Diary

Is The Social Security Trust Fund Real?

FILE - In this Feb. 11, 2005 file photo, trays of printed social security checks wait to be mailed from the U.S. Treasury's Financial Management services facility in Philadelphia. Tens of millions of Social Security beneficiaries and other retirees can expect an increase in benefits next year as inflation edges higher. The government announced a cost-of-living adjustment of 2.8 percent on Thursday. That would mean an extra $39 a month for the average retired worker. (AP Photo/Bradley C. Bower, File)

The Social Security Trust Fund has been around for 80 years. Over that time, its role within the program has changed, but the argument has remained the same. Is the Trust Fund real or simply an accounting ledger where wonks play with imaginary cash?

That debate has lingered for decades because it is a theoretical question with no right or wrong answer. Opposite assumptions lead to opposite conclusions – specifically about whether benefits are paid in full in the future.

The experts do not even agree. The trustees of the program argue that the program’s financial records should reflect current law. Specifically, any forecast should assume that benefit levels will fall once lifetime revenue for the program comes up short.

On the other side, the Congressional Budget Office produces data that assumes Social Security is a profit and loss center for the rest of the government. In the Unified Budget figures, payroll taxes are indistinguishable from any other type of general revenue. If the trust fund is depleted, the program’s obligations will be met with some other type of revenue.

If you believe that the general fund will or even should step-in to fill in for the absence of the Social Security Trust Fund, the inner mechanics of the program are just a shell game of I.O.MEs.

For every ying, there is a yang.

  • To the critic, a Social Security cash surplus means that the government will borrow less from investors to finance the deficit by other programs. To the supporter, Social Security is an investor.
  • To the critic, there is no cash in the Social Security trust fund, and there never has been any. To the supporter, leaving cash uninvested in a pension would be irresponsible.
  • To the critic, the securities aren’t real because they can’t be sold on the open market. To the supporter, there is no reason to make securities with a put-option marketable.

Here are some observations about these polarized perspectives.

First, the trust funds are small relative to the task at hand, representing roughly a nickel of solution for every dollar of problem. You can bitterly complain about the trust funds, but they are the economic equivalent of parsley. We should be focused on the $0.95 of problem rather than bickering over what to call the $0.05 of solution.

Second, the money contributed to Social Security has not been spent on other programs. The Trust Funds rough value is $2.9T (ignoring the coronavirus pandemic). Of that sum, $2.2T is interest and 700B is general fund subsidies. In other words, Congress is not raiding Social Security. Social Security is on the take.

Third, some of the analysis tends to blur the lines between theory and fantasy. The idea that payroll taxes and benefit levels have no connection implies that voters wouldn’t care if lawmakers reduced benefits levels to remedy the gaps in our nation’s finances. The premise is drawn from an alternate reality. The government can’t match the revenue power  of Social Security without a substantial promise of benefits on the other side. If Congress eliminates benefits, voters will elect a Congress that eliminates the payroll tax.

As a writer, I treat the Social Security trust funds as real because the trustees do. If we accept their conclusions about the program’s future, you pretty much have to accept the assumptions that go into creating the estimates. That vision says the program will deliver large benefit reductions to millions when the Trust Funds are exhausted.

As an individual, I suggest to readers to worry more about the consequences of a depleted trust fund and less about what to call it in the meantime.