Social security trust fund needed now


Almost overlooked in the news this week is the fact that Social Security will pay out more in benefits this year than it receives in contributions from payroll taxes. It had been thought that this milestone would not be reached until 2017 or later.

The New York Times article Social Security to See Payout Exceed Pay-In This Year reports on this. The news article doesn’t come right out and tell us not to worry, but it does report on the large balance in the Social Security trust fund. This balance, the article says, will be used to make up the difference between payroll tax contributions and benefits paid out.

The problem is that there really is no trust fund, at least not in any economically meaningful sense. The Times article does contain this: “Although Social Security is often said to have a ‘trust fund,’ the term really serves as an accounting device, to track the pay-as-you-go program’s revenue and outlays over time.” But the article doesn’t tell us the entire story behind this accounting device. We’ll have to look somewhere else for that.

An article from the Heritage Foundation (Misleading the Public: How the Social Security Trust Fund Really Works) explains the workings of the trust fund:

There is no cash in the Social Security trust fund, and there never has been any. The Social Security trust fund is merely an accounting device filled with IOUs that future taxpayers must repay. … Private-sector trust funds invest in real assets ranging from stocks and bonds to mortgages and other financial instruments. However, the Social Security trust funds are only “invested” in a special type of Treasury bond that can only be issued to and redeemed by the Social Security Administration. … In short, the Social Security trust fund is really only an accounting mechanism. The trust fund shows how much the government has borrowed from Social Security, but it does not provide any way to finance future benefits. The money to repay the IOUs will have to come from taxes that are being used today to pay for other government programs.” (emphasis added)

At the Cato Institute, a 1999 article Pointless Debate over Social Security Trust Fund also explains the truth behind the trust fund:

Starting in 2014, the situation will reverse. Social Security will no longer run a surplus but instead will run a deficit. Social Security will begin spending more on benefits than it is taking in through taxes. To continue to pay those benefits, it will have to start redeeming the bonds in the trust fund. But, as President Clinton’s own fiscal year 2000 budget admits, those bonds are not real economic assets. Rather, “they are claims on the Treasury that … will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” … There is no way to actually leave the Social Security surplus in Social Security. The surplus must be used to purchase bonds, the purchase of the bonds will generate revenue for the government, and that revenue must be spent. … Social Security taxes should be invested in real financial assets, not government promises to raise future taxes. (emphasis added)

In 2008 Allan C. Sloan wrote:

How can I say that, given Social Security’s $2.3 trillion (and growing) trust fund? It’s because the fund owns nothing but Treasury securities. Normally, of course, Treasury securities are the safest thing you can hold in a retirement account. But Social Security’s Treasuries won’t help cover the program’s cash shortfall, because Social Security is part of the federal government. Having one arm of the government (Social Security) own IOUs from another arm (the Treasury) doesn’t help the government as a whole cover its bills.

Here’s why the trust fund has no financial value. Say that Social Security calls the Treasury sometime in 2017 and says it needs to cash in $20 billion of securities to cover benefit checks. The only way for the Treasury to get that money is for the rest of the government to spend $20 billion less than it otherwise would (fat chance!), collect more in taxes (ditto), or borrow $20 billion more (which is what would happen). The spend-less, collect-more, and borrow-more options are exactly what they would be if there were no trust fund. Thus, the trust fund doesn’t make it any easier for the government to cover Social Security’s cash shortfalls than if there were no trust fund. (emphasis added)

As you can see by the dates mentioned in these articles from the past, the day of reckoning for Social Security arrived earlier than predicted.

Liberals dispute the true nature of the trust fund, contending that there really is money in the fund that can be used to pay benefits.


9 responses to “Social security trust fund needed now”

  1. Rothbard

    The boomers are going to get a rude awakening. They will get their currency, but they will be wiping their backside with it.

  2. […] More about the fictional Social Security trust fund is at Social security trust fund needed now. […]

  3. Anon.

    The Social Security program is really little more than a “ponzi” scheme that only government politicians can get away with. Any private sector company executive that set up a retirement program using the Social Security guidelines would find himself or herself in jail for fraud. Our Federal Government will no doubt attempt to fund the Social Security promise to its citizens with either borrowed money and/or dollars created out of thin air via the printing press. Unfortunately, no one wins under this scenario; however, future generations stand to lose the most. Is there anyone else out there who would like to rethink the government managed health care system that our Federal Government passed into law this week?

  4. Val in Valhalla

    I Definitely want to “rethink” government-managed health care.

    Actually, I don’t want to “rethink” it as much as I want to eliminate “government-managed health care.”

  5. Ann H.

    The politicians who continue to orchestrate and carry out this Social Security ponzi scheme need to go to jail for fraud. Yet even if that fantasy were to come true, we’re all still going to pay a steep price for their rotten deeds.

  6. Wichitator

    Ponzi and Madoff are fiscal pikers compared to the politicians from the “sainted” FDR to our current White House Messiah when it comes to the “entitlement” programs. Social Security is in terrible fiscal shape. The Medicare entitlement is now in worse shape…in fact much worse, now that the state takeover of the medical sector has now been enacted just last week.

    The interesting times of the Obama era are just beginning. God save the Republic.

  7. Anonymous

    Social Security is not a ponzi schem , a retirement plan ir wekfare. It is an insurance program.

    A ponzi scheme promises huge profits paid by new investores. Social Security makes no promise of any return because if you die before 62 you receive nothing and you have no investment whatsoever to leave your heirs.

    Likewise a retirement plan or pension plan promises a payment.

    Welfare is a gift. You receive it based on need and you do not have to contribute to anything to receive it.

    Now lets look at Social Security Insurance.
    1. You have to participate in the plan to collect insurance benefits. Some do not because they do not work and pay into the plan for the required number of quarters.
    2.You have to survive to collect insurance benefits. When you die there is no “estate value” to your insurance benefits. They simply never are paid or payment ends.
    3. The benefits you receive are dependent on the premiums you have paid. [amount of payroll tax over working lifetime]
    Those who pay higer premiums receive higher insurance benefits.
    4. Benefits are totally unrelated to need. They are not means tested
    Conclusion. Not ponzi. Not welfare. Not retirement or pension.

    Social Security [old age survivors and disability insurance] is exactly that. A very well managed insurance program whos trust fund has been stolen.

    The baby boomers are not the villians. We have paid in over 2.4 trillion dollars that has been used for other purposed than the insurance program. A private company that did that would be subject to criminal prosecution.

  8. Lived long enough to Know

    The Social Security plan was to ensure that workers would have some retirement funds to supplement their own savings in old age. However, forty or more years ago a law was passed that granted wives of retirees HALF the amount the husband received from Social Security even though the wife had worked very little or not at all during her lifetime. This, while the husband is alive and drawing his due retirment. Then in the late 70’s or early 80’s a law was passed that granted monthy cash benefits to each child of a deceased worker until the child reaches the age of 18. Now, an independent insurance company could not pay out that kind of benefits on the premiums of one individual! It really was set up to be, and was, a trust fund for many years. However, when the government began borrowing all the monies, it came to be a part of the general revenue budget. Left as designed, it would probably still be in good shape to pay those benefits actually earned by America’s working people.

  9. Anonymous

    What about the fiduciary responsibility of the federal government (and Congress)? We put the money in, they have
    taken it, misused the funds so there is now a deficit….who else thinks they should be held responsible for this violation of our trust?

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