By Dan Froomkin
Special to washingtonpost.com
Friday, February 11, 2005; 12:43 PM

President Bush slipped something new into his Social Security pitch on Wednesday. And it was there again twice yesterday.

He says Social Security's $1.8 trillion trust fund doesn't really exist.

Even in Washington, that's a lot of money to go missing.

Here is Bush, from the transcript of his talk at the Commerce Department on Wednesday:

"Some in our country think that Social Security is a trust fund -- in other words, there's a pile of money being accumulated. That's just simply not true. The money -- payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust. We're on the ultimate pay-as-you-go system -- what goes in comes out. And so, starting in 2018, what's going in -- what's coming out is greater than what's going in. It says we've got a problem. And we'd better start dealing with it now. The longer we wait, the harder it is to fix the problem."

Some quick background:

Social Security is indeed fundamentally a pay-as-you-go program. But ever since 1983, workers have been paying more in Social Security payroll taxes than was strictly necessary to cover benefits. The idea was to build up a reserve for when the Baby Boom retired.

By law, the proceeds -- and they have grown, with interest, to $1.76 trillion last I heard -- are invested in Treasury bonds. Just like the proceeds of other Treasury bonds, that cash is then spent by the government for its programs -- so it's not just sitting there in a pile somewhere, just like Bush says. And, in fact, just like with other Treasury bonds, the government will have to raise the revenue down the road to pay them back eventually -- which may not be easy.

But does that mean the trust fund means nothing? That the 225 pieces of paper representing Special Issue U.S. Treasury Bonds in multibillion-dollar denominations that sit in a file cabinet in West Virginia are just so many czarist rubles?

(Read Larry Eichel's story in the Philadelphia Inquirer last month for more on that file cabinet.)

It may be a blasphemous thought to liberals, but the libertarian wing of the Republican Party has been arguing this point for a while.

Bush first gave a glimpse of his emerging position in his State of the Union address, when he said: "Thirteen years from now, in 2018, Social Security will be paying out more than it takes in. And every year afterward will bring a new shortfall, bigger than the year before. For example, in the year 2027, the government will somehow have to come up with an extra $200 billion to keep the system afloat -- and by 2033, the annual shortfall would be more than $300 billion. By the year 2042, the entire system would be exhausted and bankrupt."

That left some people scratching their heads. If he was saying that the system was going to "somehow have to come up with" enough money to cover shortfalls starting in 2018 (i.e., that the trust fund doesn't exist) then what is so different about 2042 (the year that, according to some estimates, the nonexistent trust fund would run out)?

Former Bush speechwriter David Frum, appearing on MSNBC's Hardball with Chris Matthews right after the State of the Union address, hailed Bush for being bold enough to say "that the Social Security trust fund isn't there, and the problem begins in 2018, not so very far away."

In his blog, Frum later explained: "If Fred writes an IOU for $10 to Jim, Jim has an asset. But if Fred writes an IOU to Fred for $10, he has not created an asset for himself -- he's created a reminder notice.

"And that's the situation of the Trust Fund."

But is Bush really saying that, or not? It's not so clear.

Here he is, from the transcript of his talk yesterday afternoon in Pennsylvania.

First, the there-is-no-trust-fund paragraph:

"Now, one of the myths about Social Security is there's a pile of money sitting there accumulating, because you put money in, the government saves it for you, and then when you retire you get it out. That's not the way the system works. Every dime that goes in from payroll taxes is spent. It's spent on retirees, and if there's excess, it's spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of government to the next. This is a pay-as-you-go system."

But then, a paragraph that once again seem to suggest that there's something there that goes away in 2042:

"And so, therefore, when you have more retirees living longer for greater benefits, with fewer people paying in, the system inevitably will go into the red. In 2018, 13 years down the road, it starts to go negative. And every year thereafter, the situation gets worse. In other words, more money is required to meet the promises. So that by the year 2027, the government is going to have to come up with $200 billion additional above and beyond the payroll taxes to meet promises -- and greater the next year, and greater the next year; $300 billion in 2037, until 2042, it's broke. And that's the dilemma we're faced with."

It's very confusing. And that's not even getting into the fact that many experts dispute his figures and note that the system, even in the direst projections, will still be able to pay out benefits in 2042 that are considerably higher than current levels.

Bush says: "And the fundamental question is, are we willing to confront it?"

But the fundamental question may really be, what exactly is he saying?

Blogger Josh Marshall, who's been rallying the left on Social Security, has no doubt what Bush is saying: "We and many others had predicted that the president's angle here was to default on the Treasury bonds sitting in the Social Security Trust Fund. And now we can be pretty confident that he plans to do just that since today he said that the Trust Fund doesn't even exist."

