How does the Social Security Trust Fund actually operate?

James Cessna · Sep 16, 2011

Does anyone know the Social Security trust fund actually operates?

Many people do not know this but, in reality, the Social Security trust fund does not exist. After benefits of today's retirees are paid out, any "money" remaining in the trust fund is converted into special-issue Treasury bonds, which are really nothing more than IOUs issued by the government!

Great checks and balances there.

We've put the wolves (Congress) in charge of the hen house!

"The Social Security trust fund is merely an accounting device filled with IOUs that future taxpayers must repay. Far too soon, payroll taxes will be insufficient to pay all of the promised benefits. Unless Congress promptly takes action, taxpayers will have to pump hundreds of billions of additional tax dollars into Social Security to pay the promised benefits."

As political leaders debate how best to fix Social Security, many policymakers are focusing on the wrong issue. Their sole concern seems to be the date when the Social Security retirement and survivors trust fund will run out of its paper assets. This mistaken emphasis misses the fundamental point about Social Security's problems: There is no cash in the Social Security trust fund, and there never has been any.

The Social Security trust fund is merely an accounting device filled with IOUs that future taxpayers must repay. Far too soon, payroll taxes will be insufficient to pay all of the promised benefits. Unless Congress promptly takes action, taxpayers will have to pump hundreds of billions of additional tax dollars into Social Security to pay the promised benefits.

How the Trust Fund Operates.Workers pay their Social Security taxes through their employers. Each employer periodically sends a lump sum payment to the U.S. Treasury that includes all of the income taxes and Social Security and Medicare payroll taxes paid by both the employer and its employees.

The Treasury both receives the payroll taxes (and income taxes that higher-income retirees pay on their Social Security benefits) and pays monthly benefits on behalf of the Social Security Administration (SSA). The money stays in the Treasury's hands until it is either paid out as Social Security benefits or otherwise spent by the government. In fact, no money ever goes into the trust fund. Instead, the trust fund balance is the result of two accounting entries by the Treasury.

First, the Treasury estimates how much of the aggregate tax receipts are Social Security taxes and "credits" the Social Security trust fund with that amount. Then the Treasury "subtracts" the total amount paid in monthly Social Security benefits from the trust fund balance. No money actually changes hands; these are strictly accounting entries.

Any "money" remaining in the trust fund is converted into special-issue Treasury bonds, which are really nothing more than IOUs. In addition, the Treasury pays interest on the trust fund's balance by crediting the trust fund with additional IOUs. These are also strictly accounting entries, and again no money changes hands. After crediting the trust fund with the proper amount in IOUs, the government spends the extra Social Security tax collections just like any other tax revenue--to finance anything from aircraft carriers to education research.

At the end of 2002, the Social Security trust fund had a balance of $1.22 trillion. During 2003, the Treasury received $544 billion in Social Security taxes and paid out $406 billion in Social Security benefits. Therefore, the trust fund received $138 billion in these special-issue Treasury bonds, resulting in a trust fund balance of $1.36 trillion at the end of 2003.

http://www.heritage.org/research/re...w-the-social-security-trust-fund-really-works
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waltky · Mar 21, 2014

Granny says dey better not touch her social security or dey liable to draw back a bloody nub...

CBO Director: Important to Give Advance Warning About Coming Changes to Social Security
March 19, 2014 -- The United States faces "fundamental fiscal challenges" stemming from the growth in spending for Social Security and major health care programs," CBO Director Douglas Elmendorf told a gathering in Washington on Tuesday.

The rising cost of those programs leaves Americans with "unpleasant" choices to make, but the sooner they're made, the better, he said: "So we have a choice as a society to either scale back those programs relative to what is promised under current law; or to raise tax revenue above its historical average to pay for the expansion of those programs; or to cut back on all other spending even more sharply than we already are," Elmendorf said. "And we haven't actually decided as a society...what we're going to do. But some combination of those three choices will be needed."

Elmendorf said there are various ways to proceed: "But they tend to be unpleasant in one way or another, and we have not, as a society, decided how much of that sort of unpleasantness to inflict on whom." He noted that many Americans have paid Social Security taxes for decades, expecting to get benefits in retirement. But the money people paid years ago was used to fund other government activities. So, "If one wants to change those programs, then giving people a lot of warning about that -- those changes coming -- would be especially important," he said. Elmendorf said the nation's main fiscal challenge is not short-term deficits, but "the very high level of debt" over the long term:

"And a high level of debt will ultimately crowd out capital investment and slow accumulation of capital and slow the growth of wages and incomes. It also reduces the flexibility for policymakers to respond to future crises that arise. "So it's the high level of debt and the growing deficits in the long-term. The reason why action today would be beneficial is because if you -- we want to make changes in programs for retirees or changes in the tax code, it's better to make those with a warning. One wants to set -- one wants to make changes. One wants to set them in motion early, even if their full effect won't be felt for many years."

Elmendorf said Social Security, Medicare/Medicaid and Obamacare will be much more expensive relative to GDP in future years because health care costs are rising, subsidized health insurance is expanding, and the population is aging: "There will be a third more people receiving Social Security Medicare benefits a decade from now than there are today," he noted. "And with those three factors at work, that handful, just a handful of very large programs, is becoming much more expensive." Elmendorf was interviewed at The Atlantic's 2014 Economy Summit in Washington.

http://www.cnsnews.com/news/article...e-advance-warning-about-coming-changes-social
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toddwv · Mar 21, 2014

It's pretty easy. A payroll tax is levied on the first $150,000 in earnings. This money gets dumped into the general fund where it is then spent to pay for expensive long-term wars so that later, Republicans can claim that the SS fund is broke and SS should be scrapped. SS payouts are also lumped in with general spending numbers to help make it look like the "defense" budget isn't ridiculously bloated.

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How does the Social Security Trust Fund actually operate?

James Cessna New Member

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