Great letter in Barrons RE: the Social Security Trust Fund. !

[county worker]

Trust in the Trust Fund
To the Editor:
The essential question raised in the Feb. 28 Editorial Commentary, "The Mistrust Fund," is whether Office of Management and Budget director Jacob Lew was mistaken or disingenuous in claiming that Social Security trust-fund bonds are available to fund benefits when disbursements exceed receipts. He did not contend that existing benefits are guaranteed in perpetuity. He simply said that the trust fund enables us to meet currently required disbursements for approximately the next 40 years. Lew's statement can only be false if either of two things is true: There is, in fact, no such thing as a Social Security trust fund, or the bonds it holds in reserve are somehow illegitimate.

The enabling legislation states, "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.'" The statute then goes on to detail exactly the sorts of things one finds in a classic common-law trust—creation of a board of trustees, a provision against commingling trust funds with other funds (in this case a prohibition against inclusion in the federal budget), identification of the trust's beneficiaries, and a restriction on the investments the trustees may purchase (only instruments guaranteed by the full faith and credit of the U.S.), etc.

One of the basic rules of statutory construction is that Congress is presumed to use legal terms of art knowingly, and that would be doubly true in this case, where the legislation as a whole clearly conforms to the intention to create a trust—legally, morally and in plain English. It is true that beneficiaries don't have a contract with this trust; nevertheless, they have the legally enforceable right to be treated fairly and equitably in accordance with the terms of the trust.

There is also the issue of legislative history. The most significant recent amendments to Social Security were in 1983, when the Social Security tax was increased specifically to build up a reserve against the baby boomers' retirement demands. This was at the behest of a commission chaired by Alan Greenspan, and everyone involved understood that they were undertaking both a legal and a moral obligation. So now that we have collected that reserve, and the bills it was designed to meet may be coming due in the next 20 years, you are having second thoughts and thinking that the law is irrelevant and we will just renege and steal the money? Quite apart from the legal concerns, doesn't this hit a trip-wire on moral obligations? The trust fund is not a fiction. Congress can change it going forward, of course, but it can't steal the surplus trust funds already paid in.

By law, the trust can invest only in U.S. bonds guaranteed by the "full faith and credit of the United States," and that is in fact exactly what it has done. The editorial argues that we could default on these promises because they are only a guarantee by one arm of the government to pay another. But the 14th Amendment states, in pertinent part, "The validity of the public debt of the United States, authorized by law...shall not be questioned." Default would clearly be unconstitutional. If Congress decided to default on Social Security bonds, it would mean an instant discounting of the world's reserve currency and an economic crash that would equal anything we have seen in the past few centuries.
Conley Ward
Boise, Idaho

Thomas G. Donlan replies: Conley Ward makes a good legal case for the idea that the trust-fund bonds can't be canceled and that they must be used to pay benefits. When push comes to shove, we will all be very interested in whether the government will meet the moral and legal obligations he is counting on. But he recognizes there is no legal obligation to pay benefits in excess of Social Security tax receipts.

http://webcache.googleusercontent.com/search?rlz=1T4RNTN_enUS334US334&hl=en&q=cache:SgkPwVTxWpIJ:http://online.barrons.com/article/mailbag.html+barron%27s+letters+to+the+editor&ct=clnk

[howaboutme]

1. Many benefited but never paid a dime into Social Security

Now they want to strip benefits from only those who did pay.

Social security tax was paid by many but not all Americans. Many in local, state and federal government were exempt from paying into it. The same is true of railroad employees. The same is also true of those mostly of means who lived off of investments and real estate holdings without earned income. All of those folks that didn't pay, received direct benefits because the collected Social Security revenue directly reduced their federal income taxes. In the case of the rich it kept their taxes much lower on the order of potentially millions of dollars.

Social Security was effectively stolen from those of us who paid into it because it was used to fund the daily operations of government. It is absolute thievery for the government to now cut benefits to only those that paid, while excluding any hardship from those who paid nothing, yet have continued to reap the secondary rewards.

[TacticalPeek]

2. Incorrect. Social Security funds were not stolen, nor were they used to fund daily operations of gov

Money borrowed from the trust fund was used, and is paid back into the fund with interest.

Check your accounting.

And, yes, rates to the Treasury are probably lower because it's the trust fund funding, but so what?

:shrug: