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  • Once Again, the Social Security Trust Fund Has No Money in It

    Almost as soon as the 2010 Social Security trustees report comes out today, various groups will claim that the program is fiscally healthy because its trust fund won’t run out until sometime in the 2030s. Sadly, the reality is very different.

    The trust fund contains promises to pay—not real money. Those promises are in the form of special issue U.S. Treasury bonds, so they have legal standing, but there is no Scrooge McDuck-like vault filled with cash.

    Instead, as Bill Clinton’s OMB noted back in 2000:

    These [Trust Fund] balances are available to finance future benefit payments and other trust fund expenditures-but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, make it easier for the government to pay benefits. (emphasis added)

    In plain English, that means that the trust fund bonds will be repaid by collecting more general revenue taxes from you and me, by borrowing the money which means repaying it by collecting more taxes from our children, or by having the government spend less. Just five years after the program begins to run deficits, that amount will equal $100 billion a year, growing to over $300 billion a year.

    It is true that those of us who were employed after 1983 paid more in Social Security taxes than were needed to pay the program’s benefits, but those extra taxes were spent on everything from roads to aircraft carriers to government employees’ salaries. That money is gone.

    So when you hear that Social Security is fully funded until sometime in the 2030s, remember that it is funded because you and your children will be paying hundreds of billions of dollars in additional taxes, and not because there is a pool of money waiting to be spent on benefits.

    Posted in Economics [slideshow_deploy]

    18 Responses to Once Again, the Social Security Trust Fund Has No Money in It

    1. Joseph Citizen says:

      Do you think that your readers are completely ignorant?

      As you point out, the money in the trust fund is in the form of US Treasury bonds, that have legal standing. That gives them the same standing as any other Treasury bond.

      If you put all your life savings in US Treasurys. would you then conclude that you had no money?

      No. The American people are not the fools that you wish they were. We do not walk around with fantasies in our head, of vaults full of cash and comic book ducks.

      The Social Security Trust Fund holds bonds backed by the full faith and credit of the US Treasury. That is real money in any coherent sense of the word.

      If you wish to argue that it will be very difficult for the Treasury, and hence the taxpayers, to pay off these bonds as they are cashed in, then fine, make that argument. But don't lie to us about how these bonds are somehow not money, or that the problem here lies with the Social Security System – that its trust fund is somehow empty.

      • Disabled n Disgusted says:

        Well, then Mr. Joseph Citizen, tell me again how it is a lie that there is no money? The President says two things, 1) there is NO MORE MONEY unless he can be allowed to BORROW more money; 2) and, the SS checks might not go out on Tuesday even though the Trust Fund is solvent and has cash as you claim. IF there was cash in the "Trust Funds," as you claim; please explain WHY the President says he might NOT be able to write the checks. No real money is the real answer – it was robbed and spent long ago with the consent and approval of our elected officials. We are in real trouble in this country. Amazing what LIES become crystal clear with the passage of time. In this case, even in less than one year. You sir appear to be book smart but street stupid. Fact is – we have NO CASH in the Trust Funds, or any Government Funds for that matter. No more blank checks – Sign a Balanced Budget NOW!

      • Osteomed says:

        Well Joe citizen, as I'm sure see now (can't believe you didn't see this 56 weeks ago when you post this reply, or any time before it) our government is broke, $64 trillion indebted to unfunded subsidies and Social Security is officially broke!! Joe, do you know that our currency isn't backed by anything of value, like it used to be with gold. No, our currancy is only backed by the "good faith of the Government", and you must see how that's working out. Our currancy is also known as "fiat currency", not even worth the paper it's printed on! This is why the dollar printing presses keep rolling, further devaluing our alresdy worthless money. Money, Joe, is nothing more than a sheer illusion, that can be transfered electronically w/ the stroke of a computer key. When lose our reserve currancy status, the **** will really hit the fan!! How old are you Joe?

        • Bernacke sucks says:

          If you think the US Dollar is worthless you are a fool. Tell me one country on this planet that won't accept US Dollars to buy goods or service? Maybe North Korea.
          You return to the Gold Standard people are morons.

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    3. Georg Felis, Wamego says:

      JC, you seem to be laboring under the misconception that just because the Fed has a big box ‘o Treasury notes, that when comes time to cash them in, there will be money available in the budget to pay for them.

      Let me try to point out where you went wrong, starting at your strawman argument “If you put all your life savings into US Treasury notes, would you then conclude you had no money?” The answer is, “Of course not!”

      Now if you have 300 million people (plus China, and other countries), all of whom have personally invested in their own individual stash of Treasury notes, that’s where it suddenly gets sticky. Suppose 150 million of those suddenly decide to cash in their notes for Euros, the value of the notes would take a sudden tumble, and the other 150 million investors (and China) would suddenly have a drop in the value of their holdings. In order for a T-note to have any value, somebody out there has to want to buy it. Horrible thing, these market hiccups, sometimes they even are intentionally triggered for the eventual gain of people like Soros. But I digress.

      In order to “protect” you, the retiree, from the possibility that a large number of silly retirees were to sell their T-notes unwisely and depress the market (to as low as zero), the benevolent Federal Government holds all these notes for you. As you send your money in to Social Security, it is used to pay existing retirees, and any surplus is carefully tucked away into a giant cash bin, guarded by a duck in spats. Oh wait, that would not make much of a return for you, far better that the benevolent Federal Government were to take that excess money and invest it somewhere. But where? The stock market? No, crashes happen. Banks? No, the value of the mortgage backed security just isn’t that stable. Oh, how about we loan it to the Federal Government? So the extra money gets invested in T-notes, and travels into the General Fund, and sent back out to the Economy to help us grow. What a wonderful idea!

