The national debt and Social Security special issue Treasury Bonds

Social media is full of the myth that Congress and various presidents stole money from the Social Security Trust. The Trust is in the same position as all of the entities listed below. They buy Treasury bills and bonds. Note that includes state and local government pension funds as well as private pension funds. 

While not technically debt held by the public, Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) owns $2.786 trillion of federal debt. The special issue bonds held by Social Security can be redeemed at any time at face value, they are not subject to the ups and downs of the market. 

The rate of interest on special issues is determined by a formula enacted in 1960. The rate is determined at the end of each month and applies to new investments in the following month.

The numeric average of the 12 monthly interest rates for 2015 was 2.021 percent. The annual effective interest rate (the average rate of return on all investments over a one-year period) for the OASI and DI Trust Funds, combined, was 3.37 percent in 2015. This higher effective rate resulted because the funds hold special-issue bonds acquired in past years when interest rates were higher. Source: SSA website

Debt Held by the Public – Foreign governments and investors hold nearly half of the nation’s public debt. One-fourth is held by other governmental entities, like the Federal Reserve, and state and local governments. Fifteen percent is held by mutual funds, private pension funds, savings bonds or individual Treasury notes. The rest is owned by businesses, like banks and insurance companies, and an assortment of trusts, companies, and investors. 

Here’s the breakout:

Foreign – $6.175 trillion

Federal Reserve – $2.461 trillion

Mutual Funds – $1.056 trillion

State and Local Government, including their pension funds – $803 billion

Private Pension Funds – $403 billion

Banks – $515 billion

Insurance Companies – $293 billion

U.S. Savings Bonds – $174 billion

May 16, 2016

I have a question for those Americans who can’t let go of the myth that Congress stole money from Social Security, where should the $2.8 trillion be invested to generate equivalent interest while the principal is guaranteed? 


  1. To quote prior comments:

    “… “Investment of sorts” is an apt description. Government debt is nothing more than a promise to pay, and interest paid to the trust funds is nothing more than added taxes. When you make an investment, in the ordinary sense, it generates a “return” (sometimes negative) or triggers a “dividend”. Government debt, on the other hand, only triggers more taxes – it is always, always negative with regard to taxpayers.

    Obviously, Congress has invested the taxes we pay, by statute, in government debt obligations. Taxpayers are the guarantors of those government debt obligations in the trust accounts. So, Congress has spent all the money collected from taxpayers, run $500 Billion to $1.4T in deficits (over and above all the taxes collected over the past 8 years), and now wants to claim that they have safeguarded Social Security benefits by making investments in government debt – which are simply more promises by members of Congress and the President made on behalf of current and future taxpayers to pay more … you guessed it … more taxes. Those current debts, those promises to pay, are in addition to promises to pay $18+ Trillion in accumulated debt. There is no funding solution for the $18+ Trillion, let alone the many times larger promises of Social Security benefits, nor the smaller amount of accumulated debt obligations in the Social Security trust fund. The added taxes are not in the current statute (a ~25% cut in benefits is actually in the statute once the trust funds are exhausted).

    Perhaps you have a problem with the word “stole”. So do I. What we really have is a Congress, and many different administrations, from Jimmy Peanut to W, who used these entitlement programs to buy votes. The last true reform was Reagan’s, in 1983, and all that really accomplished was to commit taxpayers to paying more, much more, in taxes in an attempt to finance past vote buying of our members of Congress and prior administrations.

    FDR junked the initial program provisions and created beneficiaries five years before initially planned – people like Ida Mae Fuller, the first Social Security recipient, who paid in less than $60 over less than three years and got out $20,000 over more than two decades. Did she “steal” social security monies?

    Later, Jimmy Carter screwed up the COLA process. But the biggest vote buyer after FDR is a Republican – W added $10+T in new long term debt with his failure to finance the Medicare Part D addition.

    We have to go all the way back to vote-buying FDR to find the guy in charge of investing all Social Security trust fund assets in government debt obligations.

    So, if you don’t like the word “stole”, perhaps you prefer the word “squander” – not that they spent the money on anyone other than beneficiaries, but that they promised and spent so much more than they gathered in taxes, then invested it in “securities” that today have a “rate of return” (which is nothing more than … you guessed it … more taxes) of barely 2%.

