THE ORLANDO SENTINEL

October 14, 2001 Sunday, FLORIDA

SECTION: LAKE SENTINEL; Pg. 2

'LOCK BOX' A POLITICAL FICTION

by Tait Trussell

"I'm patriotic, but frankly I'm also worried about what's happening to the budget surplus and the lock box on Social Security money," said Mr. Lake County Senior with a concerned expression.

Many Lake seniors are wondering about this, even though they realize our country now has to spend more money to fight terrorists. "I want to end terrorism, too," Mr. Lake Senior said firmly. "But I rely on Social Security for most of my income. And I thought it was in a lock box."

The so-called lock box was a political gimmick used to make seniors think that there is a real Social Security Trust Fund, and that money for future Social Security would be separate and safe.

"Do you mean my money isn't separate and safe?" he asked.

Let me explain. Even though politicians in Washington made charges about "raiding the Social Security Trust Fund" and breaking into the "lock box," we need to get rid of this fiction and state some facts.

"OK. Let's hear the facts," he shot back.

First, payroll taxes that support Social Security will exceed benefits by about $77 billion this year. What isn't paid immediately to beneficiaries is given to the U.S. Treasury and the Social Security Administration gets a government IOU.

The government actually uses this money for other things, including, giving tax rebates and redeeming government bonds held by the public.

"You means there's really no Trust Fund where the money sits safe and sound for paying Social Security checks?"

The Trust Fund is merely an accounting gimmick. It doesn't hold enough cash to pay our monthly checks now and into the future. But Uncle Sam still owes that money and still has the obligation to pay that money. Once the IOUs come due, Uncle Sam either has to bring it in from taxes or borrow to pay off the IOUs. So, your Social Security is safe and sound. The government isn't going to renege on paying beneficiaries.

"Are you saying that over the years, the government's surplus was actually the Social Security surplus held in what is labeled a Trust Fund?"

Right. Several years ago, when we had big budget deficits, the politicians combined the money taken in from payroll taxes -- the so-called Trust Fund -- with other federal money to make the deficit appear smaller. They cleverly called this the "unified budget."

"So, what with the war effort, the surplus supposedly accumulated for Social Security payments would be tapped just as in previous years?"

Looks that way.

"Are you saying if we spend the surplus, the only way Social Security payments can be made is if taxes are raised or we borrow and go into deficit spending?"

No, there are other options. The age for Social Security eligibility could be raised. Or our benefits could be cut. But that's unlikely.

The solution is to rejuvenate our economy, as the administration and Federal Reserve are trying to do. A strong economy with more employment will bring in more payroll and other taxes and build back a surplus.

"But that may take a long time, especially with a long war."

It may. But even though there is no such thing as a lock box on a real trust fund, Uncle Sam won't let our seniors down when it comes to Social Security.

I think you can count on that.