(Bloomberg View) — The Center for Economic and Policy Research responded to my post Tuesday on Social Security, taking issue with this paragraph:
Now, I don’t want to get mired in the tired old arguments about whether the trust fund is “real” — whether it’s a stupid accounting abstraction or a profound moral promise on the part of the U.S. government — because this obscures the actual point we need to be concerned with: If we want to pay Social Security beneficiaries more money than we are collecting in payroll taxes, the money has to come from somewhere, and ultimately, that “somewhere” is the United States taxpayer. It is supremely irrelevant whether that money flows through the “trust fund” or Uncle Sam holds an annual ceremony in which the trustees are handed one of those giant checks they present to lottery winners; we still need to find the money to make good on that check.
“Of course we would all like those who disagree with us in major debates to simply disregard their arguments and accept what we are saying as true,” their blogger writes. “But most of us just don’t possess the power to force our opponents to concede the truth of our position, even when if we use ad hominems to belittle their arguments”:
In the case of the Social Security trust fund, the tired old argument stems from the legal structure of the program whereby it is financed exclusively by its designated tax, including the surpluses from taxes in prior years. McArdle tells us that bonds purchased with prior years’ surpluses don’t matter, the government still has to cough up the money in the current year. The same logic applies to the bonds held by rich people like Peter Peterson. The government has to cough up the money to pay him the interest this year on whatever bonds he holds.
If McArdle wants to declare it “supremely irrelevant” that the payments for Social Security come from bonds held by the trust fund, then with equal validity we can declare it supremely irrelevant that Peterson paid for the bonds he owns. After all, this would just get us into tired old arguments about moral obligations to bondholders.
All right, let’s have that tired old argument. To wit: Does the OASI Trust Fund matter? Is it a moral and legal obligation?
Not to future beneficiaries. The beneficiaries do not own those bonds; the Social Security Administration does. And the Social Security Administration is not a public corporation with beneficiaries as its shareholders. The government “owns” the Social Security Administration, so at best we could say that the government has a moral and legal obligation to itself, which is nonsensical.
Unlike billionaire Pete Peterson, who is legally entitled to his bond payments and can sue the government if it fails to deliver, Social Security beneficiaries have no legal claim on those special-purpose bonds. They have no right to a dime of the “interest” being paid into the notional accounts held by the Social Security Administration. They are legally entitled to the benefits that are duly laid out in our current law. But while Congress cannot just go and change the law under which Pete Peterson gets paid, because the courts would nullify this sort of post-hoc attempt to weasel out of our debts, Social Security beneficiaries are not in the same position, because they are not the bondholders. The bondholder is an agency of the U.S. government that the government can dissolve or change at any time — something on which the Supreme Court has already ruled. So the idea that “these bonds are a sacred obligation just like our other bonds” isn’t very interesting, because even if true, it doesn’t establish any right to Social Security benefits, beyond those conveyed by the law laying out the payment schedule for those benefits, subject to any changes Congress wishes to make.
Which is why I don’t think the trust fund matters very much, at least not in the way people think. It is an accounting convention that is useful for establishing the legal parameters under which the Social Security program will operate. Accounting is important! But it’s not on the same plane with the Ten Commandments. It’s just a convention we’ve agreed to in order to give us a clearer picture of what’s going to happen, and what already has.
Do we have a moral obligation to Social Security beneficiaries? Yes, but I don’t think the source of those obligations is the trust fund. The source of our moral obligation is, first, the fact that we took money out of everyone’s paychecks and put it into the Social Security system, which encouraged, perhaps forced, people to save less for retirement. Since it’s too late for them to go back and vote for Herbert Hoover, we have an obligation to make sure that they don’t end up destitute.
And second, we have whatever moral obligation you think we have to keep folks who have worked all of their lives from falling into destitution when they are old, even if we didn’t promise them a Social Security check. Neither obligation is unlimited (and neither is the obligation to repay bond principal); both can be virtuously refused if the country ends up in a severe budget crisis. But it certainly exists.