In today's Washington Post, business columnist Allan Sloan argues that the Social Security trust fund "has no financial value." Here's the money paragraph:
Say that Social Security calls the Treasury sometime in 2017 and says it needs to cash in $20 billion of securities to cover benefit checks. The only way for the Treasury to get that money is for the rest of the government to spend $20 billion less than it otherwise would (fat chance!), collect more in taxes (ditto), or borrow $20 billion more (which is what would happen). The spend-less, collect-more, and borrow-more options are exactly what they would be if there were no trust fund. Thus, the trust fund doesn't make it any easier for the government to cover Social Security's cash shortfalls than if there were no trust fund.I've used words to these effect many times, and I believe Sloan's conclusion is substantively correct. But the underlying argument is a lot more complex.
The trust fund isn't of no value because the rest of the government must raise taxes or cut other programs to repay it. That would be the case with any government bond, which leads to absurd conclusions.
The problem with the trust fund that is distinct from ordinary government bonds is that a) when the government borrows from Social Security this borrowing isn't usually counted as part of the budget deficits; and b) debts owed to Social Security aren't usually counted as part of the government's debt.
What do I mean by "usually"? In most cases, the budget deficit numbers you read about are for the "unified budget," that is, the budget including Social Security. If Social Security runs a surplus of, say, $100 billion, this reduces the unified budget deficit by that mount. Likewise, the government debt figure you most commonly read about is the "publicly held debt," that is, debt held by individual investors, Wall Street, foreign central banks, etc. Borrowing from Social Security -- "intragovernmental debt" -- usually isn't included in this amount.
So why does this matter? When borrowing from Social Security isn't counted as "real" borrowing, Congress will tend to borrow more. That is, Social Security surpluses allow the rest of the government to tax less or spend more than it otherwise would have. In this case, the government's total asset position isn't improved, nor is national saving increased. The whole story is outlined in much greater detail here.
So Allan Sloan's conclusion is basically correct, but the way he explains it opens himself to legitimate criticism.
Update: See Dean Baker's post on the same subject here.