Lockbox

Remember Al Gore. No, not the ex-Vice President whose theatrical (and unscientific) claims about global warming (the oceans will rise 20 feet in this century) earned him an Oscar and a Nobel Prize. The one I’m referring to is the Al Gore, who as a Presidential candidate repeatedly referred to the social security “lockbox”—the fictional place where all the money taken from your paycheck and the money matched by your employer is “saved” for distribution to you in the future.

The Obama administration, rather than proposing politically difficult modifications to a Social Security system that is nearing insolvency, has decided to continue the “lockbox” fiction. Administration spokespeople contend that the system is solvent until 2037. Why, because the money is in the “lockbox,”, also known as the Social Security Trust Fund. And if it’s solvent, no need to do anything except kick the can down the road (something that our President is quite adept at doing).

Unfortunately, these claims are egregiously misleading. Charles Krauthammer reports:

… the Social Security trust fund contains — nothing.

Here's why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it's kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury — and is spent. On roads, bridges, national defense, public television, whatever — spent, gone.

In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called "special issue" bonds.

Special they are: They are worthless. As the OMB explained, they are nothing more than "claims on the Treasury (i.e., promises) that, when redeemed (when you retire and are awaiting your check), will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures."

It’s long past time for the White House to exhibit some courage and lead on this critical issue. The solution is, to be honest, is relatively straightforward.

1. Raise the retirement age to 72 with application graduated depending upon the taxpayer’s current age


2. Revise the COLA downward and means test it for all recipients


3. Means test all social security payments so that the rich get very low payments (if any) and the true poor get a bit more

The baby boomer retirement wave has just begun. If we do not make structure changes to the system, very bad things will happen—and they’ll begin happening sooner rather than later. Can you say intergenerational warfare?

Our President needs to lead on this issue and he needs to do it now. Sadly, it appears that he has no desire to do so.