CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Social Security Is NOT Selling Government Bonds

Social Security Is NOT Selling Government Bonds

Friday, 30 December 2011 06:31

In an article discussing the implications of the extension of the payroll tax cut, the Washington Post told readers:

"This year, the Social Security system projects that it will pay out $46 billion more in benefits than it will collect in cash. It made up for the shortfall by redeeming Treasury bonds bought in years when there were cash surpluses."

This is not true. The Social Security trust fund is projected to earn $114.9 billion in interest on the bonds it holds. It will use a portion of these earnings to pay current benefits. It will not be redeeming its bonds.

Comments (12)Add Comment
Funding Social Security
written by Bart, December 30, 2011 8:02
I have seen differing statements about where the SS payroll tax cut comes from; some say general funds; some say SS funds. Which is it?
National Academy of Social Insurance
written by Elisa Walker, December 30, 2011 8:31
The article also ignores Social Security's disability and survivor benefits, by mentioning only retirement: "… [SS] has been premised on a simple contract: Americans pay into the program’s trust fund over years of paychecks through the payroll tax. In return, when they retire, they receive monthly benefits." That's true, but disability and survivor insurance are also critically important parts of the Social Security contract that workers have paid into.
Al Gore's lockbox
written by UltraVerified, December 30, 2011 8:47
Please correct me if I am wrong but it appears that government has been borrowing from SSI surplus, and SSI is simply saying to the government "Not this year" [looks like there's a tiny bit left over, about $10B that SSI is letting the government borrow].

If Gore's lockbox has been a reality, this whole discussion would be moot.

reply to bart
written by coberly, December 30, 2011 10:00
Bart, i guess the answer is "both." The payroll tax cut reduces the amount of tax money flowing into Social Security. That reduces Social Security funds. The payroll tax cut law requires the government to make up the deficit with payments from "general funds"... mostly borrowed.

This makes talking about SS more confusing and effectively destroys Social Security which was designed to be, and has always been, paid for by the workers themselves, and has always had nothing to do with "the budget" or the budget deficits.
written by coberly, December 30, 2011 10:09
Al Gore's lockbox was at best a confusing way to say "use the SS surplus to pay down the deficit." Not very meaningful since there is no way to decide what spending is being replaced by the SS surplus... and i'll have to leave that at that... it gets too confusing.

But there was never anything wrong with the government borrowing the SS surplus.... that's what you do with a "surplus".. you put it in the bank... that is lend it at interest. no safer borrower than the US government.

The problem is the bad guys have fast talked the country into thinking that there was something wrong with that arrangement. No, what's wrong is all the lies you have been hearing. And while the truth is not hard to understand, it's hard to write in a small space like this.

SSI is another program entirely, has nothing to do with Social Security.
The Truth (short form)
written by coberly, December 30, 2011 10:16
Social Security was never in any financial trouble at all. It has nothing to do with "the deficit," now or ever. It is not welfare... and that is far more important than even Dean Baker understands.

SS could continue to pay adequate benefits forever, or if the next generation is going to live longer than the last and keep up with its own rising standard of living, those workers could increase their own payroll tax one half of one tenth of one percent per year (about forty cents per week) and this would pay all benefits forever.

The payroll tax holiday has changed all that. It has killed SS. Now SS does indeed contribute to the deficit, making it welfare as we knew it.
The congress could change it all back, but with the DEMOCRATS yelling that ending the tax "holiday" would be a "huge tax raise," I think we will see SS gradually pay less and less... less than it takes for even a minimal retirement... then go to means testing... and finally back to the poor house.
written by coberly, December 30, 2011 10:21
isn't it time to get a more user friendly Captcha

my eyes are not the best and i can only guess at what the "words" on captcha are. other sites seem to get by with less "creative" camouflage.

and no, i am not trying to spam. i just have other things to do than wait 180 seconds between post. on the other hand i wouldn't want to load your readers down with too much to think about at once.
written by skeptonomist, December 30, 2011 11:30
One thing which should be emphasized and repeated is that any projected shortfall of SS in the neighborhood of 2040 is primarily a matter of calibrating the payout of the (large) excess in the SS Trust Fund, so that this excess disappears with the demise of the last boomers, with no major discontinuity in benefit levels. There is no need whatsoever to fix SS benefit levels permanently 30 years in advance; the calibration gets easier the closer we come to the expiration date. Aside from this payout, the benefit rate in 2040 can be decided by voters in 2040.

Of course the excess is supposed to be paid out, and reduction of the Trust Fund must start in a few years anyway, so even if there were a net outflow now it would not be an indication of doom, just a change in schedule because of the recession.
written by skeptonomist, December 30, 2011 11:36
At least one word of the captchas is frequently completely indecipherable, although the scoring algorithm apparently does not require both to be accurate. I never saw more than a few isolated commercial spams on this or any other comment thread, even before captchas. Has anyone seen any research on how much automated spamming there was, or in other words whether the time spent in fooling with these things, or the money presumably paid to some captcha consultants is really justified? Or are economists who write blogs being scammed by these captcha providers?
written by Bart, December 30, 2011 12:05
Truth's third paragraph is what worries me. The cutting in half of what gets paid in to the trust fund may never be reversed.
written by Mark Jamison, December 30, 2011 4:52
The idea of the payroll tax was a political one. FDR wanted to insure the characteristic of an insurance plan rather than simply welfare dispensed from general funds. It was a politically sound move since it has made it much harder to attack SS. The problem however is that the payroll tax is regressive and to some extent discourages hiring additional workers. It is also pretty tough on the self-employed, particularly people of moderate income like tradesmen.
The problem with the current holiday is a political one. While the break is useful stimulus is it worth the political risk of undermining the logic behind the payroll tax? The current law replaces the revenues in the trust fund with money from the general fund so there is no change in the money flowing into SS. The problem, again becomes the political risk associated with monkeying around with the payroll tax. In a more efficient world we would set our budget priorities and then establish tax rates to provide the appropriate revenues. That is politically untenable and would leave SS benefits possibly subject to yearly negotiation.
There really aren't any long term problems with SS, as Mr. Baker has often pointed out our problems are with accelerating medical costs. The difficulty with the current payroll tax issue is that it allows the demagogues to come out and play to a fictitious issue.
written by S. D. Jeffries, December 31, 2011 5:38
The main problem with the revenues in the SS trust fund being "replaced with money from the general fund" is that the congress is perfectly capable - and apparently willing - to renege on that repayment. Hell, they're doing their dead level best to renege on paying back what they've already "borrowed." SS trust securities are different than regular treasury bonds; all legislatures need to do is convince the public that the U.S. doesn't have enough money to eventually redeem them.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.