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WASHINGTON (AP) – Treasury Secretary Paul O’Neill, responding to Democratic critics in Congress, said anew Tuesday the Social Security retirement program has no real assets and must be strengthened.

O’Neill’s comments were similar to remarks he made in a June 19 speech to Wall Street and corporate executives in New York that promoted President Bush’s plan to add private investment accounts to Social Security.

In that speech, O’Neill said “we have no assets” presently in the Social Security trust fund.

Those remarks prompted a stinging response from Rep. Charles Rangel of New York, senior Democrat on the tax-writing House Ways and Means Committee, and Robert Matsui of California, the top Democrat on the committee’s Social Security subcommittee. They asserted the trust fund has billions of assets invested in the form of Treasury bonds.

In letters to the lawmakers Tuesday, O’Neill acknowledged that Treasury securities are issued to the trust fund.

However, “because the Social Security trust fund does not consist of real economic assets, we are left to rely on the federal government’s future decisions to either raise taxes, reduce spending or increase borrowing from the public to finance fully Social Security’s promised benefits,” O’Neill said.

O’Neill’s stark description of a Social Security trust that has no “real economic assets,” gets to the heart of the politically charged debate over how to fix Social Security.

Currently, Social Security payroll taxes far exceed what the program needs to pay benefits to current retirees. The excess money is being used to reduce the publicly held national debt, while also being credited as an asset held by the Social Security trust fund.

These trust fund assets are invested in a non-marketable Treasury securities with the government bonds credited with interest earnings as well.

O’Neill and other critics of the current system say this entire process is a bookkeeping fiction because the assets do not exist in any form the government can use to pay benefits. Once the number of retirees exceeds Social Security’s ability to pay benefits out of payroll taxes, which is expected to occur in 15 years, the government must decide whether to make up the shortfall by getting money from general revenue sources or income tax receipts now going to fund other government programs. It also could borrow money by issuing marketable Treasury securities in which investors give the government money in return for government bonds.

While supporters of the Social Security system agree the government will be faced with coming up with actual money to redeem the non-marketable securities, they argue that those securities represent real obligations of the federal government and a failure to redeem the bonds would constitute a default by the government on its obligations.

The administration is pushing a program to partially privatize the Social Security system by allowing workers to keep part of their Social Security payroll tax deduction and investing it in personal accounts. In that way, supporters of this approach say, the non-marketable securities now in the Social Security trust fund would be converted into real assets.

However, since the system is a pay-as-you-go system, the diversion of Social Security taxes into personal accounts would force the government to come up with other ways to pay current retirees.

O’Neill, in Tuesday’s letters, suggested that he, Rangel and Matsui get together to discuss various issues related to the retirement program.

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