Q. Are the Bush tax cuts being paid for with Social Security funds?    ---E.S., by e-mail


A.   Yes and no. Let's follow what happens to payroll tax revenue. Since the Social Security reform of 1983 payroll tax revenue has exceeded Social Security benefit payments by a substantial amount. The excess has been invested in U.S. Treasury obligations. These obligations represent a promise to deliver the money at a later date, with interest. In fact, the surplus cash has simply been more money for the government to spend.

In the future, when benefit payments exceed payroll tax revenue, the Social Security Trust fund will need to start redeeming its collection of Treasury bonds. Like other Treasury obligations, these are high quality debts. Unfortunately, there are a lot of them and the amount is growing on a weekly basis.

Prior to the Bush tax cuts, our government was running at a surplus that allowed the publicly held Treasury debt to be reduced. This made some "room" for future borrowing to redeem the bonds held by the Social Security Trust fund. Today, however, the combination of recession and tax cuts has reduced tax revenue. Now, both publicly held Treasury debt and Treasury debt held by the Social Security Trust fund are climbing rapidly.

You can follow the actual figures by visiting a government website that tracks government debt "to the penny." It shows the debt held by the public declined from the end of September 1997 through the end of September 2001, indicating the much-celebrated government "surplus."

The same period, however, "intra-governmental holdings"--- mostly the Social Security Trust fund--- continued to grow. In fact, total government debt continued to grow during the entire period that was reported as a surplus, an indication that our government is miles ahead of executives at Enron when it comes to misrepresentation.

This leaves us with a simple but scary question: How will the government redeem the Trust fund bonds when Social Security needs the money, no later than 2018?

Part of the current deficit can be traced to the Bush tax cuts. Some of it can be traced to the recession. And some of it can be traced to higher spending following the 9/11 terrorist attacks. So it can't all be blamed on Bush tax cuts.

The threat of terrorism is real. So, however, is the threat of financial irresponsibility from politicians in both parties who decline to deal with the mismatch between the benefits they promise and the taxes they collect to pay for them.


Q. I'm a lawyer at a modest Dallas firm. We hire 4 to 6 new attorneys fresh out of law school every year and their starting salaries are around $70,000. In recent years I am seeing more and more of these new attorneys starting their careers with anywhere from $30,000 to $50,000 in student debt. If they are married to an attorney, their combined student debt load can be close to $100,000. If they buy a house, they are basically carrying two mortgages from the word go.

My firm offers a 401(k) with a reputable mutual-fund company. Should these new debt burdened attorneys devote whatever spare income they have to debt retirement or 401(k)?

---G.L., by e-mail from Dallas


A.   Most new doctors are in the same position, owing around $100,000 when they have finished their internship. The amount of debt often influences the doctors' career decisions, turning them away from general practice toward the more lucrative specialties such as orthopedic surgery.

For attorneys the debt amounts to the purchase price of a luxury car. If they can avoid any other debt for only five years they can pay off their education debt while starting immediately to save in your firm's 401(k) account. Unfortunately, that's easier said than done.

My suggestion: new attorneys should be encouraged to pay their debt off as fast as possible. As long as it is outstanding their "back-end" ratio is likely to be high. That, in turn, will reduce the amount of house they can finance.