David Wessel, the Wall Street Journal's deputy Washington bureau chief, wrote in his column yesterday: "The law says Social Security can keep paying promised benefits until 2042, or even later, because it can cash in the Treasury bonds it holds. But as several readers have reminded me, the government will have to get the money to pay back those IOUs from somewhere beginning in 2018. The money can come only from taxes or from borrowing. The trust fund matters politically and legally. It doesn't matter economically.

"This does pose some touchy political problems for the president and others who use the 'bankruptcy' of the trust fund to prod Congress. If the trust fund is merely an accounting device, then why did the government raise payroll taxes in 1983 more than needed to pay benefits? And why should we think about Social Security separately from the rest of the budget? That is, why is it OK to cut taxes and borrow heavily for the Medicare prescription-drug benefit and Iraq but not for Social Security?"

And I have a question.

Let's assume that it's not just a rhetorical device, or an attempt to confuse the issue. Let's assume that the president really believes that the Social Security trust fund doesn't exist. And let's just forget about the past two decades, during which workers overpaid more than a trillion dollars in payroll taxes. We'll write that off to an unfortunate misunderstanding.

But now take this one more step. Shouldn't Bush therefore call for an immediate cut in payroll taxes, effective immediately?

If Social Security is really pay-as-you-go, and any excess payroll tax revenue just goes into the general fund, why are American workers paying more than it costs to run the program? Why should they overpay Social Security payroll taxes for one more minute -- if in fact it doesn't do the Social Security system any good at all?

The latest numbers I've seen show that American workers this year will pay about $70 billion more in payroll taxes than will get paid out in benefits and administrative expenses. And it's a brutal tax. It's not the least bit progressive. In fact, because it's flat -- and capped at about $90,000 of annual income -- it's vastly tougher on the working poor than it is, say, on millionaires. Not to mention billionaires.

The only reason it's been socially acceptable to keep such a high, regressive tax on the books is that the system it was ostensibly keeping alive for the future returns money in a highly progressive way.

But if -- as of now -- that's not really the case, how can anyone defend it? A capped payroll tax is a pretty harsh way to raise $70 billion a year for the general fund.

Realizing that Bush, in town to speak to an audience entirely composed of supporters, wasn't going to face any tough questions himself (see below for coverage), the Raleigh News and Observer came up with a brilliant idea. It solicited questions from readers and presented them to Chuck Blahous, special assistant to the president for economic policy.

For instance:

"Q. Does the U.S. Treasury plan to default on its obligations starting in 2018? If not, why is the Social Security trust fund at risk? -- Mary Sheehan Pollard, Raleigh

"A. The Social Security Trust Fund consists only of debt issued by the federal government. In 2018, when the Social Security program goes into the red, the government will have to find more money to meet that debt, and its only options will be to raise taxes, cut spending or borrow massive amounts of money. . . .

"Q. You have said there will be no tax increases and no further increases in retirement age. Why is it unreasonable to raise the FICA taxable limit of $90,000 to, say, $250,000, or remove the limit altogether? And why is it unreasonable to increase the retirement age to 70 or 72? -- Jim Dickens, Rocky Mount

"A. President Bush has said all options are on the table, except increasing payroll taxes, which will slow economic growth and hurt job creation."

More often than not, reporters quickly give up on trying to get a simple, straightforward answer out of press secretary Scott McClellan once he starts ducking.

But yesterday, in the gaggle on Air Force One, there was a valiant effort to get McClellan to say whether the White House considers raising the income cap on Social Security -- an idea that is gaining some traction in certain circles -- to be a "tax increase."

That's an important question, because Bush has said that he is open to any solution for Social Security, except for payroll tax increases. Raising the cap could partly, or even fully, solve the long-term shortfall.

But trying to get an answer out of McClellan turned into an Abbott and Costello routine yesterday. Watch for the two most common White House question-ducking phrases of the moment: "We've already addressed that" and "you're asking us to negotiate with ourselves." And for the record: The White House may have addressed it, but not with a clear answer.

It's a bit painful, but truly worth reading. I'd quote it here, but it's really long.

Start here, then skip down to the part that begins:

"Q Scott, just one point of clarification on Social Security. Does the President view lifting that $90,000 cap as a tax increase?"

Michael A. Fletcher writes in The Washington Post: "President Bush continued stumping for his plan to change the Social Security system Thursday, amid increasingly vocal opposition from members of Congress and others concerned that the proposal would erode guarantees the federal retirement program has offered since its inception."

David E. Sanger writes in the New York Times: "Mr. Bush steered clear of discussing the price tag of creating the personal accounts he advocates, which Vice President Dick Cheney said on Sunday could cost trillions of dollars in coming decades. . . .

