Bush Says Social Security Trust Fund Doesn’t Exist

President Bush slipped something new into his Social Security pitch on Wednesday. And it was there again twice yesterday.

He says Social Security’s $1.8 trillion trust fund doesn’t really exist. Even in Washington, that’s a lot of money to go missing.

Here is Bush, from the transcript of his talk at the Commerce Department on Wednesday:

"Some in our country think that Social Security is a trust fund — in other words, there’s a pile of money being accumulated. That’s just simply not true. The money — payroll taxes going into the Social Security are spent. They’re spent on benefits and they’re spent on government programs. There is no trust. We’re on the ultimate pay-as-you-go system — what goes in comes out. And so, starting in 2018, what’s going in — what’s coming out is greater than what’s going in. It says we’ve got a problem. And we’d better start dealing with it now. The longer we wait, the harder it is to fix the problem."

Some quick background:

Social Security is indeed fundamentally a pay-as-you-go program. But ever since 1983, workers have been paying more in Social Security payroll taxes than was strictly necessary to cover benefits. The idea was to build up a reserve for when the Baby Boom retired.

By law, the proceeds — and they have grown, with interest, to $1.76 trillion last I heard — are invested in Treasury bonds. Just like the proceeds of other Treasury bonds, that cash is then spent by the government for its programs — so it’s not just sitting there in a pile somewhere, just like Bush says. And, in fact, just like with other Treasury bonds, the government will have to raise the revenue down the road to pay them back eventually — which may not be easy.

But does that mean the trust fund means nothing? That the 225 pieces of paper representing Special Issue U.S. Treasury Bonds in multibillion-dollar denominations that sit in a file cabinet in West Virginia are just so many czarist rubles?

(Read Larry Eichel’s story in the Philadelphia Inquirer last month for more on that file cabinet.)

It may be a blasphemous thought to liberals, but the libertarian wing of the Republican Party has been arguing this point for a while.

Bush first gave a glimpse of his emerging position in his State of the Union address, when he said: "Thirteen years from now, in 2018, Social Security will be paying out more than it takes in. And every year afterward will bring a new shortfall, bigger than the year before. For example, in the year 2027, the government will somehow have to come up with an extra $200 billion to keep the system afloat — and by 2033, the annual shortfall would be more than $300 billion. By the year 2042, the entire system would be exhausted and bankrupt."

That left some people scratching their heads. If he was saying that the system was going to "somehow have to come up with" enough money to cover shortfalls starting in 2018 (i.e., that the trust fund doesn’t exist) then what is so different about 2042 (the year that, according to some estimates, the nonexistent trust fund would run out)?

Former Bush speechwriter David Frum, appearing on MSNBC’s Hardball with Chris Matthews right after the State of the Union address, hailed Bush for being bold enough to say "that the Social Security trust fund isn’t there, and the problem begins in 2018, not so very far away."

In his blog, Frum later explained: "If Fred writes an IOU for $10 to Jim, Jim has an asset. But if Fred writes an IOU to Fred for $10, he has not created an asset for himself — he’s created a reminder notice.

"And that’s the situation of the Trust Fund."

But is Bush really saying that, or not? It’s not so clear.

Here he is, from the transcript of his talk yesterday afternoon in Pennsylvania.

First, the there-is-no-trust-fund paragraph:

"Now, one of the myths about Social Security is there’s a pile of money sitting there accumulating, because you put money in, the government saves it for you, and then when you retire you get it out. That’s not the way the system works. Every dime that goes in from payroll taxes is spent. It’s spent on retirees, and if there’s excess, it’s spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of government to the next. This is a pay-as-you-go system."

But then, a paragraph that once again seem to suggest that there’s something there that goes away in 2042:

"And so, therefore, when you have more retirees living longer for greater benefits, with fewer people paying in, the system inevitably will go into the red. In 2018, 13 years down the road, it starts to go negative. And every year thereafter, the situation gets worse. In other words, more money is required to meet the promises. So that by the year 2027, the government is going to have to come up with $200 billion additional above and beyond the payroll taxes to meet promises — and greater the next year, and greater the next year; $300 billion in 2037, until 2042, it’s broke. And that’s the dilemma we’re faced with."

It’s very confusing. And that’s not even getting into the fact that many experts dispute his figures and note that the system, even in the direst projections, will still be able to pay out benefits in 2042 that are considerably higher than current levels.

Bush says: "And the fundamental question is, are we willing to confront it?"

But the fundamental question may really be, what exactly is he saying?

Blogger Josh Marshall, who’s been rallying the left on Social Security, has no doubt what Bush is saying: "We and many others had predicted that the president’s angle here was to default on the Treasury bonds sitting in the Social Security Trust Fund. And now we can be pretty confident that he plans to do just that since today he said that the Trust Fund doesn’t even exist."

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