NCPA - National Center for Policy Analysis

Are Social Security Trust Fund Assets 'Real?'

August 10, 2001

There appears to be a great deal of confusion concerning the Social Security Trust Fund for retirees, and whether or not the special government bonds in the fund are "real assets" that can be used in the future to pay benefits.

Most payroll taxes are spent on benefits for current retirees. Any leftover amounts are spent on other programs or (very recently) to pay down publicly held government debt. Conversely, when benefit payments exceed payroll tax revenues -- as they did in a few years before the 1983 payroll tax hike and benefit cuts -- the Treasury makes up the difference out of other revenues.

Payroll tax collections have exceeded benefit payments since the mid-1980s, and will continue to do so until 2016, when Social Security will begin running deficits again. For example:

  • In 2001, the government will collect $604.3 billion from workers and will spend $438.9 billion on benefits; thus the Social Security surplus will be $165.4 billion.
  • At the end of 2001, the accumulated value of all the previous years' surpluses will total more than $1.2 trillion.
  • By 2016, the government will have collected more than $5.4 trillion in Social Security surpluses.

Technically, the trust fund holds bonds that represent this cumulative surplus. But these special-issue bonds are actually nothing more than IOUs the government writes to itself. The trust fund could be abolished, and the government would not be relieved of any of its existing obligations or commitments. Or we could double or even triple the number of IOUs the trust fund holds, but that wouldn't give the government any additional money to pay benefits.

Source: Matt Moore (NCPA policy analyst) and John C. Goodman (NCPA president), "Straight Talk about the Social Security Trust Fund," Brief Analysis No. 366, August 10, 2001, National Center for Policy Analysis.


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