These things would be obvious if old-age and survivors insurance were operated by someone other than the government. But the substance of the thing is not changed by changing the identity of the trustee. It is true that a private trustee ordinarily may not invest in his own securities, but this rule exists for reasons that do not apply to the government which, indeed, invests many other trust funds, as well as this one, in its own bonds. It is also true that, with the government as trustee, the bonds may appear to be fictitious as evidencing a debt from the government to itself. It does not affect the result if one chooses so to view them, though in substance, of course, they evidence a debt, not to the government itself, but to the social insurance contributors.
The money that the treasury has borrowed from the trust fund would have had to be borrowed from other sources if this source had not been available. Whatever view one takes of the bonds in the trust fund, the government owes some $21 billion less to private bondholders than it would owe if there had been no social security accumulation, and there can be no doubt of the reality of this advantage to the government. Whether the bonds are considered real or fictitious, the trust fund mechanism serves to dedicate to the insurance system payments of principal and interest that would otherwise go to private bondholders, and that is all that matters. This is the same effect, it will be noted, that the bonds would have if the insurance system were operated by a private corporation.
For similar reasons, there is no substance in the argument that the reserve is futile because the old people of future years will in any case have to obtain the goods and services they need from the production of that time. If the government is to be paying money to the aged in order that they can buy those goods and services, the government and its general taxpayers will obviously be better off to the extent that it can apply to that end a portion of the interest it must in any event pay on the public debt.
Prima facie, one would expect to find a large accumulation of funds in an old-age insurance system simply because it is designed to collect money from people during their working years and to pay it out to them or their survivors many years later. Each individual account might be ex
pected to produce a small accumulation, and the aggregate of them a large one. So the question is not why we have reserves, but whether we can wisely and fairly go further than we have already gone in reducing them. The use of a gradually increasing tax rate until 1975, the liberal eligibility for benefits in the early years of the system, the payment of full-rate benefits immediately instead of graduating them with the length of participation in the system have greatly diminished the excess of income over outgo, and thus have held down the size of the reserve. It is worthy of note that each of these factors has appreciably lessened the individual equity of the system and that each has required either higher taxes or lower benefits in the distant future than would otherwise have been possible. Further reduction of the reserve could only result from steps that would heighten these or similar inequities and heighten the effect on future taxes or benefits.
Those who would do away with the accumulation commonly use the phrase "pay as you go" to describe what they want. The phrase is ill defined. Some have argued that Congress should not attempt to forecast the tax rates that may be appropriate in the distant future, but should write into present law tax provisions for only a few years to come, leaving to future Congresses the decision on what should be done thereafter. Like the proposal to leave future benefit rates unspecified, this would go far to destroy the contributory system.
There is another meaning of the phrase "pay as you go," however, which is not necessarily inconsistent with contributory social insurance; namely, that Congress, having adopted a given schedule of benefits, should adopt a schedule of taxes designed as nearly as possible to bring in, in each year in both the near and the distant future, just enough money to pay the benefits falling due in that year. Most advocates of this approach concede the necessity of a relatively small "contingency" reserve to guard against errors in actuarial forecasts and unexpected drains on the system resulting from such causes, for example, as earlier retirement in periods of widespread unemployment.