Disproving the notion of a Social Security trust fund ‘lockbox’


The “lockbox” is back.

The “lockbox,” you may recall, was the concept presidential candidate Al Gore used during the 2000 election to signify his devotion to the security of Social Security. The principle supposedly was to sequester the program’s annual surplus, which was then running about $150 billion a year, so that it couldn’t be frittered away on irresponsible government spending.

After the election, the lockbox disappeared from public discourse. But the idea that the government is squandering Social Security assets, leaving nothing to pay benefits, has never faded.

Lately the lockbox trope has been resurrected, generally by Democrats hoping to defuse the conservative talking point — which is flatly inaccurate — that Social Security contributes to the deficit. The idea seems to be that if you can wall off Social Security’s income and outflow from the rest of the budget, you can at least quell the talk.


But here’s the dirty little secret about the “lockbox”: The very notion is based on a fundamental misunderstanding of how the program works. You can’t lock away a trust fund amounting to about $2.5 trillion from the rest of the economy — nor would you want to.

What’s at the center of all this discussion is the Social Security trust fund. The fund began to build up after 1983, when the government jacked up the payroll tax to cover a looming deficit and sock away money for the coming wave of baby boomer retirements. Over the last decade or so, the fund has grown by $150 billion to $200 billion a year.

The question of where to park this money is a perennial headache. That was so even in 1935, when a proposal to build up a Social Security reserve first came before Congress — and when the estimate of its maximum size was only $47 billion.

“What in heaven’s name are you going to do with $47 billion?” Republican Sen. Arthur Vandenberg of Michigan asked a Franklin D. Roosevelt administration official. Informed that the government funds could be invested in the stock of big corporations such as U.S. Steel, Vandenberg exclaimed, “That would be socialism!”

Instead, Congress mandated that the money could be invested only one way: in U.S. Treasury securities, safe and secure. This remains the law today.

From time to time, proposals arise to invest some of the money — usually less than half — in the stock market. But no one has yet come up with a sure way of inoculating what might be a government investment approaching $1 trillion from political pressure or conflicts of interest. For example, in his 1999 State of the Union message, President Bill Clinton proposed suing the tobacco companies for their impact on public health and allowing Social Security to invest in corporate equities, tobacco or otherwise.


You can’t put it in a mattress or in any non-interest-paying account. The balance would be eaten away by inflation: The $1 trillion held by the trust fund in 2000 would have only $800 billion in purchasing power today.

That leaves …T-bonds.

Of course, when you buy a Treasury security, what you’re doing is lending the money to the government, which spends it on whatever Congress and the president deem necessary — building bridges, deploying an army division, sending a shuttle into space, even paying off old T-bonds.

Gore wasn’t proposing anything different when he talked about the lockbox — his plan was to use the Social Security surplus to pay down the national debt, then pay the program’s future expenses from general government revenue. One way or another, Social Security taxpayers (who are disproportionately middle- and working-class) would still be lending the government money.

When Social Security alarmists say the government has “squandered” the trust fund, they’re just expressing their opinion about the government’s budget priorities. Underlying their complaint are the modern conservative shibboleths that taxation is by definition “theft,” the federal budget is invariably a drag on the free market, and private enterprise can do everything better than government.

Here’s how conservative economist Thomas Sowell distilled the argument in 2001: “Those bonds in the Social Security ‘trust fund’ represent no tangible assets — not houses, not factories, not cars, not trains.”

Is that right?

The federal government spends about $1.5 billion a year subsidizing Amtrak. Love it or hate it, that sounds like trains to me. The Department of Housing and Urban Development spends about $40 billion a year on housing assistance and community development grants. The Pentagon’s $35-billion tanker contract will keep plenty of factories humming.

Moreover, by borrowing Social Security’s tax revenue, the government was able to enact an income tax cut in 2001 favoring the wealthiest 5% of taxpayers. According to supply-side doctrine, the cut should have given those taxpayers an incentive to invest — in houses, factories, cars and trains.

Who says so? Sowell, for one. Just last year, he wrote that low tax rates prompt people to “take their money out of tax shelters and put it to work in the economy, benefitting themselves, the economy and government.” (Sowell may dismiss the utility of government largesse, but he’s not averse to living off it — he taught at UCLA, a taxpayer-funded university, from 1974 to 1980 and currently hangs his hat at Stanford’s Hoover Institution, contributions to which are subsidized by the federal government via a tax deduction.)

In the final analysis, what’s important in the lockbox debate is not how the government spends the money it borrows from Social Security; it spends the money on the same things as everything else it borrows, whether the lender is a wealthy individual, a parent buying Series EE bonds for his kids’ college funds, or the Chinese government. What’s important is the promise of repayment. It doesn’t take a lockbox to guarantee that obligation, only the good faith and wisdom of our political leaders.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.