St. Petersburg Times

September 03, 2001, Monday

SECTION: NATIONAL; Pg. 3A

Social Security battle: What's the truth?

by SARA FRITZ

WASHINGTON - If anyone should understand the Social Security system, it is AOL Time Warner executive Richard Parsons and former Sen. Daniel Patrick Moynihan, the two men President Bush has entrusted with the task of developing a plan to reform the nation's retirement income program.

But there is one fundamental fact about Social Security on which these two men seem to disagree, and it is a disagreement that has been argued repeatedly over the years.

The question: Is there any money in the Social Security trust fund?

You see, even though the trust fund is holding more than $ 1-trillion in Treasury bonds, there is widespread doubt that the government will have sufficient funds to make good on the bonds when the Social Security Administration tries to redeem them in the distant future. Here is how Parsons and Moynihan juggled the subject at a recent news conference:

PARSONS: The major concern that I have here, and it keeps slipping below the radar, is that we have a system that currently represents about $ 1-trillion of unfunded, off-balance-sheet liability. There's no there there. There's a promise that somehow the government will do something to get the there, when it comes time to pay that money.

MOYNIHAN (interrupting): And the promise will be kept.

PARSONS: As far as we can see, the promise will be kept. But this is playing with dynamite, from a financial prudency point of view.

MOYNIHAN: The commission has made it clear that trust fund represents an obligation that the federal government will honor, as it has honored all of its obligations for the last two centuries. On the other hand, it is not an asset. . . . Yes we are going to have to find the assets to honor the commitments.

PARSONS: If I can just add to that because there is so much confusion around that issue. We've been accused - you see it in the newspaper that "the Social Security Commission says those assets aren't real.' We never said that. The issue is: Where's the cash going to come from? In 2016 and thereafter, people are still going to want checks, their Social Security checks and those checks are going to have to clear. And the government system is going to have to have cash by then.

What happens when one arm of the government turns to the other arm of the government, and says "I now need for you to make good on this IOU?' That arm of the government has to go out and raise the money.

Moynihan's confidence in the government is based on history. As he sees it, the Treasury bonds held by the Social Security trust fund are backed by the full faith and credit of the United States government, which has always been good.

These Treasury bonds, he argues, are every bit as valuable at those purchased by private investors.

Parsons, meanwhile, argues that it is a different matter when the government borrows from itself than when it sells bonds to private investors. Private investors would list their Treasury bonds as an asset, while the government must consider it a debt.

At its core, this is a purely ideological dispute. Both sides are working with the same facts.

Most liberals share Moynihan's view because it means that Social Security is still as steady and reliable a social insurance program as it has been since it was created by President Franklin D. Roosevelt in the 1930s. Therefore, they conclude, there is no need to dramatically change the system.

Like Parsons, conservatives support the opposite view because it argues for a sweeping overhaul of the Social Security system, including the creation of individual private accounts. They see private accounts as a way of converting a public welfare program into a private investment plan.

As often happens in politics, especially when the facts are being distorted on both sides to support their favored outcome, neither side is telling the whole truth. The government can - and will - make good on the bonds in the Social Security trust fund, but not without raising taxes or cutting benefits.

Before the commission can agree on a new strategy, it must settle this debate. That would not only enable it to see the situation realistically, but it would also restore confidence in a system that many Americans believe is becoming worthless.

Likewise, Americans must recognize that liberals and conservatives are both deceiving us when they they talk about a Social Security "lockbox" to capture current revenues from FICA. No money would be held in the trust fund. A lockbox means the money will be used to pay down the debt; otherwise it will be spent on programs.

Either way, as Parson says, "there is no there there."