Farewell to the "Lockbox"

November 5, 2001

The White House's office of Management and Budget has announced that the Federal Government spent $34 billion in Social Security surplus funds to finance the government's general operating expenses for FY2001. The announcement should finally put an end to the political debate surrounding the so-called Social Security lock box.

The Federal Government ran a surplus of $127 billion in 2001, all which resulted from a $161 billion surplus from Social Security taxes. Both Congress and the Administration had been claiming that the Social Security surplus would be put in a “lockbox” and reserved to pay future Social Security benefits. That claim was, of course, nonsense.

Every penny of the Social Security surplus was in fact going to be spent. The lockbox merely guaranteed that it would be spent to pay down the national debt, rather than for other government spending. Now, however, as a result of slower economic growth and increased government spending, $34 billion has been spent to finance government operations and $127 billion will be used to pay down debt. As for Social Security--$161 billion in new IOUs sit in the Social Security Trust Fund, waiting to be redeemed by future taxpayers.

Spending a portion of the surplus on government operations, therefore, has absolutely no impact on Social Security. The only real way to save Social Security funds is to give them back to individual workers through individually owned, privately invested accounts.

However, by cracking open the lockbox, we may finally have put an end to one of the silliest and most dishonest debates in recent political history.

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