A presidential commission charged with fixing the Social Security
system has summoned the courage to declare publicly what relatively
few Americans care to contemplate.
The so-called Social Security trust fund is a mirage of
promissory notes rather than real financial assets, because surplus
revenues have been spent.

A preliminary report released last week warned that as a result,
Social Security faces both a "fiscal crisis and a crisis of
confidence." These crises are a result of an accounting fiction
devised to mislead Americans since Social Security tax surpluses
began in the mid-1980s.

This fiction holds that the nonmarketable Treasury securities in
the Social Security trust fund represent real assets that can be
cashed in to cover shortfalls when Social Security benefit payouts
start to outstrip its tax income. This is the big lie of Social
Security, because those securities are not convertible to cash in any
market.

Instead, they can be redeemed only by Congress, which must raise
the necessary funds by increasing taxes, reducing benefits,
refinancing the debt, transferring money from other budget areas, or
a combination thereof.

What gives the commission's report a special cachet of
credibility is that its co-chairman is Daniel Patrick Moynihan, the
respected former senator from New York whose political bona fides
lend considerable weight to the findings. As a leading liberal
Democrat of his time, Moynihan's imprimatur poses a daunting
challenge to those who would dismiss the commission's work as a
right-wing conservative conspiracy to push the president's Social
Security partial-privatization proposal.

Despite the bipartisan makeup of the commission, there are those
who nevertheless rejected the draft report's message and chose
instead to use it as a partisan excuse to urge repeal of the tax cut.

A spokesman for the Campaign for America's Future, for instance,
reflected the prevailing ignorance of Social Security's reality by
saying, "If they think they're going to have trouble repaying the
trust fund, then they better think about repealing their tax cut."

Somebody should tell him the tax cut is irrelevant to the trust
fund's situation. If the tax cut hadn't been legislated, the money
now being returned to taxpayers would have instead remained in
Washington. If it had remained in Washington, the money would have
been spent by Congress instead of by the taxpayers to whom it's being
returned.

Whether it's surplus general revenue or surplus Social Security
tax revenue, the result is the same: Since the federal government
can't "save" money, it gets spent. When Social Security's surplus
is spent, its trust fund gets an IOU, which is in reality an unfunded
liability of the Treasury.

Moreover, even as some of the surplus revenues have been used to
pay down the investor-held marketable portion of the national debt,
the nonmarketable portion of the debt held by federal trust funds has
grown faster than that held by the public. Thus, the total of the
national debt has gone up rather than down.

This has been Washington's dirty little secret for many years,
and now it's being exposed to the entire nation for the scam it is.
- Jerry Heaster's column appears Wednesdays, Fridays, Saturdays
and Sundays. To reach him, write the business desk at 1729 Grand
Blvd., Kansas City, MO 64108, call (816) 234-4297 or send e-mail to
jheaster@kcstar.com.