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The Trust Fund and the Constitution

Josh Marshall, discussing the Social Security Trust Fund, brings up the oft-forgotten Section 4 of Amendment XIV to the Constitution of the United States:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
A fun reminder of what a weird mixed bad the amendment is, but has it any actual relevance to the current situation? It seems unlikely to me that there's any enforcement legislation authorized under Section 5 that could implement this particular provision. I'm also pretty sure that when you look at the entire section you can see that the first sentence doesn't mean what Josh reads it as saying in isolation. The point here is to force the southern states to default on their war debts (and that of the CSA government) without casting doubt on the integrity of the Union's credit. But I'm not a lawyer or a student of reconstruction, so perhaps others out there in blog-land will weigh in.

February 10, 2005 | Permalink

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Tracked on Feb 10, 2005 10:19:04 AM

Comments

The larger point is that Bush's attack on Social Security addresses the question of whether we will ensure that the elderly in this country are well cared for.

Abolish the payroll tax, and fold Social Security payments into the general obligations of the US government.

Saying that this generation has to solve the Social Security funding problem now is like saying that we need to address the funding of the military in 2050. If current trends are projected ahead that far there is an unsupportable deficit. Yet no one thinks we won't find the money to fund the military. Similarly, we will find the money to pay for the security of the elderly in the future. Unless old folks all stop voting en masse.

Whether Social Security is self supporting in the future irrelevant. We will maintain the roads, we will fund social security. Duh.

Posted by: epistemology | Feb 10, 2005 12:47:21 AM

I've spoken a bit with someone who seems to believe that the notion that the Trust Fund has been -borrowed- by the General Fund is bunk, a fiction of paper shuffling. A corrollary to this is the idea that the debt owed by the General Fund to the SS Trust Fund is -- because it's just smoke and mirrors in accounting -- not "public debt" as referred to by the 14th Amendment, and thus there's no Constitutional problem with recognizing that the money's gone, and defaulting on that debt.

Posted by: ctate | Feb 10, 2005 1:12:19 AM

The point here is to force the southern states to default on their war debts without casting doubt on the integrity of the Union's credit.

Ahh, but to the extent you think that contradicts Marshall, you are confusing semantic with political intention. Even Scalia agrees that what matters is what the framers meant to say, not what they meant to do. So, the section does mean that it is unconstitutional to question the validity of the federal debt.

Whether there is an enforcement mechanism is beside the point. Marshall just pointed out that Bush is breaking his oath of office (not for the first time, perhaps).

Posted by: Gareth | Feb 10, 2005 1:24:40 AM

I'll keep saying this:

The 14th amendment argument is a canard. Since the US government controls not only the treasury, but also the SS administration, they can pass a law that instead of defaulting on those bonds, merely instructs the SS administration not to redeem them.

In other words, different agencies of the government are creditor and debtor of this transaction. While canceling the transaction at the debtor level would be unconstitutional, doing so at the creditor level holds no such restrictions.

There are excellent political and policy arguments against invalidating the trust fund, but not a constitutional one.

And while there may be a political rationale for using the word "default" in making arguments, the folks using the word should understand that it is only a rhetorical tool.

Posted by: Petey | Feb 10, 2005 1:56:18 AM

"instead of defaulting on those bonds, merely instruct the SS administration not to redeem them"

Thanks, Petey--that seems like a useful clarification, and it does show how a future administration could follow the Bush plan without officially defaulting on public debt.

On the other hand, it is also worthwhile to keep saying that the SS administration does currently hold title to those bonds, and so does currently have assets that are adequate for its purposes.

True, some future administration could hold a gun to its head and tell it that it cannot dip into those assets. I'm not sure that means that it does not currently own them. Someone could hold a gun to my head and forbid me to withdraw the money I have in the bank, but that does not change the fact that I own it.

I appreciate your desire to give interested parties a more nuanced understanding of the situation. Now that I have it, I will probably go back to trying to couch the debate in a way that will fight the onslaught of lies and deceptions coming from the other side.

Posted by: Tad Brennan | Feb 10, 2005 2:24:09 AM

"On the other hand, it is also worthwhile to keep saying that the SS administration does currently hold title to those bonds, and so does currently have assets that are adequate for its purposes."

Most definitely. It is essential to the right's rhetorical strategy to blur the distinction between the fully separate SS trust fund and the general fund.

We shouldn't let them get away with that.

