Understanding the Government’s Use of Social Security Funds
Since 1983, every U.S. President has borrowed from Social Security to finance government expenditures. The Social Security program, designed to provide financial support to retirees, disabled workers, and their families, is funded primarily through payroll taxes, taxes on benefit payments, and interest from investments in Treasury securities. When the program collects more in payroll taxes than it disburses in benefits, the surplus is invested in special-issue Treasury securities. These securities, backed by the full faith and credit of the U.S. government, allow the government to borrow from Social Security while paying interest on the borrowed amount.
The Legal Framework of Social Security Borrowing
Congress has the legal authority to access Social Security payroll funds to finance government spending. Each President must submit a proposed budget to Congress, which determines how federal funds are allocated, including any borrowing from the Social Security Trust Fund to cover budget deficits.
The Accumulated Surplus and Its Management
Since tax collection for Social Security began in 1937, the program has accumulated approximately $2.8 trillion more in payroll taxes and interest than it has paid out in benefits. This surplus is held in non-marketable Treasury securities. While these funds are earmarked for Social Security, their investment in government securities means they are technically borrowed by the federal government for other expenditures.
Concerns Over Social Security Solvency
The borrowing of Social Security funds has raised concerns about the program’s long-term solvency. Critics argue that borrowing has contributed to cash shortfalls. For example, some believe that President George W. Bush financed tax cuts and the Iraq War by utilizing Social Security surplus funds. According to economist Allen W. Smith, Bush borrowed $1.37 trillion from Social Security without repayment. However, PolitiFact rated this claim as “mostly false,” clarifying that Bush, like other Presidents, utilized Social Security reserves for government spending as per legal provisions.
In the early 1980s, the Social Security Trust Fund faced financial instability due to economic challenges from the “stagflation” period of the 1970s. Congress introduced temporary measures, including inter-fund borrowing among the Old-Age and Survivors Trust Fund, the Disability Trust Fund, and the Medicare Trust Fund, to address the short-term cash flow problem.
The Future of Social Security
One of the most pressing concerns today is the projected depletion of the Social Security Trust Fund by 2035. If this happens, only ongoing payroll tax collections will be available to pay benefits, potentially leading to reduced payouts. A Concord Coalition issue brief attributes this depletion to the insufficiency of previous surpluses and interest earnings in covering growing Social Security expenditures.
Possible Solutions to Strengthen Social Security
To ensure the sustainability of Social Security, policymakers have proposed several solutions, including:
- Raising the payroll tax cap to increase funding from higher earners.
- Gradually increasing the retirement age to reflect longer life expectancy.
- Adjusting benefit formulas to balance payments more effectively.
- Implementing means-testing to allocate benefits based on financial need.
- Encouraging private retirement savings to supplement Social Security benefits.
Conclusion
The practice of borrowing from Social Security is a longstanding policy that has helped finance various government expenditures. However, concerns about the program’s solvency require immediate attention to prevent future benefit reductions. Policymakers must work toward sustainable reforms to secure Social Security for future generations while maintaining fiscal responsibility within the federal government.