The Truth About Social Security

The Republican attacks on Social Security and rants about it being a budget buster are totally disingenuous. To date, Social Security has never had to borrow from the Treasury's general fund to pay out benefits. The truth is, that since it first went into effect in 1937, it has not only balanced its own budget, but has amassed substantial reserves. But let's look at the details.

When Social Security was enacted in 1936, it was specifically set up to be self paying. In so doing, a separate account was established into which separate taxes would be placed for the purpose of paying future benefits. (Like an insurance policy.) And the law specifically forbade using those taxes for any other purpose. That account still exists today and is called the Social Security Trust Fund. From 1937, when Social Security went into effect until 1957, Social Security revenues exceeded benefits payments and the Trust Fund amassed $22 billion in reserves. Since 1957 there have been 14 years in which Social Security benefits payments exceeded revenues, those years being 1957, 58, 59, 61, 62, 65, 75, 76, 77, 78, 79, 80, 81 and 83. In each of those years, the difference was made up from the Trust Fund's reserves without borrowing from the general fund. In all other years, revenues have exceeded benefits payments, and at the end of 2010, the Trust Fund had a positive balance of $2.4 trillion. (For details visit http://www.ssa.gov/oact/STATS/table4a1.html.)

You may have heard that Social Security benefits exceeded tax revenues by $49 billion in 2010 and will continue to do so for some time. That is true, but it discounts interest revenues that, by law, are supposed to be paid on loans made from the Trust Fund. The interest revenue on $2.4 trillion at 3% (approximate yield on 10 year and longer Treasury notes) amounts to $68 billion which is substantially more than the $49 billion shortfall in tax revenues. So what we are being told is only half truth.

It is true that Social Security will have future problems meeting its obligations, but that's in the future; and claims that is now or ever has been a budget buster are not true. In the past, Social Security has had to make adjustments for the same reasons that it must in the future. The three main reasons are 1) an aging population 2) increasing life expectancy and 3) recessions and unemployment. Today, unemployment is the biggest problem because it directly affects tax revenues. But even without unemployment the first two factors would deplete the Trust Fund in the next decade. However, that's no reason to abandon or overhaul Social Security. Small adjustments can be made to Social Security just as we have done in the past -- adjustments that we can all live with.

Now the real problem is that, while it has large reserves, the Social Security Trust funds have been loaned to the Treasury to pay the government's bills. But the government has squandered the money and can't pay its own bills much less pay back money borrowed from the Social Security Trust fund. So that begs the question, why did the Treasury have to borrow so much money from the Social Security Trust Fund? Who allowed the government to spend so much more than its income and where did the money go? It clearly did not go to Social Security and claims that Social Security is a budget buster are outright lies.