Teresa Ghilarducci at Soho Forum debate

Can Social Security add to the federal deficit?

This was the topic of the Soho Forum’s June 17 debate in New York City.  Specifically, the debate resolution was “given Social Security’s nearly $3 trillion trust fund, the system cannot add to the federal deficit.”

Arguing for the affirmative is Teresa Ghilarducci, labor economist at the New School for Social Research. Ghilarducci is an author, an executive board member of the Economic Policy Institute, serves on the Retirement Security Advisory Board for the Government Accountability Office, and holds a Ph.D. in economics from UC Berkeley.

Arguing for the negative is Gene Epstein, author, former economics instructor at the City University of New York and senior economist for the NYSE, and director of the Soho Forum.

While Ghilarducci takes the stance that Social Security can’t contribute to the deficit by law—and due to its dedicated revenue stream—Epstein makes the case that Social Security can’t be said to avoid contributing to the deficit when surpluses are spent by the U.S. government and create intragovernmental debts.

Both debaters present compelling cases.  Neither expert is unjustified in their stances.  To Ghilarducci’s point, Social Security DOES have a dedicated income source. Social Security is one of two federal programs with its own funding.  And she is correct to say it is a legislative mandate that Social Security not be included in the budget for this reason.

On its own, Social Security CANNOT add to the federal deficit.

But as Epstein explains, the accounting nightmare began when the first surplus Social Security dollar was collected.  By law, every dime of Social Security surplus is invested in Treasury bills and spent by the federal government.  There is no Social Security Trust Fund.  The Trust Fund is a stack of IOUs the government has started repaying now that the demand on Social Security exceeds the income.

Those Treasury bills represent debt the government owes to itself, called intragovernmental debt. It’s THAT debt we speak of when we talk about Social Security’s impact on the budget.  Social Security doesn’t add to the deficit.  The government borrowing from it does.

When all is said and done, Epstein makes his case and wins the debate, but both he and Ghilarducci together provide an excellent breakdown of how the Social Security system really works. They also provide multiple perspectives on an issue dividing our political parties, demonstrating how one factual situation can be looked at two different ways.