The Unified Federal Budget and The Social Security Trust Fund
August 13, 2001
In the August 8, 2001, New York Times, economist Paul Krugman ridicules a comment by Thomas Saving, a member of the president's Social Security commission and an NCPA Senior Fellow, that the Social Security Trust Fund does nothing to ensure the payment of future benefits. "He's just plain wrong," says Krugman, without explaining why.
The trust fund confusion dates back to 1968, when the federal government adopted the idea of unified budgeting. Prior to President Lyndon Johnson's last budget (issued in January 1969), the various federal trusts funds, of which there are now 110, had been accounted for separately.
- The government had not run a budget surplus since 1957, and with inflation a growing problem, it was widely believed that balancing the budget would be a big help.
- During much of the 1960s, Social Security outlays had exceeded income; but in the late 60s income began exceeding outlays -- by $3.9 billion in fiscal year 1970.
- That allowed Johnson to propose a unified budget with a surplus of just $3.4 billion.
Since then, Social Security's operating surplus or deficit has always been included in overall budget totals. But the 1983 Social Security Commission chaired by Alan Greenspan proposed and Congress enacted a major increase in Social Security taxes, resulting in large Social Security surpluses. These surpluses are dutifully added to the trust fund, where they earn interest and grow ever larger.
But the size of the trust fund, or even its existence, neither adds to nor detracts from the government's ability to pay Social Security benefits. All that really matters is whether the federal government can pay all its bills, including Social Security benefits. And outlays for those benefits will mount up in coming years (see figure).
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, August 13, 2001.
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