My understanding of the current fight is that it is essentially an attack on the SS trust fund by those representing the general fund. Since the SS trust fund is primarily paid for by the middle class and the general fund is primarily paid for by the rich, it is an attack by the rich on the middle class.

But the 14 amendment is no constitutional defense against that attack.

Posted by: Petey | Feb 10, 2005 2:37:31 AM

"But the 14th amendment is no constitutional defense against that attack."

However, keeping that in mind, emphasizing that Bush wants to "default" on the debt to the SS trust fund does have political salience in drawing the distinction between the SS trust fund and the general fund...

Posted by: Petey | Feb 10, 2005 2:44:10 AM

Bush is trying to finesse the issue by preemtively defaulting and saying "we can't afford this." (One might wish he'd done that before the invasion of Iraq, but whatever.)

By getting out in front of the problem his tax cuts have created he's hoping to slide his pandering past our gagging reflex as though he was feeding a dog a pill in a pat of butter.

Posted by: bad Jim | Feb 10, 2005 3:19:52 AM

"pre-emptively"

And that's the best way to slip a dog a pill that I've yet tried.

Posted by: bad Jim | Feb 10, 2005 3:22:26 AM

The bonds are a smokescreen.
I'm not a constitutional scholar, but the Sixteenth Amendment is what should be up for discussion.
Diverting FICA money to the general funds is an accounting scandal bigger than any that have happened in the private sector.
Any funds not used for Social Security are de facto an income tax, but without deductions. It is the most regressive wealth transfer of our lifetime.
It is an honor to pay taxes. It means you have enough income to do so.
It is also an honor to pay for Social Security because you are participating in the care and feeding of us all when the time comes that "paying in" is over.
But if the rules state that one is allowed deductions for one and not the other, then the rules need to be followed, at least by those who establish those rules.

Posted by: John Ballard | Feb 10, 2005 5:46:43 AM

"On the other hand, it is also worthwhile to keep saying that the SS administration does currently hold title to those bonds, and so does currently have assets that are adequate for its purposes."

Uh, yeah, and if I assign my left hand the task of paying off my mortgage, and my right hand writes my left hand a $120,000 IOU, then my left hand will hold assets that are adequate for it's purposes, too. In EXACTLY the same sense.

Anybody who acts as if the "trust fund" represents real assets is either a fool themself, or out to fool somebody else. It's a pay as you go program, pure and simple, and never was anything else.

Posted by: Brett Bellmore | Feb 10, 2005 6:03:08 AM

Isn't it curious that those who warn us of the possibility that an unfaithful government could default on its obligations to the trust fund are the very same ones who WANT to default on those obligations? Talk about your circular arguments--social security must be "reformed" to death because it's wll be insolvent, and it will be insolvent because we're going to make it insolvent.


You guys have looted the trust fund since '83 for your own benefit--rollback the tax cuts for the upper brackets funded by the trusut fund since then, and the problem dissappears.

Bellmore, I thought you rich libertarians didn't believe in income redistribution! You don't seem to have any problem with redistributing money from my pocket into yours.

Posted by: rea | Feb 10, 2005 6:40:22 AM

"Uh, yeah, and if I assign my left hand the task of paying off my mortgage, and my right hand writes my left hand a $120,000 IOU, then my left hand will hold assets that are adequate for it's purposes, too. In EXACTLY the same sense."

To repeat myself:

It is essential to the right's rhetorical strategy to blur the distinction between the fully separate SS trust fund and the general fund.

Posted by: Petey | Feb 10, 2005 6:51:15 AM

"You guys have looted the trust fund since '83 for your own benefit"

No one has looted the trust fund. The bonds are still safely there.

George Bush is right now trying to loot the trust fund.

Posted by: Petey | Feb 10, 2005 6:53:16 AM

"Bush is trying to finesse the issue by preemtively defaulting and saying "we can't afford this."
He does it by saying "We can't afford this, so we must borrow even more money to pay for something else." And Republicans wonder why we don't like him.

Posted by: Ginger Yellow | Feb 10, 2005 7:30:29 AM

To repeat what others have pointed out, ad nausium:

With the trust fund, when SS outlays exceed income, the government has several choices: Raise taxes, borrow, cut benefits, cut other spending.

Without the trust fund, when SS outlays exceed income, the government has several choices: Raise taxes, borrow, cut benefits, cut other spending.

