the interest and principal on the Treasury securities in the trust fund will be paid back in full by taxes collected in the future -- just as the government has paid back interest and principal on all securities that the government has ever been issued. No additional burden is placed on future taxpayers due to Social Security beyond the commitment that was already made through the reforms in 1983. [Greg Anrig, Taking Note, 3/9/11]

CBPP: "Trust Funds Are Invested In Treasury Securities That Are Every Bit As Sound As The U.S. Government Securities Held By Investors Around The Globe." Paul Van de Water of the Center on Budget and Policy Priorities wrote:

[T]he Social Security trust funds are invested in Treasury securities that are every bit as sound as the U.S. government securities held by investors around the globe; investors regard those securities as being among the world's very safest investments.


[T]he Treasury securities that the trust funds hold are backed by the full faith and credit of the U.S. government. The U.S. government has never defaulted on its obligations, and investors consider U.S. government securities to be one of the world's safest investments. [Center on Budget and Policy Priorities, 10/5/10, emphasis original]

Posted In
Economy, Social Security
The Washington Post
Charles Krauthammer
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