When anyone suggests that we could help reduce the deficit or lower the national debt by cutting Social Security benefits, and, yes, that includes the "chained CPI" of President Obama -- who seems to care more about his legacy among DC centrists as a genius of bipartisanship than keeping his promises or doing what's right for the American people -- they are operating under the concept of a "unified budget" that combines Social Security finances with those of the general fund.
The problem is, under the law, there is no such thing as a "unified budget." As a matter of law, Social Security revenues may not be diverted into the general revenue fund, and except for the amount that was necessary to cover for the now-expired tax holiday, general revenue may not be put into the Social Security Trust Fund. As a matter of law, the revenue received under the FICA tax is invested in special Treasury bonds that, as a matter of law, earn interest. It is the safest investment in the world. By definition, that is lending money just as investing in just about any other fixed income investment would be. In this case, however, the money is lent, not diverted, to the U.S. Government general fund. That obligation of the government to pay the Social Security Treasury bond when it comes due (when it is needed to pay benefits) is backed by the Full Faith and Credit of the United States Government.
Law matters. That's why people like Krauthammer who talk about "mere IOUs" and "fiction" are wrong -- and so are the people who say the Trust Fund has been "raided." As a matter of law, the Trust Fund is completely separate from the on-budget funds. It would take an Act of Congress signed into law by the President to undo that law. Any obligation in the form of a Treasury Bond or Treasury note is subject to repayment and payment of interest only because the law says so.
Here is the testimony of Nancy Altman, head of the organization Social Security Works, which opposes cuts to the program, at a 2011 Senate chaired by Max Baucus:
"The law is unambiguous. So let me read it: Social Security ‘shall not be counted for purposes of the congressional budget'. . . [W]ith Social Security, by law, there is no unified budget.
Social Security is not part of the budget.
So that $14.3 trillion debt that we are at, the limit that you are going to have to raise -- or at least have to vote on whether to raise in a few months -- if you cut Social Security, that $14.3 trillion does not change. It does not put any room into the debt limit."
Dr. Charles Blahous, a Social Security trustee who is also with the conservative Hoover Institution, was asked by Baucus if he agreed with Ms. Altman.
"I do agree with that," he said.
Let's say it again. Law matters. Under the law, it is the so-called "unified budget" that is a fiction. It's a convenience, and maybe not a good one, for those, mostly economists but also derivatively for gullible business journalists, who want to analyze aggregate tax revenue and spending AS IF there were a unified budget. But that doesn't make it real. Senator Richard Durbin's statement that Social Security has nothing to do with the budget is correct.
The Krauthammers of the country need to learn to respect the law.