Uncle Sam’s IOUs Can’t Save Social Security

But the trust fund’s assets are an illusion. Social Security doesn’t own $2.6 trillion in gold bars or real estate or shares of Google. All it has are Treasury IOUs. Those IOUs represent $2.6 trillion that the government has already spent and promises to spend again. But in order to spend it again — to redeem those IOUs — Congress will have to raise taxes, cut spending, or go deeper into debt. Which is exactly what Congress would have to do if the Social Security trust fund didn’t exist.

A US government bond is a sound and valuable asset — for anyone but the US government. Just as you don’t increase your wealth when you write yourself a check, the government cannot sock away $2.6 trillion by promising to pay itself $2.6 trillion. “The assets of the Social Security trust fund,” the Congressional Budget Office has explained, “do not represent any real stock of resources set aside to pay for benefits in the future.” The trust fund is a ledger entry, nothing more.

With the baby-boom generation beginning to retire, Social Security is projected to lose money every year from now on, beginning with a $45 billion shortfall this year. There is no trust-fund hoard to cover those losses. FDR’s signature program is on a collision course with itself. My grandmother, may she rest in peace, may have believed it would last forever. My generation doesn’t have that luxury.