      Well, until a *huge* lump of older people decide to retire. Now the Feds have one of two basic choices. Raise taxes to the sky to pay off the notes, running the economy deeply into the red, or cut SS benefits, for a large group of voters. Otherwise SS payments will eventually eat up the *entire* budget.

      The *easy* way for the Feds to get out from under this would be to simply declare SS to be a “welfare” system, take the whole thing over, and fund it from general revenue. The “trust fund” would quietly go into a shredder and be replaced by the “full faith and credit of the US”, a brand new set of rules would go into place which would by coincidence include massive cuts in SS benefits for anybody making more than the poverty line, and massive tax increases for anybody making over the poverty line. And millions of people who have paid into the system for every paycheck of their life will wind up with squat.

      That’s what we are so angry about. We put our quarter into the machine, and pushed the button, now we expect to get our candy bar.

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    6. Bobbie says:

      Georg, that is the cutest! "big box 'o Treasury notes…"

      Hopefully people will begin to see what is going on instead of believing the convincing words of deception.

    7. Hank Miller Sr, Pana says:

      This years Federal budget was made up last year and contains budgeted funds to cover the special t-bonds COMING DUE this year to cover benefits expenses. Think three surplus budgets under Clinton with Republican Congress. See any mention of how that affected S.S.? Not with 'adequate' budgeting.

      Is it possible for holders of any form of t-bond to cash them in? And at what penalty cost? Thus the term maturity date.

      If China (scarey name eh) were to suddenly want ALL their money back would we be obligated to come up with the cash?

      Remember the Reagan Administration "saved" S.S. and made special investing limits for the new intentional sizeable surplus. Those moneys dumped in any private sector financial market would be a disaster. What alternative was/is there?

    8. Alleygator, Gainesvi says:

      If I were designing an individual retirement fund in the absence of Social Security, I definitely wouldn't put cash money into it. There'd be no return on investment.

      Why, then, would you suggest that not having cash money in the Social Security Trust Fund is a bad thing? It's about preserving value. Cash is vulnerable to inflation. It would be silly not to earn interest on the surplus cash we've been investing in the Trust Fund since the end of 1986.

    9. D Boynton, NH says:

      The SS Trust Fund is NOT broke, but it is comprised of IOUs from the Federal Gov't, left there in exchange for monies the Gov't "borrowed" for non-SS expenses. That the IOUs have to be repaid by the Gov't that "borrowed" the funds makes some (right wing) nuts mangle that into a scenario that suggests that demands to re-pay those funds will bankrupt the Federal Gov't. When individuals, businesses or governments borrow money, that creates an obligation to re-pay the amount borrowed…with interest. Nuthin' unusual about that, So, start re-paying the "borrowed" funds.

      Several States and municipalities have done the same with their pension Trusts, and now they face the same dilemma. Well, get over it…you borrowed it, now re-pay it.

      The solution for the issues facing SS- remove the Trust from the Federal Gov't Budget, and allow the Trustees to create a workable investment plan. Taking the excess SS Trust income away from the Congress will reveal the "smoke and mirrors" budget shenanigans that have been SOP since the Regan years. Time to stop using SS as politicians "love to hate" boogeyman.

    10. Ed says:

      Seems to me our children will be paying their debt for the aircraft carrier, farm subsidy or tax cut that we spent their money on. They will NOT be paying for social security benefits in any way, shape or form.

    11. CONNIE HATHAWAY says:


      • Conn Carroll Conn Carroll says:

        Social Security has always been a pay as you go program. The Social Security Trust Fund has always been a complete myth. So the First President to use Social Security taxes to pay for other programs was the first preisdent who presided over Social Security: FDR.

    12. Robert Cogan says:

      Given that a surplus was built up (about $2.5 Trillion) what are the "real assets" that it could have been invested in that would have preserved at least face value plus low interest from time of purchase instead of the non-marketable Treasuries with the "money" being borrowed and used by the government for other spending?

      Isn't there a fourth alternative to cashing the trust fund IOU's? Can't they be monetized by selling them to the Federal Reserve, i.e., canceling them and being credited by the Federal Reserve with cash as it does with its dealers when it sees a need to add cash to the economy?

    13. Mike, Las Vegas says:

      A bond is a promise to pay back a loan with interest. If the govt. has or has always or sometimes does take our Social Security payments & spends it, first on current retirees, & instead of investing the rest, spends it & replaces it with notes that say how much needs to be returned to the fund for the money spent, then indeed there is no fund, it's been spent. There are only IOU's that the government has to repay with later tax money that, as the Baby Boom generation goes through retirement age & beyond, we will not possibly have to pay. At some point if we would give 100% of our earnings it won't cover the payments to retirees. If China buys our bonds we have to eventually pay them back for the loan with interest. How can anybody possibly defend this ponzi scheme?!

    14. tiresias says:

      the debt to the trust fund is constitutional and will have to be paid back one way or another. it should be paid back by taxing those who paid the least percentage into SS. which means raising or scrapping the cap.

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