The other day I got concerned about what changes would be passed concerning Social Security since any changes will greatly affect me. So, I started out by looking at the proposals put forward by the two non-partisan committees (the Simpson-Bowles commission and the “Gang of Six”) to see what they recommended. In both reports it is stated that changes need to be made to keep Social Security solvent into 2036, because at that point there will only be enough left to pay 75% to social security recipients. I started to investigate when this shortage was first reported, and I found many reports from the American Academy of Actuarials – an association that assists public policymakers on all levels by providing actuarial advice on risk and financial security issues. One of the earliest publications, Social Security Options and Their Effect on Different Demographic Groups reported the shortage in 1999, but this shortage has been known about as early as 1980. In 1983 the tax rate was raised during the Reagan administration in order to build up enough money into the trust fund for the baby boomers, and you hear repeatedly that there is now 2.6 trillion dollars in that trust fund, and that is what makes Social Security solvent until 2036.
As I continued to read articles concerning all of this, I ran into the ones that rage about Social Security having been raided, and that there is really no money in the trust fund. Since so much of what is stated these days is very biased I decided to investigate on my own if this is true.
The government buys special government bonds with any surplus that is seen from unspent SSI taxes, and these bonds have to be repaid with interest when needed. However, once the government purchases these bonds, the money is immediately available to be used for other government needs, usually to pay down the current federal debt. This surplus actually has the effect of making the deficit in the Federal fund look smaller than what it really is.
Therefore, there has never been any cash in the trust fund, but there are bonds that the government is fully obligated to pay back when needed. The government will have to use federal funds to pay back the trust fund to cover any shortages that exists between social security revenues and Social Security expenditures. As reported in the 2011 Trustees Report on the Social Security web site:
“Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.”
So although there is a 2.6 trillion dollar surplus in the Social Security Treasury Fund, that surplus is really a government debt that has to be paid back. I don’t know if you can say the money was stolen or the trust fund raided, but you certainly can say that it was spent, and now it is payback time.
It really is too late to question the wisdom of handling the Trust Fund in such a way since there is no longer a surplus coming in, and there will not be a surplus in the foreseeable future. However, when the discussions come up about how to handle the upcoming shortage in Social Security, keep in mind that it would hasten the reduction of the national debt to reduce current benefits somehow whether this is fair or not. The less money that has to be paid back out of what is owed, the less money will have to be borrowed.
These facts can be used by either Democrats or Republicans who can accuse each other of using the funds for their own purposes. As our politicians gear up for the next election these matters will become heated, and finger pointing will occur. It is my belief that only through more unbiased open political discussions of matters such as this can we make rational decisions on what should be done.