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96 IRET Congressional Advisory 1 (2000)

handle is hein.taxfoundation/iretcgadv0093 and id is 1 raw text is: January 28, 2000 No. 96 DUCKING SOCIAL SECURITY IN THE STATE OF THE UNION ADDRESS In his State of the Union Address, President the federal government. Crediting the same saving to the trust funds is double counting, and is just an artificial inflation of the Treasury IOUs the trust fund is already stuffed with. As the baby boom retires, Social Security's outlays will begin to exceed its current payroll tax revenues and its revenues from taxing benefits. When that happens, the Social Security Administra- tion will call on Treasury to make up the shortfall out of the trust fund. But there is no money in the trust fund, just Treasury IOUs reflecting past Social Security surpluses that the government spent on other programs. The Treasury will have to get the actual money to pay the benefits by using other federal Clinton proposed to increase trust funds by crediting them with the interest saved by paying off the national debt. This is an accounting trick that ducks the issue of reforming Social Security. It is simply a pledge to pay more future benefits out of general revenues. It will perpetuate the system as a package of transfer payments from one generation to another, and will do nothing to convert it into a real saving program that would help the country grow. Trust funds, smoke, and mirrors. The interest saved by paying down debt is part of the projected budget surplus. It is counted as being available to pay down more debt. In the Social Security revenue (if the rest of A FABLE Happy seventh birthday, son/ Thank you Daddy. Can I go to college when I get older? Sure son. In fact, I'll write you an IOU right now for $150,000! And medical school? O.K. I'll make that $300,000. Ten years later the boy hands the IOU to the bursar to pay for his first college semester. Here's my tuition, sir. There's the door, sir. Don't slam it on your way out, says the bursar. This could never really happen. No student dumb enough to think that Dad's unsupported IOU is the same as ready cash could pass the college boards. Yet that is what President Clinton hopes We will fall for when he called in the State of the Union Address for crediting the Social Security trust funds with the interest saved by paying down the national debt. the budget is in surplus), or by borrowing from the public, or by asking Congress to cut other spending, just as if the trust fund did not exist. The real agenda - no tax cut. The real agenda is never to have a real tax cut. The President's plan would not only keep income and payroll taxes unnecessarily high now in order to pay down the national debt to save future interest outlays. It would have to continue to keep income taxes high even after the interest outlays were reduced in order to continue the resulting general revenue surpluses to prop up Social Security. That is the only way the scheme can work. There would never be a fact, it is given to the bondholders as part of the debt buy back. It is no longer in the possession of significant tax cut, and there would never be Social Security reform. Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www.iret.org