For decades, Social Security has collected contributions through the payroll tax to fund retirees’ Social Security benefits.
Many people may think the Social Security Trust Fund exists as a traditional savings account. But, though “trust fund” may imply a fund that holds cash assets, the Social Security Trust Fund does not. Instead, it functions more like a ledger than a savings account.
When payroll taxes are collected, most of that money is immediately used to pay current day retiree benefits. The federal government, seeing a growing retiree population on the horizon, has over-collected payroll taxes to build a surplus. Instead of steeply increasing payroll taxes on Americans to keep up with an aging population, the surplus was built gradually. The surplus was intended to provide benefits for a larger group of retirees without applying a large amount of tax pressure on future workers.
But there is no saved money in this country. There are always bills that need paying. The $2.85 trillion dollar surplus built over the years has been converted into Treasury notes, allowing the federal government to use it to fund countless things that need funding. Every single dime of payroll taxes is spent almost instantly, whether it’s on direct benefit payments or expenses entirely unrelated to retirees. The Trust Fund is just a running tab of how much money the government owes to retirees with interest.
We and our members are not supportive of this funding strategy. We believe money intended for Social Security payments should ONLY be for Social Security payments.
While these loans are backed by the full faith and credit of the United States—and the interest paid on this borrowing does go back into the Trust—there are some risks and consequences relying on bonds to pay retirees.
We have seen in recent years how budgetary disputes and unforeseen economic problems can put Social Security benefits at risk.
When payroll taxes are converted into Treasury bills, we have also seen how these bills are misrepresented as “debt” by those who find it politically expedient to attack the program. Social Security funds itself, but thanks to this system of constant borrowing and repaying, the program is often criticized for being the leading source of debt in our country. This opens the program up to be “reformed” in ways that are not fair or beneficial to the retirees who paid in.
Ultimately, we would like the surplus gradually restored by the U.S. Treasury and for the program to return to being a program funded by workers and used only by retirees. Social Security should be off-budget and NOT subject to scrutiny during debt and spending debates.
