I refer to the widespread tale that the Social Security trust fund contains wealth with which to pay benefits. Leftists have peddled that idea for generations. It is demonstrably false, but this is one of those lies that the state has to keep making lest the people start questioning the wisdom of the rulers.

In this letter, Don Boudreaux attempts to explain the truth about Social Security.

Editor, Washington Post
1150 15th St., NW
Washington, DC  20071

Dear Editor:

Don McDaniel writes about the U.S. Treasury bonds held in the Social Security
‘trust fund’ that “Far from being ‘worthless IOUs’ [as claimed by Charles
Krauthammer], 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” (Letters, March 15).

The question is whether or not Uncle Sam will have enough assets in the future
to pay all of his obligations under Social Security.  When sensible people such
as Charles Krauthammer and Robert Samuelson note that these obligations are so
massive that honoring them in full will require drastic tax hikes or spending
reductions, accounting-challenged defenders of the status quo exclaim “Not to
worry!  The Social Security trust fund holds lots of U.S. Treasury bonds.  Those
bonds are assets.  So Social Security’s obligations are covered!”

But those bonds are held by the same party that issued them, namely, Uncle Sam;
the creditor here is one with the debtor.  If Uncle Sam’s future stream of tax
receipts falls short of his future spending obligations, meeting those
obligations will require tax hikes or spending cuts.  The bonds in the ‘trust
fund’ are no independent source of revenue for Uncle Sam to tap into to meet his
Social Security obligations as these bonds would if they were issued instead by,
say, Microsoft of by Her Majesty’s government in the U.K.  Revenues used to
redeem the bonds held in the ‘trust fund’ must be raised through Uncle Sam’s
power to tax – the very same power that Mr. Krauthammer and others warn will
have to be exercised in a much more Draconian manner if Uncle Sam doesn’t rein
in the growth of entitlements.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University