you too can be a troll

Brad,

A few weeks ago I wrote to you about Section 4 of the 14th Amendment re: the issue of default. I suggested that the section did not apply and in your response to me you suggested [justifiably] that I had not read the section properly.

However, the posts copied below from Matthew Yglesias and Brad Plumer suggest that, notwithstanding what is apparently the plain language of the section, the section may NOT apply to the Social Security Trust Fund.

I wonder if you could comment further on this matter in one of your posts.

Derek Hackett
dlah3662ja@yahoo.com

Here are the posts by Brad Plumer and Matthew Yglesias:

from brad plumer's weblog, 2.9.5: URL: [http://plumer.blogspot.com/2005_02_01_plumer_archive.html#110801244584532611], 2.9.5]

Legality Of The Trust Fund

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.

AND

from yglesias, 2.10.5:

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