Saturday, September 10, 2011

Solvency and the Social Security Trust Fund

At the moment, because of the decrease in population growth and the Great Recession, Social Security is paying out more money than it is taking in through FICA taxes. However, SS has a $ 2.5 trillion surplus built up over the years. Money from this surplus has been borrowed by the Federal Government, partly to pay for two unfunded wars. In exchange, SS has been reimbursed by U.S. government bonds. These bonds are so good that the interest that the U.S. government pays on them has actually been decreasing, a fact that right-wing ideologues never seem to mention. Far from being a Ponzi scheme, Social Security has not only been reliably paying out its commitments to retirees, but has also been financing undeclared and unbudgeted wars, and helping out with the deficits caused by the Bush Tax Cuts.

Even if nothing is done, Social Security will continue to pay 100% of its commitments through 2037, and 78% of its commitments thereafter (this from economists from within and without the Social Security System). However, there are easy and relatively painless fixes that will guarantee 100% of its commitments for the foreseeable future. One of these is simply to withhold FICA on all income up to $180,000 (up from the current $106,500) and, maybe, raise the retirement age by a year or so. A similar, though partial, patch was passed by Pres. Reagan working with Tip O'Neil in 1985 -- in the days when Republicans' main goal was not to keep the economy sour in order to stand a better chance at winning an election.

Below are some quotes, mostly through the AP, supporting these statements.

AP: "Social Security Has Built Up A $2.5 Trillion Surplus ... Benefits Will Be Safe Until That Money Runs Out ... In 2037." A January 27 Associated Press article noted that while "Social Security will post nearly $600 billion in deficits over the next decade," without any changes to the fund, "[b]enefits will be safe until that money runs out. That is projected to happen in 2037." From the article:
Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 -- unless Congress acts in the meantime. At that point, Social Security would collect enough in payroll taxes to pay out about 78 percent of benefits, according to the Social Security Administration.
The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment with interest. [Associated Press, 1/27/11]
(Dean) Baker: "Treasury Bonds ... Are Never Referred to As 'I.O.U.'s'" In "The Business Pages Of Major Newspapers." In an August 25, 2010, post on his Center for Economic and Policy Research (CEPR) blog Beat the Press, economist Dean Baker, who is co-director of CEPR, pushed back against a New York Times piece that referred to Treasury bonds as "i.o.u.'s." [The New York Times, 8/25/10] Baker called this "absurd" and continued:
The business pages of major newspapers are full of references to Treasury bonds all the time. The bonds are never referred to as "i.o.u.'s." The article then includes the bizarre assertion about government bonds that the only way for the government to make good on the bonds it has outstanding: "is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases -- none of which seem like especially practical options for the long term."
[Times reporter Matt] Bai's opinion is radically at odds with perceptions in financial markets. These markets view it as almost inconceivable that the government will not honor its bonds, which is why the interest rate on long-term bonds is near its lowest level in the last 60 years. [Beat the Press,, 8/25/10, my italics]
NYT: "False Impression" That Trust Fund Is "A Worthless Pile Of I.O.U.'s." In a January 2005 editorial published during the weeks before the Bush administration released its plan to privatize Social Security, The New York Times responded to President Bush's suggestion that in 2018 Social Security would be bankrupt by saying, "In suggesting that 2018 is doomsyear, the president is reinforcing a false impression that the trust fund is a worthless pile of I.O.U.'s -- as detractors of Social Security so often claim." The editorial added that for decades, payroll taxes had "exceeded benefits, with the excess tax revenue invested in interest-bearing Treasury securities." The editorial continued:
That accumulating interest and the securities themselves make up the Social Security trust fund. If the trust fund's Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities. The president is irresponsible to even imply that the United States might not honor its debt obligations. [The New York Times, 1/10/05]

Left Unchanged, Tax Income Will Still Cover 78 Percent Of Benefits After 2037

Social Security Board Of Trustees: After 2037, "Annual Tax Income" Would Fund "78 Percent Of" Social Security Costs. Contrary to Varney's suggestion that after 2037 Social Security benefits would no longer be funded, the 2010 Annual Report Of The Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds reported that even if no changes were made to Social Security's funding, the "annual tax income to the trust funds is projected to equal about 78 percent of program cost" after 2037. From the report:
Social Security's combined trust funds are projected to allow full payment of scheduled benefits on a timely basis until the trust funds become exhausted in 2037. At that time, annual tax income to the trust funds is projected to equal about 78 percent of  program cost. By 2084, annual tax income is projected to be about 75 percent as large as the annual cost of the OASDI program. [2010 Annual Report Of The Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, 9/9/10]


  1. There is no trust fund in the sense that there's a pile of $2.5 trillion in funds sitting in an account that are ready to pay people's benefits. That "fund" doesn't exist. Your so-called "trust fund" does not hold any marketable securities. They are not the same type of Treasury bonds that you or I might own and would see quoted in the newspaper.

  2. Do you know the difference between marketable Treasury securities, which are the ones you read about in the Wall Street Journal, and the "special-issue" Treasuries that are held by the Social Security "trust fund"?

  3. No I don't know the exact difference between the bonds, but I do know from expert opinion that both types of bonds carry the same government obligation to pay. If you think that the U.S. government is going to stiff the SS fund I guess you have a right to that opinion, but neither I nor lots of people with far greater expertise believe that.

    I see that you like to argue, but do you really believe that the U.S. government won't honor its debt to retired Americans -- would actually steal money owed to them? That'd be a pretty tough move to make politically -- sort of like refusing to pay our troops in Afghanistan.

    You are taking a very extreme anti-government position; I've never heard anyone say that the U.S. government would refuse to honor any of its bond obligations. Please explain.