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Blumenauer’s Own Website Explains Social Security Trust Fund Properly

I’m still baffled by yesterday’s New York Times article by Matt Bai, where Rep. Earl Blumenauer (D-OR) seems to suggest that the Social Security Trust Fund is full of “make-believe money.” Only that’s not a direct quote of Blumenauer’s, but the perspective that Bai attributes to him. And it appears that this perspective is at variance with Blumenauer’s own House website.

In his issues section, Blumenauer has a long page about Social Security, including an FAQ. He starts by saying that he sits on the Ways and Means Committee, which has jurisdiction over Social Security, and that he “is committed to protecting these vital benefits,” which help keep 13 million Americans out of poverty.

But it gets really interesting when Blumenauer explains the Social Security Trust Fund. Because he does it in a complete opposite way there than what was reportedly said to Matt Bai. Here’s the relevant section:

What is the Social Security Trust Fund?

In 1983, President Reagan signed a large payroll tax increase into law to prepare for the retirement of the so-called Baby-Boom generation. This year, Social Security will collect $180 billion more in payroll taxes than is needed to fund benefits for current recipients. This surplus is credited to the Social Security Trust Fund and is then invested in federal securities that earn interest for the Trust Fund.

For years, Social Security’s income has exceeded its pay out. The Trust Fund has grown, as intended. It currently has assets of $1.7 trillion, which will grow to $6.6 trillion by 2027.

Is money being taken out of the Trust Fund?

Yes. The Social Security Trust Fund operates much like a bank or credit union. When you deposit money in your bank, the money just doesn’t sit there, waiting for you to return and claim it. Rather your bank lends the money out to other customers, who then repay it with interest. However, the bank must maintain enough cash on hand so that when you chose to withdraw your money, you can.

Excess funds in the Social Security Trust Fund are invested in federal securities, which are owned by the Trust Fund and backed by the full faith and credit of the United States government. These dollars are then available to be spent for things other than Social Security.

Are the bonds held by the Trust Fund safe?

The U.S. Treasury bonds issued to Social Security are financial assets in the same way that stocks, corporate bonds, or US Treasury bonds purchased by foreign investors are assets. They have the same status as US bonds owned by Japanese pension funds and the Chinese government. They represent a legal claim on revenue and are backed by the full faith and credit of the United States.

Since the founding of the Republic, the federal government has paid off its debts. The federal government must honor the debt to the Social Security Trust Fund when it comes time to redeem the bonds.

Does this sound at all like “make-believe money” to you? Blumenauer’s page accurately explains the mechanism of the Social Security Trust Fund. It was a deal made in 1983, to raise taxes to prepare for the baby boomer’s retirement. Basically, the Trust Fund covered tax cuts for the wealthy and two wars until it was needed to get paid back. That time is coming due, and the wealthy don’t want to deal with it; they want to break the promise. But they can’t, as Blumenauer’s page rightly notes, because “the federal government must honor the debt to the Social Security Trust Fund when it comes time to redeem the bonds.”

I’ve put a call into Congressman Blumenauer’s office, but nobody answered the phone and the mailbox was full. An email to the person named as his press representative bounced back. I’ll continue trying to get something on the record to explain this.

I wouldn’t put it out of the realm of possibility that Bai put words in Blumenauer’s mouth.

UPDATE: A source with knowledge of Blumenauer’s position tells FDL News that Bai was indeed putting words in Blumenauer’s mouth about the Trust Fund, and that Blumenauer’s House website accurately represents his views on the matter. I’m still waiting to hear from his office for official confirmation. But the New York Times needs to issue a correction.

UPDATE II: This doesn’t absolve Blumenauer for advocating progressive price indexing, which is mentioned on his House page on Social Security. He does believe that, and I strongly disagree on that point.

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David Dayen

David Dayen