One of the most boring catfights in US political economy is over whether the Social Security trust fund really exists. Essentially, more has been taken in payroll taxes in the past than needed to be spent on social security in the past. That money was then spent by other arms of government. And a special sort of Treasury bond was issued to the trust fund for that borrowing from it.
On the one side, look, the money\’s been spent, the trust fund doesn\’t really exist. All that can pay those bonds off is the general tax raising power of the government.
On the other, look, there are bonds there, the trust fund is real.
Which leads us to this:
One point, however, cannot be disputed: Even if President Obama wins all the tax increases on the rich that he is asking for, the long-term fiscal picture will still look grim. Perhaps we can stabilize the situation for a few years just by taxing the rich, but as greater numbers of baby boomers retire and start collecting Social Security and Medicare, more will need to be done.
Quite: everyone is arguing that either benefits need to be reduced (Republicans) or taxes increased (Democrats) in order to meet the redemption of those bonds that fund Social Security.
Ergo, the trust fund doesn\’t exit: it\’s just an IOU on the future tax raising powers of the Federal Government.