Last week Treasury Secretary Paul O’Neill made the news by publicly announcing that the Social Security trust fund did not have any assets. This statement was newsworthy because the Social Security trustees report shows that the fund will have close to $1.2 trillion in government bonds at the end of the year. $1.2 trillion of government bonds would qualify as assets in most people’s books. Mr. O’Neill’s statement was especially strange since, as Treasury Secretary, he was one of the trustees who signed this year’s report showing the $1.2 trillion in bonds as assets.

Mr. O’Neill is claiming that the bonds held by the trust fund are not real, and therefore don’t need to be paid off like other bonds. It’s clear who would lose in this story – the 150 million workers who pay Social Security taxes every year. The trust fund has accumulated its bonds from the Social Security taxes paid by these workers. When the fund collected more taxes than it needed to pay benefits, it bought government bonds.

Now O’Neill is telling us that those bonds are fake, effectively taking $8,000 from every worker contributing to Social Security. If O’Neill has his way, the money that we paid into Social Security to support our retirement will never be paid back by the government.

If the losers from Mr. O’Neill’s plan are obvious, who are the winners? Fortunately, we don’t have to look far. It turns out that the winners are the exact same people who got the most money out of the President’s tax cuts – including people like Mr. O’Neill. Defaulting on the trust fund’s bonds will place hundreds of billions of dollars into these folks’ pockets.

The way it works is fairly simple. While Social Security and Medicare are financed by designated taxes that come out of workers’ paychecks, the rest of the government is financed primarily by the corporate and personal income taxes. As President Bush repeatedly told us, when he wanted to explain why the rich got most of his tax cut – rich people pay most of these taxes.

This means that if we don’t make the government pay off the bonds held by Social Security, we are effectively giving another tax break to these same rich people. We can even get a rough idea of how much of a break we’re giving them. The $1.2 trillion held by the trust fund is approximately equal to how much the government is currently collecting each year in non Social Security and Medicare taxes. While the bonds would, in principle, be paid off over several decades, if the government just defaults on them, it is effectively giving people a tax break equal to their current income tax bill.

Last year Mr. O’Neill had an income of over $50 million. If he were to continue to do so well in subsequent years, his share of the windfall could easily exceed $10 million. Some other Bush Administration officials would also come out quite well from a default on the trust fund. For example, based on his 2000 returns, Vice-President Cheney would get back another $14,300,000 in taxes.

Some of the members of the President’s Social Security Commission, which apparently also advocates default on the government’s debt to Social Security, might also be able put a few dollars in their pocket if they have their way. Richard Parsons, the Commission’s co-chair and a top executive at AOL Time-Warner, would surely be able to add a few hundred thousand dollars to his bank account if the government defaulted on its debt to Social Security. Even former Senator Daniel Patrick Moynihan, the other co-chair, would be able to pocket a lot more than the average Social Security check if the government defaulted on the trust fund.

In short, most of the people who advocate defaulting on the Social Security trust fund stand to get a substantial tax break if the government actually defaults on these bonds. Certainly they have other motivations, but it's comforting to know that someone would benefit from defaulting on the government's obligation to 150 million workers.