Social Security Trust Funds

Does Social Security contribute to the deficit? Is the Social Security trust fund a fiction? I've taken a crack at explaining both of these things before, but I've never really succeeded. The truth is that it's complicated. So today I'm going to try again. I figure I'm bound to hit on a formulation that makes sense eventually.

First things first: Social Security is funded via a payroll tax on all income up to $110, 000. You pay 6.2 percent and your employer pays 6.2 percent. These numbers were set by the Social Security Reform Act of 1983, and for the next three decades payroll taxes provided more money than was needed to pay out benefits to retirees.

Now, suppose this surplus had been invested in corporate bonds. What exactly would that mean? It means that workers would be giving money to corporations, who would turn around and spend it. In return, the Social Security trust fund would receive bonds that represent promises to repay the money later out of the company's cash flow. In effect, it gives workers a claim on the cash flows of the company at a later date in time. When that time comes, the company would have to pay up, which would make it less profitable. If the company was already unprofitable, it would make their deficit even worse.

If that's what had happened, there would be no confusion about the trust fund. Everyone agrees that corporate bonds are real things, and that the corporations who sell them have an obligation to pay them back, even though it means less money for shareholder dividends.

Now let's change a few words in this story. What actually happened is that the Social Security surplus was invested in treasury bonds. What does that mean? It means that workers gave money to the federal government, which turned around and spent it. In return, the Social Security trust fund received bonds that represented promises to repay the money later out of the federal government's income tax receipts. In effect, it gave workers a claim on the income tax receipts of the government at a later date in time. When that time came, the federal government would have to pay up, which would make it less profitable. If the government was already running a deficit, it would make the deficit even worse.

These two stories are identical. Treasury bonds are real things: They are promises to repay money at a later date out of the government's cash flow. The federal government has an obligation to pay them back even if it has to raise income taxes to do it.

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On the 2013 Social Security Report to Congress
On the 2013 Social Security Report to Congress
Social Security Trust Fund
Social Security Trust Fund

Medicare and Social Security trust funds...

by -

They have no money in them.
They are not real trust funds.
They are called that as a way to fool you.
They are "pay as you go".
Old people, if you believe you'll be having your medical bills paid for by the government after you're retired -- you'd better hurry up and FIX IT.
Otherwise, you're believing in a big fat lie, and you're just asking for it...

Bankrupt social security trust fund is a scam...

by Manhattan_Eric

The only reason there is a "trust fund," is because the government keeps "borrowing" money from itself (social security receipts) to pay for current general expenditures. The social security administration is not some quasi-bank set-up with little accounts for everyone entrusted with growing those funds to pay for your retirements.
Social security = the US government! It is not separate, they are one in the same! When there is no more "money" left in the "fund," they will simply tax more or print more to pay for current benefits!
Don't let them scam you out of your future benefits!

Congressional Research Service Social Security: The Trust Fund
eBooks (Congressional Research Service)

Why Do We Fund Social Security Differently From Other Government Programs?  — Forbes
With the Social Security trust funds projected to run dry in less than two decades, policymakers will soon be looking for ways to extend the program's solvency.

Social Security adds to the deficit; stop saying I said otherwise  — Los Angeles Times
However, it would not change the total debt subject to this statutory limit because that public debt reduction would be offset by an increase in the debt holdings of the Social Security trust funds.

Ulan Press Use Of Social Security Trust Fund Money To Finance Union Activities At The Social Security Administration
Book (Ulan Press)

A Five Point Approach to Fix Social Security: What Everyone Needs to Know  — Huffington Post
Old age has finally caught up with Social Security. It was designed when there were 16 contributors to the system for every beneficiary.

University of Michigan Library Social security trust fund investment policy: Hearing before the Subcommittee on Social Security and Income Maintenance Programs of the Committee on ... Congress, second session, June 8 1982
Book (University of Michigan Library)
Ulan Press To balance the budget and protect the Social Security Trust Fund surpluses.
Book (Ulan Press)
University of Michigan Library Long-term financing of the social security trust funds (decoupling)
Book (University of Michigan Library)