How Social Security works

Sunday, March 20, 2011; 8:37 PM

In his March 18 column, "Still an empty lockbox," Charles Krauthammer wrote: "The Social Security surpluses of the last decades were siphoned off to the Treasury . . . and spent. . . . Treasury then deposited . . . IOUs."

Apparently, he thinks that the trust funds should be cash stuffed in a giant safe somewhere. The fact that they are not (and never have been) suggests to Mr. Krauthammer that they are not real. The trust funds have not changed their mode of operation in the 75-year history of the Social Security program. Surplus income to the system is invested by lending cash to the Treasury, which it spends, and for which it provides bonds in exchange. This is how all Treasury securities work.

Mr. Krauthammer thinks these particular bonds are fictions because the trust fund merely "records how much one part of the U.S. government . . . owes another."

Wrong. The owners of the trust funds are the workers of America who contributed the cash that was lent to the Treasury. The government is merely the fund manager. The Treasury owes the workers of America the value of the funds in the same way it owes the debt held by the wider public.

Mr. Krauthammer noted that the trust funds are off budget; he suggested this implies their unreality. Actually, they have been at various times on and at other times off. These accounting conventions have nothing to do with the asset value of the trust funds.

Finally, we might note that in its history the Social Security program has taken in less than it paid out in only 11 years; it had to cash in a combined $26 billion in trust fund assets to pay benefits. This is a pretty impressive feat for a fictional device.

Larry DeWitt, Windsor Mill, Md.

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