NCPA - National Center for Policy Analysis

Trust Fund Surplus Less Than (Half Of What) Meets The Eye

October 18, 2000

Between now and 2009, the Social Security surplus will grow by almost $2 trillion. Of that amount, 52.9 percent, or $879.7 billion, is "net interest." This represents interest earned by the Social Security trust fund on special U.S. Treasury bonds held in the fund, but is not paid in actual cash. In other words, it's funny money.

The actual cash surplus over that period, the amount by which real cash income exceeds real cash outgo, is $879.7 billion or 47.1 percent. This is the only real cash that can be put to use.

  • The entire cash surplus is regularly transferred from the Social Security trust fund to the U.S. Treasury for other spending priorities by exchanging cash for special U.S. Treasury bonds.
  • Transferring the money from one account to the other does not affect the government's bottom line -- the right hand owes the left hand money but both are part of the same body.
  • Since no money is invested in nongovernment assets, Social Security simply becomes a bigger creditor of the U.S. Treasury; meanwhile, the actual cash surplus is available to the government to spend elsewhere.

Al Gore swore to protect the current system. But George W. Bush has proposed a new option.

  • Bush would allow workers to invest a portion of their taxes in individual accounts, which become part of the worker's personal estate.
  • The cost to the government is about equal to the actual cash surplus over the same period -- thus the transfer will have no impact on Social Security's operations.
  • Social Security will have all the cash it needs for paying benefits to current retirees, and young workers will have a real stake in real assets.

Source: Scott Burns, "Social Security surplus uses creative math." Dallas Morning News, October 15, 2000.


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