When Americans read dribble like the article below, it’s no wonder they don’t know what to believe about Social Security.
- The Trust is not fiction
- The Trust is not in surplus, in fact it was never in surplus
- Money in or out of the Trust is not giving or taking from the government
- If the Treasury were lending money to the Trust where would the money come from to pay it back given all assets of the Trust come from taxes paid for Social Security
Social Security Benefits Won’t Be Cut – OpEd – Eurasia Review
So, what happens when the Social Security trust fund runs out of money? Here’s my best guess. Members of Congress will observe that the Social Security trust fund has been in surplus for many decades. As its balance runs down to zero, they will propose that the federal government can lend the trust fund money and allow it to drop below zero. They will use money from other taxes, or from borrowing, to make up the difference. Nobody’s benefit will be cut.
There are two big factors to look at when evaluating the solvency of the Social Security trust fund. First, the fund is a fiction. The trust fund holds federal government bonds, so it’s one part of government lending money to another part.
Right now, the trust fund is in surplus, so the Social Security program is lending money to the Treasury. If the fund fell below zero, the Treasury would be lending money to the trust fund.
What matters is not how much money is in the trust fund, but whether more is coming in than going out, or more is going out than coming in. If more is coming in than going out, the Social Security program is giving money to the rest of the federal government. If more is going out than coming in, the rest of the federal government is giving money to the trust fund.
Source: Social Security Benefits Won’t Be Cut – OpEd – Eurasia Review
- The Trust is very real. For decades the Trust held its tax revenue and invested in special Treasury bonds that paid the Trust interest – part of its income. This is not unlike you buying I Bonds on your own. There was a surplus of tax revenue over benefit payments. That is no longer true. The Trust is redeeming bonds
- To be in surplus the Trust must hold more assets than its projected liabilities for all benefit promises to Americans- that’s many trillions of dollars.
- Money goes into the Trust from payroll taxes, from income taxes paid on SS benefits and from interest on the bonds held by the Trust. Money goes out of the Trust to pay benefits and a small amount for administration. Unlike other government trusts, the SS trust is not funded from general tax revenue.
Critics of the Trust investing in special Treasury bonds often miss the point of where else should the trillions of dollars be invested to earn a guaranteed return.
Social Security was intentionally set up as it is – self-funded by dedicated taxes – so that it would not be part of general government revenue and thus more prone to political gamesmanship.
Keeping politics out of it is impossible as we know. Instead of making minor adjustments as necessary to keep the fund always solvent as demographics, inflation, etc. changed over the years, CONGRESS DID PLAY POLITICS AND IS STILL DOING SO, but it would be worse if they turn to general revenue fund SS.
QUINNSCOMMENTARY 
I get what you’re saying about use of fiction to describe the trust fund. I suppose it was for lack of a better word. There is a separate fund and separate accounting for money in and out of the trust fund. Ultimately though it operates the same as the general fund does. If current tax revenues don’t cover outgo that means more borrowing or more taxes. The trust fund has the backlog of accumulated bonds it can cash but general revenue must cover the value of the cashed bonds. To do that means more borrowing or more taxes. The cashing in of bonds held by the trust fund is more a formality. The government must borrow more or raise taxes or cut other spending.
The bloat of the federal budget projected into the 2030s includes cost of entitlements and it is not pretty. There is no way of separating social security from the general budget. That is why I have no concern for the trust fund.
LikeLike
Yes, in that sense it’s just more borrowing by government, it’s just a matter of from the trust, from foreign governments or from you and me, but that has nothing to do with SS as such. If the SS trust had been invested elsewhere, government would still be borrowing – and spending.
LikeLike
Well, except for the author saying the trust fund is in surplus and I don’t know what he meant by that, the rest is essentially accurate.
The accounting in the trust fund shows the excess paid in over the years. Since outlays have been greater since 2010 the fund declines. The trust fund is bonds and the “dollars” to buy those bonds were spent over the years by Uncle Sam. Now when the trust fund has to be drawn down, Uncle Sam has to cough up. That is where the government borrowings and lendings come from. The trillions you mention to be needed to be in surplus is unfunded liability and it isn’t part of the accounting. It’s always what comes in and what goes out that is important. Right now, dedicated taxes cover most of the outgo and drawdowns from the fund make up any shortfall. Drawdowns from the fund are borrowed by Uncle since he can’t pay his bills as is. There is no magic to it.
LikeLike
The trust purchased bonds as an investment just like we might buy a savings bond. Essentially there was no viable alternative to investing the money. Of course, the government is free to use the money as it sees fit just as it does with any debt it issues. Nothing is unique to the Trust, except the bonds can’t decline in value. So, to explain SS as being different than other lenders is wrong. To say the Trust is fiction is wrong. If there were no trust isolating the funds and obligations even if accounting, and rather all payments came directly from general revenue he would have a point. His words reinforce the general misunderstandings about SS
LikeLike