    So, the accounts might be better characterized as “mis-trust” accounts. People are concerned because Social Security is clearly not a pension and is dependent solely on the ability of the government to tax. If this were a pension plan, and subject to the same rules as a private pension, everyone in Congress would have violated their fiduciary duty based on decisions to invest retirement assets in short term government debt instruments… Let alone their failure to fund the program properly – having loaned all the money to someone who is $17 trillion in debt…

    Given their historical actions, all members of Congress would be lucky to avoid a prison sentence.

    Finally, I provided you suggestions in a prior note of how trust fund monies might have been invested – tell me, what was wrong with those suggestions?


    1. I don’t think the public would accept the risk of real estate, minerals and oil. They can’t even accept Treasury bonds.


      1. I can’t find my prior post with those investment suggestions. Can you confirm the date/subject so I can recapture and update?

        I disagree with you about the public accepting risk. The public, well over half the public, has traded their taxes for the promise of a return in excess of their taxes – and, as a result, they have accepted the risk of an entitlement over a contractual liability, and they have accepted the risk of relying solely on future taxpayers after retirement as a funding source in this pay-as-you-go scheme.

        Instead, if the taxpayers (and Congress) were legally committed to funding a specific benefit, a benefit that vests and triggers a government liability, and if the trustees were held to the same fiduciary standard as other pension trustees, then the public would gladly accept the market risk of investments over the political risk of fully ceding their benefits in retirement to future taxpayers and administrations and Congress.

        So, if I were king, and if I had a time machine, I would go back to 1935 and create a Social Security system that has two components – Security (a baseline formula that has a contractual, guaranteed return of no less than the individual’s own contributions – paid out commencing at SSNRA; which, if the individual survives to SSNRA, provides a lifetime benefit proportional to the individual’s own FICA contributions), and Social (a progressive benefit formula that reflects contributions other than the individual’s own contributions (the employer portion of OASDI), which is allocated based on some arbitrary “fairness” or “social” compact among taxpayers – to be decided by the politicians). Then, the public would have no qualms about investing, similar to public pensions, at least the Security portion of the contributions as they are accumulated; and concurrently, the risk would be substantially less than today because at least the principal would not be invested solely in weak, easily changed, promises to pay.

        However, coulda, woulda, shoulda… I have shared my solution in the past – an annually priced, contractual guarantee, where future changes to benefits would be subject to a super majority vote (66% or 75%) of FICA & FICA-Med taxpayers. So, only current taxpayers could commit future taxpayers.


      2. I’m going to start calling you Spock. You are way too logical. If you are on Facebook friend SocialSecurityWorks and see the garbage they put out. Then look at the comments people make there. It’s quite hard to believe.


      3. I am not on facebook – seems like a big waste of time when I look at my spouse’s page.

        Yes, I am not only logical, but a practical dreamer as well. I try to live up to the “motto” of George Bernard Shaw/Robert F. Kennedy: “Some men see things as they are and ask why. Others dream things that never were and ask why not.”

        The American public’s problem is that they think of Social Security as a contract right, not as it actually is, an entitlement.

        No politician wants to clarify that this is a system of promises to tax future generations more – that your contributions over the past 30, 40 or more years have all been spent long before you, yourself commence benefits. They don’t want to hear that the FICA-Med funding was inadequate or that it never funded Part B or Part D benefits. They want to think that they paid for / funded their own benefits.

        So, if we are not going to advance fund the system, at least let’s clarify and change it into a contractual agreement, supported by the full faith and credit of the US government. As I mentioned above, Americans are rightly concerned that Social Security and Medicare take their monies and make no such commitment – what is scheduled are cuts in benefit entitlements!

        In terms of investments, I doubt the American public cares all that much if the investing is done by professionals versus politicians – I can see more support for the former than the latter, given how “well” politicians have done over the past 80 or so years. In terms of investments, much like an insurance company guarantee, the contract right is what taxpayers/beneficiaries will focus on/cling to – not the underlying investments such as in a defined benefit pension plan, or a “guaranteed investment contract”. It would actually give effect to the existing misundertandings about social security and Medicare; give them what they think they always had.

        Real estate (mostly undeveloped land), minerals, oil – tangible assets that are part of everyday needs would likely still be at the top of my investment list today. I would use right of way/eminent domain as an asset – building oil, water and other pipelines, improving the interstate highway system, rail systems, etc.

        Plus, of course, we always have the same option (as I do today) to raise revenue via taxes, to cover any shortfall. The difference is that people know I am raising taxes to cover a government obligation, an agreement between taxpayers and their government – not like W and Hillary and Bernie, schemes designed to buy votes in a future (re)election.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s