Q. What is the Social Security trust fund? (invadesoda)

This post originally appeared on Propaganda Machine on December 20, 2004. I hope Al doesn't mind me rerunning this here. Rep. Matsui passed away after this was first posted.

Q. What is the Social Security Trust Fund?

These are special bonds held by Social Security, which must ultimately be redeemed from the General Fund. Critics of Social Security privatization like to talk about how safe these bonds are, but deceitfully avoid talking about the fact that these bonds must eventually be redeemed with money from the General Fund.

Rep. Robert Matsui (D.-Calif.) has circulated a memo stating that the $1 trillion held in Social Security Trust Fund bonds “will continue to grow in value to $6.5 trillion (in current dollars) by 2024.” He then asks "If [these government bonds] are not real, then are the bonds held by private investors, banks, pension funds and insurance companies not real as well?"

The fact is that Matsui is making my point by admitting that the bonds in the Social Security Trust Fund will certainly have to be repaid. Isn't it fun to watch privatization opponents argue against themselves?

OK, let's break down the Matsui red herring. I know that Jack owes me $100 at some point in the future. Jack knows the money he owes is about to become due, but he is temporarily out of work. Jill has decided to let Jack borrow the $100 so that he can pay me. For Jack, this $100 is a liability, for Jill it is an asset. Either way, the Jack and Jill family owes me $100. Either way, one of them must earn, cut spending, or borrow outside the family, to the tune of $100, in order to pay me. It's the same way with Social Security on a larger scale. For the General Fund, it is a liability because it is owed to Social Security. For Social Security, it is an asset for the same reason. If you think of Jack and Jill as being on the same team, as the U.S. government is supposed to be, you can see that the total net asset and liability amounts to zero. No new asset was created for the federal government by creating the Social Security Trust Fund, it only represents government lending money to itself. Whether retirement benefits are paid out of the General Fund (Jack) or the Social Security itself (Jill), the options are the same: raise taxes, cut spending, or borrow.