There are many advantages to this idea, beyond the obvious one that it would put actual assets into the fund that the government could not get its hands on: First, it would mean that the federal government, instead of investing in itself or simply spending the money, would be investing in America.
Second, the federal government would be putting more money into the country’s capital markets, instead of borrowing from them in ever-increasing amounts.
Third, the federal government might become a little more sympathetic to the need for tax relief for American companies, currently paying one of the highest corporate tax rates in the world, and for relief from burdensome regulations, and the continually increasing costs of simply hiring employees. If the government invested in funds holding the stock and debt of those companies, it might be more concerned about the need for those companies to prosper and grow, even if it took a lower tax rate, less federal mandates, and a few corporate jets to make it happen.
Fourth, the history of investment returns indicates that anyone investing long-term in a balanced mixture of stock and debt of American companies has generated significantly greater returns than simply investing in the debt of the federal government. The Social Security trust fund would have more money to provide for the retirement of Americans — which was the original purpose of the fund before it became a cash cow for other goals.
In 2004, President Bush proposed that younger people have the right to invest a portion of their Social Security taxes in a private investment account for their retirement. Both Democrats and Republicans in Congress rejected that idea. They thought it wouldn’t be prudent to let people control their own accounts. They feared it would take away from other things they wanted to do with the money until “the out years.” They liked the “trust fund” the way it was, especially its reassuring name, although some proposed it be renamed a “lockbox” to provide further assurance.
My idea is to let the taxes remain with the government, but require them to be placed in investments that will be better for everyone, and keep the fund honest in the process. Think of it as an actual fund, held in actual trust, for the benefit of the beneficiaries, rather than the government.