Does the Social Security Trust Fund Really Exist?

Jim Agresti

 

 

In a memorable scene from the classic sitcom “Sanford and Son,” a legal predicament led Fred Sanford to consider hiring a man who was peddling cut-rate attorney services. When Sanford and the man met, the conversation that ensued went something like this:

Sanford: So, you’re a lawyer?
Man: That depends on who you ask.
Sanford: I’m asking you.
Man: If you ask me, I’m a lawyer.
Sanford: Then who says you’re not a lawyer?
Man: The state of California.
This exchange epitomizes the situation with the Social Security Trust Fund, because the legal and practical realities sometimes clash. Both liberals and conservatives have taken advantage of this paradox to make duplicitous claims about the Trust Fund and its finances.

Liberals are talking out of both sides of their mouths, and conservatives are just as guilty.

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First, there can be no doubt the Trust Fund legally exists. It was established by a 1939 law that is still in effect, which declares, “There is hereby created on the books of the Treasury of the United States a trust fund to be known as the ‘Federal Old-Age and Survivors Insurance Trust Fund’….”
More significantly, the Social Security Administration has provided clear public accountings of this fund since its inception, which are mirrored in the books of other federal agencies. Consider, for example, the Treasury Department’s Monthly Statement of the Public Debt, which shows a value of $2.7 trillion for the “Federal Old-Age And Survivors Insurance Trust Fund.”
Now, let’s consider the practical side. The only reason the Trust Fund has assets is because the Social Security program had surpluses in previous years. However, these surpluses were loaned to the very entity that Social Security is a part of: the federal government. This is because federal law has always required that Social Security loan its surpluses to the federal government.
The key to understanding this unintuitive reality is a simple fact: the finances of the Social Security program are separated by law from the rest of the federal government’s finances, as shown in this diagram.

Courtesy of Just Facts.

As is well known, the federal government has spent all of the money it has borrowed from the Social Security program (and then some). Thus, as explained in blunt terms by the Clinton administration’s 2000 budget proposal, the Social Security Trust Fund does:

not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

In keeping with this practical reality, the White House Office of Management and Budget, Congressional Budget Office (CBO), and many other organizations frequently report on federal finances as if the Social Security Trust Fund did not exist. They do this by merging all federal finances into a single budget, even if they are separated by law. This form of accounting is called the “unified budget” (see page 115 of this Congressional Budget Office report for details).
This unified view of federal finances effectively erases the debt that the federal government owes to Social Security. Hence, the Obama administration has argued that the money owed to Social Security “is debt that the federal government ‘owes to itself’ — and, as such, does not represent a ‘fiscal burden’.” Furthermore, the administration said that measures of federal debt that include the Trust Fund are not “meaningful” and have no bearing on “the federal government’s ability to pay its obligations.”

(Photo: Getty Images)

This is where political double-talk comes into play, because the same organizations and people who sometimes disregard the Social Security Trust Fund also talk about it as if it contained hard assets. For example, in 2013 the White House stated that the Social Security Trust Fund is projected to “be depleted by 2033.”
This hypocrisy also manifests when talking about the national debt. In September 2012, noted economist Dean Baker claimed that the national debt would not reach 90 percent of our nation’s gross domestic product until around 2020. At the time he wrote this, the debt was already well above that level, clocking in at $16 trillion or 101 percent of GDP.
So how did Baker come up with a lower figure for the debt? By excluding all of the money owed to the trust funds of Social Security, Medicare, and other such programs. In other words, Baker’s figure for the national debt assumes that these trust funds don’t truly exist. In stark contrast, less than a year earlier Baker wrote that the Social Security “trust fund currently holds $2.6 trillion in government bonds.”
Those are quintessential cases of liberals talking out of both sides of their mouths, and conservatives are just as guilty.

Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee, presents his budget plan during a press conference at the U.S. Capitol on March 12, 2013 in Washington, DC. U.S. President Barack Obama is scheduled to meet with both Republican and Democratic caucuses this week about the budget, starting today with the Senate Democrats. (Photo by Win McNamee/Getty Images)

For a prime example, Rep. Paul Ryan’s (R-Wis.) recent budget proposal states that “any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. The trust fund is not a real savings account.”
Yet, in November 2011, Ryan stated, “Today marks an infamous day in American history. It is the day that the national debt has surpassed the $15 trillion mark.”
This $15 trillion debt figure includes more than $2 trillion owed to the Social Security Trust Fund, which means that Ryan’s statements conflict with each other. If the balances in the Trust Fund are not “real” as Ryan claims, then the national debt did not reach $15 trillion in November 2011. He can’t rationally have it both ways.
Hence, whether one speaks about the Trust Fund from a legal perspective or a practical perspective, consistency is the watchword. Given that government agencies sometimes use different perspectives for prominent data they publish, it can be difficult to stay totally consistent when discussing these issues. However, jumping back and forth between perspectives to serve political agendas is disingenuous.
So does the Social Security Trust Fund really exist? That depends upon who you ask, but you stand a much better chance of getting a straight answer from Fred Sanford’s would-be lawyer than anyone in Washington. (www.the blaze.com)

James D. Agresti is the president of Just Facts, a think tank dedicated to researching and publishing verifiable facts about the leading public policy issues of our time.
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