The Lincoln Plawg - the blog with footnotes

Politics and law from a British perspective (hence Politics LAW BloG): ''People who like this sort of thing...'' as the Great Man said

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Thursday, March 24, 2005

Hack Franken and the Social Security Trust Fund

One comes across an honest politician as often as a tone-deaf opera singer headlining at the Met: as Sir Humphrey Appleby almost said [1], You can have honesty or you can have politics.

So it is in no way a surprise to find presumptive candidate Al Franken persisting in lying his head off on the question of the Social Security Trust Fund.

Why he finds it necessary to lie, I know not: there are enough holes in the Bush privatisation case to pick until Doomsday, surely? (Or January 20 2009, at least.)


The statutory basis for the so-called trust fund is 42 USC 401.

The first sentence of §401(a) is instructive:
There is hereby created on the books of the Treasury of the United States a trust fund to be known as the ''Federal Old-Age and Survivors Insurance Trust Fund''.

The game is given away straight away: this so-called trust fund is
created on the books of the Treasury

It is, one surmises, a mere accounting entry; and that the ownership, legal or equitable, in no property has been transferred.

The provision goes on to say
The Federal Old-Age and Survivors Insurance Trust Fund shall consist of the securities held by the Secretary of the Treasury for the Old-Age Reserve Account and the amount standing to the credit of the Old-Age Reserve Account on the books of the Treasury on January 1, 1940...and, in addition...
amounts equal to the various species of payroll tax collected by the Treasury ever since.

§401(b) sets up the Federal Disability Insurance Trust Fund; and §401(c) deals with the trusts of these two 'funds': the first duty specified is for
the Board of Trustees to

(1) Hold the Trust Funds;

Then §401(d) requires the Managing Trustee to invest solely in
interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.

This at least gives the semblance of a real trust; but what to make of the stipulation that
Payment from the general fund of the Treasury to either of the Trust Funds of any such interest or proceeds shall be in the form of paper checks drawn on such general fund to the order of such Trust Fund.

What exactly are these paper checks? On which bank are they drawn? Or are they checks (or cheques) at all, or merely internal accounting dockets [2]?

And §401(l) allowed inter-fund borrowing - which would be totally inconsistent with the existence of the trusts concerned as more than book entries.

Compare these so-called trusts with the well-known device of the private trust: the first responsibility of trustees is to assure to themselves bare legal ownership of the trust property, separate from their own, beneficially owned property, and from property contained in others trusts; the second, to use such property for, and only for, the benefit of the beneficiaries of the trust, according to the terms of the trust.

If a private trusts invests in obligations of the US (T-bills, say), the registered owner of such obligations will be the trustees, or one of them as representative. The US Government will as a result legally owe a debt to the trustee or trustees registered.

The trustees of the social security trust funds do not, in that capacity, have bare legal title to any investments. They are not trustees in any real sense at all.

As the Clinton administration helpfully point out on page 332a of the Fiscal Year 1999 Budget Analytical Perspectives report (PDF), in reference to the trust fund balances [3] (emphasis mine):
These balances are available to finance future benefit payments and other trust fund expenditures—but only in a bookkeeping sense. Unlike the assets of private pension plans, they do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, make it easier for the Government to pay benefits.

Meanwhile, Hack Franken was trotting out the trust fund lie a couple of days ago in an interview with TPM's Josh Marshall [4]:

Marshall mentions 2018 as the year when it's estimated that current social security outgoings will exceed current revenue: from that year, trustees will have to dip into the trust fund to pay the difference.

Franken says that a reason why privatisation supporters say 2018 is important
is because they say there is no trust fund

Marshall, who has recently devoted his blog efforts to disentangling fact from fiction in this area replies
Correct. Er...y'know...What can you say about that? I mean most people think that Treasury bonds are...
and chuckles.

Franken deploys his shtick:
See, I don't know whether you heard this, but I made this offer on the show to anyone who thinks those are worthless - and evidently everyone who makes this point about 2018...anyone who thinks these are worthless IOUs - that's what they say - that's what they call 'em, right? - that's the term of art...[] Anyone who has Treasury bonds and thinks they're worthless, I will take them off your hands at ten cents on the dollar.

And Marshall stooges
That's a great deal

This is, of course, three-card monte, demonstrated so to be by the Clinton budget report quoted above: the social security trust funds
do not consist of real economic assets

These trust fund 'assets' are mere bookkeeping entries [5]. Transfers between the trust funds and the Treasury are like a guy transferring cash between his left and right pockets. No legal effect.

I can understand why Hack Franken might perpetrate his shameless attempt at deception; why Marshall should second-banana him, I've no idea.

  1. On Yes, Minister. What, from memory, the Cabinet Secretary, not Sir Humphrey, said was to the effect that You can have openness or you can have government.

  2. Not all checks are paper, even ones drawn on a regular bank: in one of AP Herbert's Misleading Cases, the litigious Albert Haddock wrote a cheque to the Inland Revenue on the horn of a (living) cow.

  3. The GPO search engine is diabolically bad: the golden rule Browse, don't search applies. (The rest of FY 1999 Budget documentation.)

  4. On March 23: a 13MB MP3 of that day's show. The trust fund talk starts around 41:30.

  5. If I write myself an IOU for $1,000 and put it in my pocket, what, legally, have I created? Nothing. A man cannot owe himself money. If he creates a trust and lends it $1,000, that is different: the law recognises the existence of a loan, because the trustee and the beneficiary have a separate identity.

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