The Unbearable Lightness of the Social Security "Trust Fund"

Jon N. Hall
On Christmas Day on the op-ed page of The Kansas City Star, a McClatchy newspaper, in the "As I See It" guest commentary spot, one David J. Ekerdt, a sociology professor at the University of Kansas, took issue with a recent Star editorial on Social Security ("The myth of the trust fund," Dec. 14). The next day in his column, E. Thomas McClanahan revealed that he himself had written the offending editorial, and then proceeded to ably defend it against the criticisms in Professor Ekerdt's article.

After The Star's exchange between Ekerdt and McClanahan, the paper ran Bob Herbert's syndicated column ("Raising False Alarms") on Jan. 26 and the following day ran "Social Security Picture Darkens" on the front page. These conflicting accounts about the solvency of the Social Security system prompted Professor Ekerdt to fire off a letter to the editor, which ran on Feb. 7:

The gloomy news on that second day was drawn from a new Congressional Budget Office report, but the article fumbled the facts. Rather than running a "deficit" this year, as the article claimed, Social Security will, according to the Congressional Budget Office, contribute a projected surplus of $72 billion to its $2.6 trillion trust fund. Surpluses are also projected for each of the next 10 years. [Emphasis add.]

Actually, on page 122 of The Budget and Economic Outlook: Fiscal Years 2011 to 2021, the CBO reports: "Excluding interest, surpluses for Social Security become deficits of $45 billion in 2011 and $547 billion over the 2012-2021 period." Mr. Ekerdt might also benefit by watching C-SPAN's video of the recent Senate Budget Committee hearing. Shortly after the 2:52:00 mark in the 3-hour video, CBO director Elmendorf testifies that Social Security is in the red from now on out. In the words of Sen. Conrad (D-ND), Social Security is "permanently cash negative now."

So which is it, a $72B surplus or a $45B deficit?

In his letter, Ekerdt accounts for his "surplus" with this: "Social Security has income not just from the payroll tax but also from taxes on the benefits of upper-income beneficiaries as well as interest earnings on its trust fund."

This explanation for a "surplus" shows a complete lack of understanding about how the feds finance things. Ekerdt is laboring under the myth that there are trillions of dollars of real assets in the trust fund that the feds can tap when needed.

The first thing one needs to get straight about the Social Security trust fund is that it isn't a trust fund. The reason the 2011 "payroll tax holiday" was scored as a $112 billion blow to the deficit is precisely because the trust fund contains no money. When the trust fund's securities are "redeemed," the feds must get the money from taxes, or by borrowing; that is, sell yet more securities. If it were a real trust fund, the feds wouldn't need to do that; the money would be there. (To redeem the securities, perhaps we could sell Yosemite to the Saudis. Or maybe Fed head Ben Bernanke could "print" the money for us.)

The truth is, the feds have no mechanism by which to save money. At the end of the year, any overage in their accounts must be used to pay down public debt; it doesn't accrue.

Professor Ekerdt must not read the business pages, because not long ago former business writer Jerry Heaster, in column after column, practically made a second career of educating Kansas City about the real nature of the Social Security "trust fund."

So it's puzzling that The Kansas City Star, a paper that once had Ernest Hemmingway on its staff, would run the nonsense of David Ekerdt and Bob Herbert on its op-ed page. The Star must not have much of an "institutional memory."

Since Ekerdt is a scientist, albeit a "social scientist," he might ask himself why he so desperately needs to believe in a myth. Could his politics have anything to do with it?

Jon N. Hall is a programmer/analyst from Kansas City.

On Christmas Day on the op-ed page of The Kansas City Star, a McClatchy newspaper, in the "As I See It" guest commentary spot, one David J. Ekerdt, a sociology professor at the University of Kansas, took issue with a recent Star editorial on Social Security ("The myth of the trust fund," Dec. 14). The next day in his column, E. Thomas McClanahan revealed that he himself had written the offending editorial, and then proceeded to ably defend it against the criticisms in Professor Ekerdt's article.

After The Star's exchange between Ekerdt and McClanahan, the paper ran Bob Herbert's syndicated column ("Raising False Alarms") on Jan. 26 and the following day ran "Social Security Picture Darkens" on the front page. These conflicting accounts about the solvency of the Social Security system prompted Professor Ekerdt to fire off a letter to the editor, which ran on Feb. 7:

The gloomy news on that second day was drawn from a new Congressional Budget Office report, but the article fumbled the facts. Rather than running a "deficit" this year, as the article claimed, Social Security will, according to the Congressional Budget Office, contribute a projected surplus of $72 billion to its $2.6 trillion trust fund. Surpluses are also projected for each of the next 10 years. [Emphasis add.]

Actually, on page 122 of The Budget and Economic Outlook: Fiscal Years 2011 to 2021, the CBO reports: "Excluding interest, surpluses for Social Security become deficits of $45 billion in 2011 and $547 billion over the 2012-2021 period." Mr. Ekerdt might also benefit by watching C-SPAN's video of the recent Senate Budget Committee hearing. Shortly after the 2:52:00 mark in the 3-hour video, CBO director Elmendorf testifies that Social Security is in the red from now on out. In the words of Sen. Conrad (D-ND), Social Security is "permanently cash negative now."

So which is it, a $72B surplus or a $45B deficit?

In his letter, Ekerdt accounts for his "surplus" with this: "Social Security has income not just from the payroll tax but also from taxes on the benefits of upper-income beneficiaries as well as interest earnings on its trust fund."

This explanation for a "surplus" shows a complete lack of understanding about how the feds finance things. Ekerdt is laboring under the myth that there are trillions of dollars of real assets in the trust fund that the feds can tap when needed.

The first thing one needs to get straight about the Social Security trust fund is that it isn't a trust fund. The reason the 2011 "payroll tax holiday" was scored as a $112 billion blow to the deficit is precisely because the trust fund contains no money. When the trust fund's securities are "redeemed," the feds must get the money from taxes, or by borrowing; that is, sell yet more securities. If it were a real trust fund, the feds wouldn't need to do that; the money would be there. (To redeem the securities, perhaps we could sell Yosemite to the Saudis. Or maybe Fed head Ben Bernanke could "print" the money for us.)

The truth is, the feds have no mechanism by which to save money. At the end of the year, any overage in their accounts must be used to pay down public debt; it doesn't accrue.

Professor Ekerdt must not read the business pages, because not long ago former business writer Jerry Heaster, in column after column, practically made a second career of educating Kansas City about the real nature of the Social Security "trust fund."

So it's puzzling that The Kansas City Star, a paper that once had Ernest Hemmingway on its staff, would run the nonsense of David Ekerdt and Bob Herbert on its op-ed page. The Star must not have much of an "institutional memory."

Since Ekerdt is a scientist, albeit a "social scientist," he might ask himself why he so desperately needs to believe in a myth. Could his politics have anything to do with it?

Jon N. Hall is a programmer/analyst from Kansas City.