Ask Rusty: Raiding Social Security trust fund

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Dear Rusty: I would like to know how much money has been taken out of Social Security by presidents, and was any paid back with or without interest on the withdrawal?

Signed: Wants to Know



Dear Wants to Know: The idea that any President or Congress has taken money out of the Social Security Trust Fund is simply not an accurate description of how the Social Security system works. I know these accusations abound on the Internet, normally promoted by someone or some organization trying to further a political agenda. But the reality is that the Social Security program has, since its inception in 1935, been a "pay as you go" system where current workers pay Social Security taxes to fund benefits for current beneficiaries. Over the years, when there were many more workers than beneficiaries, considerably more was taken in than was paid out in benefits and the surplus each year is placed in the Social Security Trust Fund, which as of June 2016 had a value of 2.81 trillion dollars. By law, Social Security is required to invest that surplus in special issue U.S. Treasury securities, not unlike those available to private investors, which are backed by the "full faith and credit of the U.S. Government", but these special issue securities are redeemable at any time at face value. These securities typically yield interest of about 1.5 - 2.375 percent (2016 rates), and this interest aids in growing the value of the trust fund. Now, yes, investing in those securities is technically loaning money from the Trust Fund to the U.S.Treasury, where the money can be used for any purpose the Government sees fit, just like all other revenues the Government collects from anywhere. But that loan and those securities can be called for payment at any time by the Social Security Administration when it needs money to pay benefits to Social Security recipients. So when you read or hear something about Congress or one or the other President "raiding" the Social Security Trust Fund, it is simple hyperbole designed to stir emotion and promote an agenda. The reality is that Social Security must, by law, invest surplus funds in interest-bearing special issue Government securities, essentially loaning money to the U.S. Treasury which must be repaid upon demand.

It's worthwhile to note here that there are actually two parts to the "trust fund"; one for Old Age and Survivors Insurance (OASI) benefits and another for Disability Insurance (DI) benefits. Although there is now 2.8 trillion dollars in both of these funds, the current lower ratio of workers to beneficiaries means that both of these funds either already are (as with DI) or soon will (as with OASI) start to be depleted to pay benefits. This is why you are now hearing concerns about Social Security's financial solvency. Current projections by the Funds' Trustees are that the Disability Insurance fund will be depleted by about 2022 and the OASI fund will be depleted about 2034. If Congress does not act before then to reform the program, benefits at that time would be limited to paying out only as much as was received in Social Security revenue, which could mean about a 21% reduction in benefits. However, given the intensity of the spotlight on this issue today, it's probable that Congressional action will be taken in sufficient time to ensure the program's solvency for the foreseeable future.

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