"To make his case, Mr. Bush held two town-hall-style meetings with younger and older workers, events that recalled some of the most carefully orchestrated, and successful, moments of his re-election campaign last year. There were teachers, preachers, recent retirees and a widow, all embracing elements of his message.

"But when he got to the details of his plan, he warned his audience that he had been a history major, and a middling student."

Interestingly enough, Sanger also writes definitively that "the White House said he would also reject raising the ceiling on income that can be taxed to finance Social Security, a limit currently set at $90,000." Did he get that from the exchange linked above?

Larry Eichel writes in the Philadelphia Inquirer: "Yesterday, Bush did not provide any new details of how his plan would work and to what degree benefits under the traditional part of Social Security would have to be cut. He did acknowledge that personal accounts by themselves would not cure the system's long-term financial difficulties."

I wrote at length in Monday's column about Bush's taxpayer-funded campaign-style trips, which take place in a protective bubble.

Yesterday's trip to North Carolina and Pennyslvania was like that. Tickets were distributed exclusively by Republicans and no dissent was heard -- inside, at least.

Here's the transcript from his first stop, in Raleigh.

In a story headlined: "Visit pleases Bush allies; In Raleigh, hand-picked crowd applauds social security revamp," Rob Christensen and Jonathan B. Cox write in the Raleigh News and Observer: "The crowd interrupted him with applause 38 times during his 70-minute talk, and there were occasional shouts of encouragement such as: 'We love you, Dubya.' "

By contrast, they write: "The volatility of the Social Security issue was visible across from the BTI Center, where as many as 100 protesters held neon yellow signs that said 'Hands off my Social Security' and began chanting, 'Town meeting with no dissent, what a cowardly president.' "

Deb Riechmann of the Associated Press described a homemade sign that said "Mr. Bush, where is my invitation to the Raleigh town hall meeting?"

"The message, scrawled next to a sad face, was a critique of the friendly crowds assembled for the events. Bush received plenty of praise from the audience inside. One man thanked Bush for bringing faith back to the White House; a standing ovation followed," Riechmann writes.

Joe McDermott writes in the Allentown (Pa.) Morning Call about Bush's afternoon event: "Mixing dire warnings with soft humor, President Bush told about 1,000 supporters at Montgomery County Community College on Thursday that Social Security must be changed or face a financial crisis within 13 years."

But even inside the bubble, there were some concerns -- about the bubble.

McDermott continues: "Al Douglas said there was one major shortcoming to Bush's presentation.

" 'He's speaking to the choir,' said Douglas, 79, a retired engineer who owned his own company in Pottstown. 'Don't get me wrong, I'm part of the choir. But he has to get out and talk to more people.' "

William Douglas writes for Knight Ridder Newspapers about his chat with Harry Eberly. "Eberly, 80, a soon-to-retire community-service worker, came to the Raleigh event supporting Bush but skeptical of his plan to create private investment accounts financed by wage-tax revenues diverted from Social Security.

" 'I like what I hear, but I question whether or not it's satisfactory,' Eberly said. 'It's not that well defined, and I don't think it has the support to be successful.' "

Kevin G. Hall writes for Knight Ridder Newspapers: "When President Bush pitches his proposed personal-investment accounts for younger workers, he suggests that they'll match the high returns and low costs of the federal Thrift Savings Plan, a retirement perk for federal employees.

"The TSP is an attractive model, but it's fundamentally different from Bush's proposed accounts."

Hall writes that "the TSP differs fundamentally from the president's proposal: It's an add-on for government employees, who still pay full Social Security taxes."

And Hall raises an new question: How -- and how quickly -- would diverted payroll deductions be transferred into investment accounts?

"The answers are vital. In Bush's bid to make Americans 'owners' of their retirement assets, millions of people could become second-class citizens in the investment game.

"Here's how: If methods of collecting payroll taxes remain unchanged under personal accounts, three months could pass between when the money is deducted and when that's reported to the government. It could take even longer to invest it."

Bob Dart of the Cox News Service also writes about the strained TSP analogy.

JoAnne Allen writes for Reuters: "A newly released memo warned the White House at the start of the Bush administration that al Qaeda represented a threat throughout the Islamic world, a warning that critics said went unheeded by President George W. Bush until the September 11, 2001, attacks.

"The memo dated January 25, 2001 -- five days after Bush took office -- was an essential feature of last year's hearings into intelligence failures before the attacks on New York and Washington. A copy of the document was posted on the National Security Archive Web site on Thursday. . . .

