Social Security Trust Fund: Accounting Kabuki
The looming government debt ceiling crisis has cause Obama to threaten inability to pay Social Security checks. It’s renewed the debate, which I’ve hashed out many times (here, here, here and here, for posterity’s sake), whether the Social Security “Trust Fund” is a veritable asset or merely a convenient accounting fiction used to hide deficits.
I, of course, believe it to be the latter. But M.S., writing for The Economist’s Democracy in America blog, tries to make some analogies about the trust fund’s “accounting kabuki”:
I mean, look, our bank accounts are an accounting fiction. Everyone knows exactly how much money is in anyone else’s bank account: none. There is no money “in” our bank accounts; our banks have already spent it. Our so-called bank account is just an IOU, a promise from our bank to pay us up to the amount specified in our balance.
There are two things here. The first is that the bank account is merely a promise, which is true. This is clearly analogous to the Social Security Trust Fund. The second part, though, is the problem. Making good on the promise is the bank’s responsibility, NOT MINE.
If I want to withdraw money from the bank, they have a legal and moral responsibility to give it to me. It doesn’t matter to me where they get it, but it creates no obligation on me to get that money back.
If they told me that they’d give me my money, but they’d have to garnish my wages for the next year in return, however, I’d be a little pissed off. That’s what the Social Security Trust Fund is.
The key is that American taxpayers are the ones who are being “paid back” out of the Social Security Trust Fund, while American taxpayers are also the ones doing the paying. It’s not an accounting fiction because we have two different line items on the bill, it’s an accounting fiction because the revenues ultimately come from the same place!
From the point of view of the Social Security Administration, of course, the IOU’s are an asset. They are a claim on future government revenue that is essentially on par with the debt that China or institutional investors buy from the US. I.e. from an accounting standpoint, it is a “promise” that carries some heft. However, from the point of view of the American taxpayer, it is additional debt that must be repaid through higher taxation. They’re going to get it from our paychecks, it’ll just come from the line that says “FED INC TAX” rather than the lines that says “SOC SEC TAX” or “MEDICARE TAX”. It still comes out of the same paycheck, which means whether it’s an accounting kabuki or not, it still costs us more money.