Editing Social Security Trust Fund (section)

=== Under George W. Bush ===
On February 2, 2005, [[President of the United States|President]] [[George W. Bush]] made Social Security a prominent theme of his [[State of the Union Address]]. One consequence was increased public attention to the nature of the Social Security Trust Fund. Unlike a typical private pension plan, the Social Security Trust Fund does not hold any marketable assets to secure workers' paid-in contributions. Instead, it holds non-negotiable United States [[Treasury bond]]s and U.S. securities backed "by the [[full faith and credit]] of the U.S. government". The trust funds have been invested primarily in non-marketable Treasury debt, first, because the Social Security Act prohibits "prefunding" by investment in equities or corporate bonds and, second, because of a general desire to avoid large swings in the Treasuries market that would otherwise result if Social Security invested large sums of payroll tax receipts in marketable government bonds or redeemed these marketable government bonds to pay benefits.

The [[Office of Management and Budget]] has described the distinction as follows:

{{blockquote|These [Trust Fund] balances are available to finance future benefit payments  and other Trust Fund expenditures – but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government's ability to pay benefits.|''from FY 2000 Budget, Analytical Perspectives, p. 337''}}

Other public officials have argued that the trust funds do have financial or moral{{clarify|date=December 2014}} value, similar to the value of any other Treasury bill, note or bond. This confidence stems largely from the "full faith and credit" guarantee.  "If one believes that the trust fund assets are worthless," argued former Representative Bill Archer, then similar reasoning implies that "Americans who have bought EE savings bonds should go home and burn them because they're worthless because the money has already been spent."<ref>{{cite journal |first=Kevin |last=McCormally |date=March 1999 |title=The Truth is Out There |journal=Kiplinger's Personal Finance |pages=98–101 |url=https://books.google.com/books?id=ZgYEAAAAMBAJ&pg=PA98}}</ref> At a Senate hearing in July 2001, Federal Reserve Chairman Alan Greenspan was asked whether the trust fund investments are "real" or merely an accounting device.  He responded, "The crucial question:  Are they ultimate claims on real resources?  And the answer is yes."<ref>{{cite news |first=John M. |last=Berry |date=August 17, 2001 |title=Decisions on Social Security Loom |newspaper=The Washington Post |page=E01 |url=https://pqasb.pqarchiver.com/washingtonpost/offers.html?url=%2Fwashingtonpost%2Faccess%2F77942693.html%3FFMT%3DFT%26FMTS%3DABS%3AFT%26date%3DAug%2B17%252C%2B2001%26author%3DJohn%2BM.%2BBerry%26pub%3DThe%2BWashington%2BPost%26startpage%3DE.01%26desc%3DDecisions%2Bon%2BSocial%2BSecurity%2BLoom%253B%2BGreenspan%2BWarnings%2Bon%2BNeed%2Bto%2BBoost%2BSavings%2BMay%2BCarry%2BWeight|archive-url=https://web.archive.org/web/20121105082345/http://pqasb.pqarchiver.com/washingtonpost/offers.html?url=%2Fwashingtonpost%2Faccess%2F77942693.html%3FFMT=FT&FMTS=ABS:FT&date=Aug+17%2C+2001&author=John+M.+Berry&pub=The+Washington+Post&startpage=E.01&desc=Decisions+on+Social+Security+Loom%3B+Greenspan+Warnings+on+Need+to+Boost+Savings+May+Carry+Weight|url-status=dead|archive-date=November 5, 2012}}</ref>

Like other U.S. government debt obligations, the government bonds held by the trust funds are guaranteed by the "full faith and credit" of the U.S. government. To escape paying either principal or interest on the "special" bonds held by the trust funds, the government would have to default on these obligations. This cannot be done by executive order or by the Social Security Administration. Congress would have to pass legislation to repudiate these particular government bonds. This action by Congress could involve some political risk and, because it involves the financial security of older Americans, seems unlikely.{{Citation needed|date=February 2011}}

An alternative to repudiating these bonds would be for Congress to simply cap Social Security spending at a level below that which would require the bonds to be redeemed. Again, this would be politically risky, but would not require a "default" on the bonds.

From the point of view of the Social Security trust funds, the holdings of "special" government bonds are an investment that returned 5.5% to the trust funds in 2005.<ref>[http://www.ssa.gov/OACT/TR/TR06/tr06.pdf pp. 4-5].</ref> The trust funds cannot resell these "special" government bonds on the secondary bond market, although the interest rate is determined based on market interest rates. Instead, the "specials" can be sold back to the government at face value, which is an advantage when interest rates are rising.

The week after his State of the Union speech, Bush downplayed the importance of the Trust Fund:

<blockquote>Some in our country think that Social Security is a trust fund – in other words, there's a pile of money being accumulated. That's just simply not true. The money – payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust.<ref>{{cite press release |title=President Participates in Class-Action Lawsuit Reform Conversation |publisher=Office of the Press Secretary |date=February 9, 2005 |url=https://georgewbush-whitehouse.archives.gov/news/releases/2005/02/20050209-15.html |accessdate=January 13, 2011}}</ref></blockquote>

These comments were criticized as "lay[ing] the groundwork for defaulting on almost two trillion dollars' worth of US Treasury bonds".<ref>{{cite web |url=http://www.talkingpointsmemo.com/archives/week_2005_02_06.php#004757 |title=Talking Points Memo: by Joshua Micah Marshall: February 06, 2005 - February 12, 2005 Archives |website=www.talkingpointsmemo.com |url-status=dead |archive-url=https://web.archive.org/web/20050208015808/http://www.talkingpointsmemo.com/archives/week_2005_02_06.php |archive-date=2005-02-08}} </ref>{{Unreliable source?|date=January 2011}}

However, even right-leaning politicians have been inconsistent with the language they use when referencing Social Security.  For example, Bush has referred to the system going "broke" in 2042. That date arises from the anticipated depletion of the Trust Fund, so Bush's language "seem[s] to suggest that there's ''something'' there that goes away in 2042."<ref>{{cite news| url=https://www.washingtonpost.com/wp-dyn/articles/A16984-2005Feb11.html | newspaper=The Washington Post | first=Dan | last=Froomkin | title=The Amazing Disappearing Trust Fund | date=February 11, 2005}}</ref> Specifically, in 2042 and for many decades thereafter, the Social Security system can continue to pay benefits, but benefit payments will be constrained by the revenue base from the 12.4% FICA (Social Security payroll) tax on wages. According to the Social Security trustees, continuing payroll tax revenues at the rate of 12.4% will enable Social Security to pay about 74% of promised benefits during the 2040s, with this ratio falling to about 70% by the end of the forecast period in 2080.<ref>{{cite web |title=2006 OASDI Trustees Report |publisher=Social Security Administration |url=http://www.ssa.gov/OACT/TR/TR06/II_project.html#wp105057 |accessdate=2011-03-21}}</ref>