Most of us in the under 40 camp suspect that Social Security will not be there for us when we retire, at least not to the degree it is there for retirees now. This is as good a time as any to review the state of the Trust Fund and it’s feeasability for future generations. Its generally common knowledge that the fund has been raided for easy cash by legislators over the years, but exactly how much is left and if there is a national debt emergency, will the checks go out the following month?
Recently President Obama gave an interview with CBS with Scott Pelley on the debt ceiling increase in which he said he could not guarantee that government checks, including ones for Social Security, would go out. This immediately set up a red flag among some on the net that money set aside in the Social Security Trust Fund was not actually there and politicians have been lying to us about the program’s supposedly ”responsible management.”
The President seems to disagree. Here are the president’s exact words from that interview:
“This is not just a matter of Social Security checks. These are veterans checks. These are folks on disability and their checks. They’re about 70 million checks that go out… I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”
There are three possibilities, 1) The president is playing politics in an attempt to scare the people in to supporting a debt ceiling increase, 2) he made an honest mistake, or 3) he’s being truthful and there is no money in the SS trust fund.
Jacob Lew of The Office of Management and Budget says there’s no problem. In a USA Today article published earlier this year he states:
“Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries…
According to the most recent report of the independent Social Security Trustees, the trust fund is currently in surplus and growing. Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”
However, according to the Office of Management and Budget’s own reports, these balances showing a surplus are merely budgetary gimmicks that do not represent an actual ability to pay!
“These balances are available to finance future benefitpayments and other trust fund expenditures—but onlyin a bookkeeping sense. These funds are not set upto be pension funds, like the funds of private pensionplans. They do not consist of real economic assets thatcan 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, have any impacton the Government’s ability to pay benefits.”
In short, the Social Security trust fund contains no money. Charles Krauthammer agrees, writing in the Washington Post earlier this year, “When your FICA tax is taken out of your paycheck… most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury – and is spent… In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox.”
Washington’s Blog notes that according to a 1998 Senate Budget Committee session transcripts between then Federal Reserve Chairman Allen Greenspan and the late Senator Ernest Hollings, the Federal Government had borrowed over $700 billion from the trust fund. Hollings said:
“What we’ve been doing, Mr. Chairman, in all reality, is taken a hundred billion out of the Social Security Trust Fund, transferring it over to the spending column, and spending it. Our friends to the left here are getting their tax cuts, we getting our spending increases, and hollering surplus, surplus, and balanced budget, and balanced budget plans when we continue to spend a hundred billion more than we take in… We owe Social Security $736 billion right this minute.”
Can things get any worse? Of course they can! While borrowing money from Social Security may have helped the government pay its debts when the program was in surplus, now that the program is in the red, it’s actually adding to the national debt. Krauthammer notes that according to the CBO, Social Security payments added $37 billion to the federal defecit in 2010. Couple this with President Obama’s commitment to keep the Payroll Tax low until his reelection in 2012, and you are introducing even more instability into the already strained program.
UPDATE (4-26-12): According to the Social Security Trust Fund’s 2012 report to Congress, unfunded liabilities is now a little over $20.5 trillion, up $2.6 trillion from the previous year. Analyst Bruce Krasting notes the size of liabilities increased by more than double the national debt for the same period, a stunning increase.