Notice the glaring difference the trust fund makes?

Petey, if I write you a note obligating me to pay you $100 on demand, and hand it to you, you've got an asset. If you hit a tight spot, you can demand that I pay up, and unless I cheat you and default on the debt, the transfer of money actually helps you pay your bills easier.

If I write a note obligating me to pay ME $100 on demand, I've got a piece of paper. You find this difficult to understand? It doesn't help me pay my bills at ALL.

The social security system is a government agency. It no more has an independent existance from the treasury department, than my left hand has from my right. Those treasury bonds "it" holds are nothing but IOUs from the government to itself, utterly worthless, because their existance contributes NOTHING to paying those benefits when the crunch comes.

Building up the "trust fund" was just a scam, a gimick to get people to accept higher taxes to pay for general fund spending. Sounds like you fell for it, too.

Posted by: Brett Bellmore | Feb 10, 2005 7:39:07 AM

Anybody who acts as if the "trust fund" represents real assets is either a fool themself, or out to fool somebody else.

So you mean like Greenspan, Reagan, everyone in Congress? Yeah, I guess they are...

Posted by: crayz | Feb 10, 2005 7:41:54 AM

Brett - What you're saying is that rich(i.e. high-income) people from 1983-2009 are taking the working class' money, and then rich people between 2009-? don't want to pay it back. That's super

If they try to pull it off though, the streets are going to run with blood

Posted by: crayz | Feb 10, 2005 7:45:46 AM

Anybody who acts as if the "trust fund" represents real assets is either a fool themself, or out to fool somebody else.

quick, you'd better send a letter off to the SS trustees, cause they're under the impression that they have upwards of a trillion dollars in trust !

Posted by: cleek | Feb 10, 2005 7:47:10 AM

"The social security system is a government agency. It no more has an independent existance from the treasury department, than my left hand has from my right."

You're dead wrong, Brett.

If a company, as a result of its agreement with its workers, deposits some of its bonds in the workers' pension fund, is that a company giving something from its left hand to its right hand? Does that company's worker pension fund have no independent existence from its operating fund?

Of course not. And the SS trust fund is no different from that company's worker pension fund.

But, of course, if you are opposed to SS in the first place, I understand why you'd want to deny the independence of the SS trust fund from the general fund.

"Building up the "trust fund" was just a scam, a gimick to get people to accept higher taxes to pay for general fund spending. Sounds like you fell for it, too."

Here, you're dead wrong on the historical details, Brett.

The SS trust fund has been independent of the general fund for 70 years. That independence has nothing to do with the bipartisan 1983 agreement.

Posted by: Petey | Feb 10, 2005 8:02:31 AM

The trust fund is real, in that SS law recognizes it in terms of payouts. It says calculate how much is in the trust fund based on payroll tax income, and continue to pay benefits at 100% of scheduled as long as the trust fund > 0. If the trust fund is 0, then pay benefits equal to payroll tax income for that year. You can change the SS law to ignore the trust fund and more easily balance your general fund, but that is a benefit cut, pure and simple. If you want to cut benefits, just say so and let the electorate punish you.

Posted by: SP | Feb 10, 2005 8:52:27 AM

Petey, don't use company pension funds as an example. It's a frightening one, because they're so easily looted.

Posted by: John Emerson | Feb 10, 2005 8:58:42 AM

"The trust fund is real, in that SS law recognizes it in terms of payouts."

The trust fund is also real in that there is vault in West Virginia filled with treasury bonds that were paid for by the SS system, and belong to the SS system.

"If you want to cut benefits, just say so and let the electorate punish you."

They do want to cut benefits, and the electorate will punish them in 2006.

Posted by: Petey | Feb 10, 2005 9:00:32 AM

"Petey, don't use company pension funds as an example. It's a frightening one, because they're so easily looted."

What do you think the Republican SS plan is all about other than looting the American workers' pension system?

Posted by: Petey | Feb 10, 2005 9:02:47 AM

Brett doesn't seem to understand accounting. Let's try to make it easy for him shall we?

With the trust fund, the SSA has $1.8 trillion in bonds. When the bonds are redeemed the governemnt will issue new public bonds to pay for them. Net efect on the Natioanl Debt? Zero.


Without the trust fund, the moeny to pay benefits is borrowed. All fo that money is added to the National Debt. That would be in the trillions.

Posted by: Rob | Feb 10, 2005 9:11:45 AM

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