Walter Shur, New York Life Insurance Company (Retired)

In a tour of the Bureau of The Public Debt several months ago, President Bush, commenting on the Social Security Trust Fund said, “There is no trust ‘fund’ — just IOUs that I saw firsthand.” That statement is, in its intent and effect, a repudiation of the public debt, and a clear violation of Section 4 of the Fourteenth Amendment to the U.S. Constitution, which states, “The validity of the public debt of the United States, authorized by law,…,shall not be questioned.”

The argument made by some in support of the President’s statement is that when most of the baby boomers have retired, the bonds will need to be redeemed in order to pay their Social Security retirement benefits, and the cash needed to redeem the bonds can only come from borrowing, increased taxes or decreased spending at that time. The statement is, of course, correct, but the only legitimate question that can be raised is whether raising the amount of cash needed will present the government with a major fiscal crisis.

That specific question was examined by Dean Baker, an economist and a co-director of the Center for Economic and Policy Research, in a paper entitled “Defaulting on the Social Security Trust Fund: What It Would Mean and How It Would Be Done.”  He shows that the burden is properly measured not by the absolute value of the surplus (excess of tax revenue over cost) in a given year, but by the decrease in that surplus from year to year. His analysis shows that the expected burden in any future year is no greater than it was in 1983, when there was a decrease in the Social Security surplus of about twenty billion dollars. Borrowing that missing twenty billion dollars from the public in 1983, instead of from the Social Security surplus, was hardly noticed. The reason is that total government borrowing in 1983, for all purposes, was more than $4,500 billion.

The bonds in the trust fund represent an absolute commitment, backed by the full faith and credit of the government, to pay future Social Security benefits in return for having borrowed the payroll taxes paid by millions of Americans. It is incredible to me that the President would call that sacred commitment  (as he did in a subsequent speech), “just IOU’s in a file cabinet.”


Posted on: August 7, 2005

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