Social Security benefits, the trust fund and why the federal budget and deficit matter

18 Jul

Image by Third Way via Flickr

Does Social Security have a fiscal problem or doesn’t it?

Many seniors think they earned their benefit; they paid for it is often heard. If you listen to the AARP and others there is no real problem, the program is self-funded, self-sustaining. It has a trust fund. Some of our liberal friends say that because it has a trust fund, Social Security has nothing to do with the deficit or federal budget. In other words, these folks like to delude themselves into believing that the major entitlement programs are somehow in a budget world of their own and that just because politicians say so, everything can continue as usual (or just raise taxes on the wealthy). Were that only true.

If there is a Social Security trust fund and if as liberal politicians claim Social Security is a self-funding (via payroll taxes) program and if as they also claim changing Social Security for fiscal solvency is not a budget issue, why is there even any talk about not being able to pay Social Security benefits if the debt limit is not raised? Think about it. Why can’t we simply draw from the trust fund to pay benefits?

Well, there is no trust fund except for an accounting entry. Congress has spent all the tax revenue in excess of taxes over benefits and provided the trust with what are effectively IOUs. Today, benefits are paid using incoming payroll taxes and interest on the Treasury bonds previously sold to the government.

So where is the problem?

Since the government spends billions more each month than it receives in revenue, there is no money to pay the interest on the Social Security trust fund bonds unless it borrows more money and it can’t borrow more money unless… you guessed it, unless it raises the debt limit. Hence, the federal budget and deficit matter very much to those Americans on Social Security and to those who hope to someday receive Social Security.

Part of all this is a scare tactic because the government could use incoming general tax revenue to pay Social Security benefits and simply default on other obligations. Yikes, is that any better?

We have a really big mess and anyone who tells you otherwise is lying or a fool.


Tags: Social Security Trust Fund

One Response to “Social Security benefits, the trust fund and why the federal budget and deficit matter”


    1. Social Security Trust Fund, My A**! | GoodOleWoody's Blog - July 29, 2011

      [...] my retirement years.  Congress had no right to borrow that money to use for other purpposes…AND NOT PAY THE MONEY BACK! Congress needs to fix this situation.  They must pass a law preventing them from touching [...]

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