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Mr. Snow is Wrong


Along comes Mr. Snow to say that the accounting is wrong...


This morning Bloomberg reported this story on Treasury Secretary Snow:

"March 10 (Bloomberg) -- Treasury Secretary John Snow's explanation for why the federal debt ceiling must rise -- it's to pay for future pensions, not to cover deficits, he says -- is drawing criticism from budget analysts who cite the Treasury's own figures to back them up. "The debt limit itself has virtually nothing to do with spending,'' Snow said in a March 8 interview on Detroit 's WJR- Radio. ``We need to raise the debt limit primarily because Social Security and other trust funds are in surplus.'

'That explanation is ``wrong,'' said Robert Bixby, executive director of the
Concord Coalition, a non-partisan organization in Arlington, Virginia , that advocates a balanced federal budget. "If you just look at the President's budget for this year, its projections for growth in debt show about 60 percent is debt held by the public,'' not by government trust funds, Bixby said.

Snow, 66, is pressing Congress to raise the government's $8.184 trillion legal borrowing limit before lawmakers recess on March 20, so the Treasury won't have to cancel debt sales or risk defaulting on its obligations. Democrats blame the rising debt on President George W. Bush's budget deficits, prompting Snow and Treasury officials to offer other explanations.

The government currently receives more money in Social Security taxes than it pays out in benefits and is required to invest the extra funds in non-marketable Treasury securities. That surplus, which is growing, is part of the federal debt subject to the borrowing limit."

I had to read this a few times before it was clear what picture Mr. Snow was trying to paint.

Social Security's trust fund is currently $1.7 trillion, according to the agency's website. Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security. These bonds totaled $1.7 trillion at the beginning of 2005. Social Security received $89 billion in interest from bonds in 2004. However, Social Security is still basically a "pay-as-you-go" system as the $1.7 trillion is a small percent of benefit obligations.

In other words, Social Security currently has a surplus of $1.7 trillion if it only had to pay those currently receiving it. There is no surplus, and in fact a huge deficit, if you include those who expect to get benefits in the future.

Social Security is a trust that is dedicated to its beneficiaries, so trust accounting requires that the assets be held separate from the rest of the government's activities. That makes perfect sense.

Along comes Mr. Snow to say that the accounting is wrong and that the $1.7 trillion in Social Security assets should be deducted from government debt. If we did that then the $8 trillion debt ceiling, which has already been breached, need not be raised. Indeed, he argues that Social Security's surplus is actually contributing to the government's overall deficit.

So on one hand we have trust accounting saying that the money belongs to Social Security beneficiaries and on the other we have Mr. Snow saying that it really belongs to the government which has decided to pay it out to beneficiaries.

Mr. Snow is wrong.

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