NU Online News Service, Jan. 3, 2005, 4:22 p.m. EST

A Winter Haven, Fla., gadfly says the Social Security trust fund really is empty.[@@]

AARP, Washington, recently argued that the Social Security trust fund is in good shape because it holds $1.5 trillion in interest-bearing U.S. Treasury bonds that are similar to the Treasury securities held in private pension funds.

But Allen W. Smith, author of “The Looting of Social Security: How the Government is Draining America’s Retirement Account,” argues that the securities that the trust fund holds are “IOUs” that are not like ordinary marketable Treasury bonds.

“The government could easily choose to default on these special issue bonds that are held only by the government trust funds without the international consequences that would result from any attempt to default on its general debt,” Smith writes in a comment on AARP’s expression of confidence in the Social Security trust fund.

The “IOUs” that the trust fund holds “are nothing more than accounting entries showing that the government has ‘borrowed’ and spent every dollar of the $1.5 trillion surplus generated by the 1983 payroll tax increase, leaving the fund with no real assets,” Smith writes. “Only IF the government chooses to raise taxes or borrow massive additional amounts in order to repay its debt to Social Security will the program be able to continue paying full benefits after 2018, and that is indeed a very big if.”

Smith contends that the federal government now spends about $438 million in Social Security money per day.