Trust Fund

[Jeremy Kidd <jeremy.kidd@mail.house.gov>]

It seems to me that there is a lot of debate about exactly what
are the 'assets' in the Social Security Trust Fund.  I don't know
if I understand everyone's claims, but I do know that no one seems
to have a complete understanding of exactly how the Trust Funds
operate.  Just as a public service announcement, so that maybe we
can get past the useless arguments over who is right about the
structure of the Trust Fund, and address the actual question, which
is what are the options for reform (i.e. exactly what do we do now
to solve the crisis).

This information comes from the Congressional Research Service,
and was included in a paper.  I will quote directly from the Summary
page of the report:

"The costs of the Social Security program, both its benefits and
administrative expenses, are financed by a tax on wages and
self-employment income.  Commonly referred to as FICA and SECA
taxes (because they are levied under the Federal Insurance and
Self-Employment Contributions Acts), these taxes flow each day into
thousands of depository accounts maintained by the government with
financial intstitutions across the country.  Along with many other
forms of revenues, these Social Security taxes become part of the
government's operating cash pool, or what is more commonly referred
to as the U.S. treasury.  In effect, once these taxes are received,
they become indistinguishable from other monies the government
takes in.  They are accounted for separately through the issuance
of federal securities to the Social Security trust funds -- which
basically involves a series of bookkeeping entries by the Treasury
Department -- but the trust funds themselves do not hold money.
They are simply accounts.  Similarly, benefits are not paid from
the trust funds, but from the treasury.  As the checks are paid,
securities of an equivalent value are "written off" the trust funds.

"Generally speaking, the federal securities issued to any federal
trust fund represent "permission to spend."  As long as a trust
fund has a balance of such securities, the Treasury Department has
legal authority to keep issuing checks for th eprogram.  In a sense,
the mechanics of a federal trust fund are similar to those of a
bank account.  The bank takes in a depositor's money, credits the
amount to the depositor's account, and then loans it out.  As long
as the account shows a balance, the depositor can wr4ite checks
that the bank must honor.  when mor eSocial Secuirity taxes are
received than spent, the balance of secuirites posted to the Social
Security trust funds rises.  Simply put, these balances, like those
of a bank account, represent a promise -- a form of IOU from the
government -- that if needed to pay Social Seucirty benefits, the
government will obtain resources equal to the value of the securities.
The surplus taxes themselves are then used for any of the many
functions of government."

Hopefully this information will be helpful in resolving some of
the arguments over how the Trust Fund functions, because I think
a more pressing need is to concentrate on the how, when, etc. of
actual reform proposals.

Yours,

Jeremy Kidd