I hate to rain on the parade, but this whole debate about the constitutional issues surrounding the Trust Fund seems to be entirely moot.

As we know, over the past twenty years Social Security has taken in more than taxes than its paid out in benefits, a surplus that has been forked over to the federal government in exchange for a bunch of government bonds. Around 2018, the program will start owing more in benefits than it takes in payroll taxes, so it will need to start redeeming some of those bonds. This, of course, is not a "mere IOU", and the government is legally obligated under the 14th amendment to repay the Trust Fund money it has borrowed. In other words, all claims that Social Security has on government debt must be repaid. No "ifs" or "buts."

It is, however, perfectly legal for Congress simply to adjust or eliminate those claims. If tomorrow the government declared that total benefits must be equivalent to total tax receipts from now until eternity—thereby slashing future promised benefits by a staggering amount—Social Security would never need to tap into the Trust Fund to meet its obligations. Note that this amounts to the same thing as defaulting on the Trust Fund, from a practical standpoint, but it's a perfectly legal way of doing it.

Think of it this way—if I deposit $2000 in a bank, and then ask for it back, the bank is legally obligated to repay me. But if, somehow, I personally decide to cancel that debt, the bank obviously never has to pay me back, even though this amounts to the same thing as a default.

So sadly enough, Donald Luskin of all people is perfectly correct when he says:

Because the Treasury bonds in the trust fund are an asset of the Social Security program but a liability of the federal government overall, their value cancels out on the balance sheet of public finance. That's not to say they don't symbolize claims on future benefits -- but those claims can be invalidated anytime congress wishes to pass a law to that effect.

In fact Democratic congresses passed laws invalidating some of those claims in the 1970s (when they switched from price indexing of the primary insurance amount to wage indexing, back when prices were growing faster than wages) and the 1980s (when they raised the retirement age). So shall we round up Tip O'Neill and try him for high crimes and misdemeanors?

Of course, that's not the only issue here. The real issue, as explained before, is that Ronald Reagan's Trust Fund has been paid for primarily by payroll taxes on hardworking coal-miners, waitresses, and bus drivers. That surplus, in turn, has been spent by the federal government, a state of affairs that has enabled the country to enjoy lower income taxes over the past twenty years than would otherwise have been the case. So annulling the Trust Fund debt would effectively use payroll taxes on low- and middle-earners to pay for a hefty income tax cut that largely benefits high-earners. Dean Baker has described in gruesome detail the sheer size of this wealth transfer from poor to rich. Such a swindle would be, of course, deeply immoral.

Then there's the political angle. When President Bush says that the Trust Fund contains "mere IOUs", he really means that Congress can always slash benefits by enough so that the Trust Fund never needs to be repaid. So he's not really insisting that the federal government will actually default on its debt. But he is proposing the sort of titanic benefit cut that could ensure a permanent GOP minority for generations to come. I don't know how big, though, and oddly I can't find hard numbers on this anywhere. So it would be helpful if someone figured out exactly how big a benefit reduction would be necessary to eliminate all future claims on the Trust Fund, so that we can gauge just how firmly the president has gripped the Third Rail.