"The document was declassified on April 7, 2004, one day before Rice's testimony before the September 11 commission. It was released recently by the National Security Council to the National Security Archive -- a private library of declassified U.S. documents obtained through the Freedom of Information Act."

And here it is.

Katharine Q. Seelye writes in the New York Times: "Two Democrats in Congress are pressing for investigations into how a Washington reporter who used a pseudonym managed to gain access to the White House and had access to classified documents that named Valerie Plame as a C.I.A. operative.

"The Democrats, Representatives John Conyers Jr. of Michigan and Louise M. Slaughter from Rochester, wrote yesterday to Patrick Fitzgerald, the independent prosecutor appointed in the Plame case, seeking an investigation into how the reporter, James D. Guckert, who used the name Jeff Gannon, had access to classified documents that revealed the identity of Ms. Plame."

The DailyKos Diarists, the bloggers whose digging into Gannon's past fueled a great deal of the furor, have a press release now: "The Jeff Gannon Controversy - A Primer for the Press or Beginners."

You can also read yesterday's column for much, much more.

Here's Guckert/Gannon with CNN's Wolf Blitzer yesterday:

"BLITZER: And Jeff Gannon is joining us now for an exclusive television interview, his first TV interview since leaving his job.

"Jeff, thanks very much for joining us.

"Should I call you Jeff or James?

"GANNON: Please call me Jeff Gannon."

Once that was settled, Guckert/Gannon alleged that he quit his job because his family had been threatened by bloggers.

And, he said: "I created the questions. Nobody fed questions to me."

Here's CNN's Aaron Brown with John Aravosis, whose americablog also fueled the story:

"ARAVOSIS: [T]he larger question here for me isn't so what about this guy, is he a journalist or not but how did somebody get this kind of access to the White House and this kind of CIA information? I think the White House is behind this. . . .

"BROWN: Well . . . [what] the White House says is they don't really ask about your political affiliation on these daily passes. The correspondent corps doesn't pass judgment here. If you show an ID and you pass a Secret Service check then you get to sit there and if your number is drawn, you get to ask a question.

"ARAVOSIS: That is the biggest bunch of hogwash I've ever heard.

"BROWN: Oh, OK.

"ARAVOSIS: George Bush's White House controls everything that happens every second of the day. . . . "

G. Robert Hillman of the Dallas Morning News also talked to Guckert/Gannon.

"Gannon acknowledged that the question had a partisan bent, but that it was one his Web readers were interested in. He also confirmed that he had developed several Web sites with sexually suggestive addresses for a private client, but that they have never been used. And he said a picture of him on the Internet in his underwear was just that."

Meanwhile, the American Street blog suggest a new TV reality show: Who Will Be the White House's Next Fake Reporter?

Will Lester writes for the Associated Press: "The public's confidence in President Bush's job performance and the nation's direction has slipped in the opening weeks of his second term, particularly among people 50 and older, according to an Associated Press poll.

"Adults were evenly divided on Bush's job performance in January, but now 54 percent disapprove and 45 percent approve. The number who think the country is headed down the wrong track increased from 51 percent to 58 percent in the past month."

Al Kamen writes in The Washington Post about reaction to this Anne E. Kornblut and Elisabeth Bumiller story in Monday's New York Times. The story quoted Andrew H. Card Jr., the White House chief of staff saying fewer White House staffers than he expected had departed in recent weeks. "I think I've expressed that frustration to the senior staff," Card told the Times. "I was surprised I haven't seen more people come forward to ask, 'Can I use you as a reference?' "

Kamen writes: "Word is staffers were most upset. Indeed, some were furious, saying Card had not communicated that notion clearly to top staff. People apparently had been asked if they were thinking of staying or of going. This is, of course, the old 'enthusiasm check.' Folks dumb enough to say they were thinking about leaving, we're told, are now being bid a fond adieu. . . .

"All this is making White House staffers, those laggards, very grumpy. More churlish types suggest that perhaps Card, who they note has been there since Day One, might want to lead by example? Sure."

John Harwood writes in the Wall Street Journal's clipped but seminal Washington Wire column: "Bush's elevation of strategist Rove stokes Democratic skepticism about bipartisan outreach."

And the Financial Times suggests Rove is still, well, Rove.

"Karl Rove was on best behaviour at Time Warner's inaugural Conversations on the Circle this week in New York -- until he was asked about Howard Dean.

"Rove surprised the audience by revealing the existence of a second 'Dean scream'.

"Rove disclosed that the White House had a tape of the scream, which erupted at the end of a speech to the California Democratic state convention in Sacramento on March 15 2003. . . .

"On Wednesday evening, Rove was still salivating at the prospect of using the tape -- along with the infamous post-Iowa caucus scream -- in a future election."