We often see leftists defend Social Security by asserting that the Social Security Trust Fund is a stand alone account with trillions of dollars of assets, and therefore does not have anything to do with the finances of the federal government, or national debt or deficit.
Trillions of Dollars of Assets, No Dollars
They also brag that the assets of the Trust Fund are invested in safe Treasury bonds paying interest to the Fund.
Leftists further claim that SS is completely solvent and only needs the income cap to be rescinded so that millionaires pay SS tax on their entire income.
In addition, they claim that SS has an account for each person that accumulates on their behalf
Lastly, they claim that SS is like an insurance policy.
None of this is true.
As is typical for the Left, they tell partial truths, omit key details, and twist and dissemble until it is impossible to discern the real situation. So our purpose today is clarify.
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Trillions of Dollars of Assets, No Dollars
The SS Trust Fund is the government mechanism that accumulates SS taxes that have been withheld from the paychecks of workers. Upon receipt, the Fund distributes benefits to the various beneficiaries, and the remaining cash is used to purchase treasury bonds. This means the principle asset of the Fund is comprised of these bonds.
The federal government sells these bonds to the Fund. These are not typical treasury bonds like the ones private parties purchase. Social Security's own website says, "all securities held by the trust funds are 'special issues' of the United States Treasury. Such securities are available only to the trust funds."
Another government website tells us this:
"There are two general types of such securities:
- Special issues—available only to the trust funds
- Public issues—marketable Treasury bonds available to the public.
"The trust funds now hold only special issues."
These bonds can only be sold by the government to the Trust Fund. The general public cannot buy these bonds. The Trust Fund contains no cash, only these bonds.
Pretend Interest
Since the process described here is essentially one government department lending another department money, there is no real transfer happening, apart from an entry on a bookkeeping ledger. It is like having a dollar in your left pocket. You move it to your right pocket and promise yourself that you will pay your left pocket back plus interest. Then you spend the dollar.
Where does the money to pay interest come from? From your left pocket of course. Where does the money to pay off the bond come from? The same. Where does the left pocket get its money? From someone else's pocket.
You are the someone else. Taxpayers pay that interest to the Trust Fund via their taxes, and taxpayers will pay for it again when the government is required to pay back the bonds.
The Income Cap
Since the cash assets of the Trust Fund are being transferred to the general fund via Treasury bonds, increasing the amount of revenue to the Trust Fund will simply increase the number of bonds added to the Fund. It will otherwise have no effect on the Fund's ability to pay benefits.
Further, should leftists successfully lift the cap they will be tacitly admitting that SS is not an investment. The system is predicated on the idea of a commensurate benefit for money paid. If the cap is lifted, then high income earners will pay much more SS tax with no commensurate benefit. This would cement SS's true status as a wealth transfer, aka, welfare.
SS Affects The National Debt
Legally, the SS Trust Fund is a separate entity. Its funds are not intermixed with the government's general fund. However, the national debt is made up almost entirely of various debt instruments, i.e. bonds. Bonds are money owed. IOUs. The federal government owes money to the Trust Fund. This money will need to be paid back to the Fund, plus interest, but as we already know, the government has spent the money.
Again from the same website: "Because the government spends this borrowed cash, some people see the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future." Note the government spends the proceeds from the Trust Fund. That means the obligation to pay it back remains, but the funds are gone. As to whether or not the government will be able to make good on these debts remains to be seen. At least SS is admitting the situation.
Ironically, the SS Trust Fund is managed by the Department of the Treasury through their Bureau of the Fiscal Service (previously known as the Bureau of Public Debt).
Not Solvent
We often see reports that SS will last without modification until 2033, 2035, or various other dates. However, this is based on the assumption that the Trust Fund is actually cash money. Should we ever see this future scenario where the the payout exceeds the income, the federal government will be forced to redeem the bonds as the Trust Fund's demand for cash increases. That is, it will need to periodically cash out these bonds and give the Trust Fund its money back.
The government is already deeply in debt, perhaps terminally. But in order to pay off its Social Security obligation and keep it afloat into the future the government will need to come up with large amounts of additional cash it doesn't have. So it will have three bad alternatives:
- print oodles of money (causing inflation to skyrocket)
- increase taxes precipitously, or
- finance the payments with additional national debt it can't afford
This means that because the Trust Fund's assets depend on the federal government being able to make good on trillions of dollars of debt, the SS Trust Fund is currently insolvent.
Personal Accounts?
It's certainly true that SS's database contains information on every single person who has a Social Security number. The SS Administration sends out regular statements, which estimates your benefits, states your total tax paid, and provides a chart of all your taxed earnings:
- A total account value including interest earned
- A statement regarding your current interest rate
- Information about making lump sum withdrawals
- Information on using your SS as collateral for a loan
The reason these things do not appear is because the money is not yours. There is no account. It does not earn you interest. You have no access to any money apart from the monthly amount they calculate for you. The government has simply created a tax with a future promised benefit.
SS is a welfare program camouflaged as a retirement investment. It taxes current workers and transfers that money to current retirees. In the private sector this is known as a Ponzi Scheme.
Not Insurance
It's odd to us that Leftists will make the simultaneous claim that SS is an investment and it's insurance. Obviously, it cannot be both at the same time.
Insurance is a voluntary legal contract between parties that defines the terms of transferring specifically described risks of loss from one party to the other. In exchange for a relatively small premium the policyholder engages the insurance insurance company's promise (an insurance policy) to assume the risk of a large financial loss should one happen. This is called indemnification.
Because the loss is not certain, the policyholder gains by buying financial peace of mind. The insurance company gains because although it does not know if the policyholder will experience a loss, it does know the average number and size of losses when it considers its total customer base and can calculate how much to charge their insureds to cover expected losses, operating expenses, and profit.
We can see that SS has little to do with insurance. There is no mutual agreement, transfer of risk, insurance policy, or indemnification. We might even suggest that just as SS masquerades as an investment, it masquerades as insurance.
Conclusion
It's clear that the current SS system is unsustainable. And it's certainly understandable if you think that the current financial status of government is past the point of no return. SS is only a part of a bigger government problem: Unfunded liabilities coupled with uncontrollable spending.
Not only is government not reversing course, it's not even not slowing its slide. It needs to reduce the amount of yearly deficit until it reaches zero. But it can't stop there. Then it needs to consistently run very large surpluses for decades. The admitted national debt is itself a gargantuan at $37 trillion. But that's only part of the story. Some estimates calculate the government's total unfunded liabilities (that is, the total amount it owes for which there is no money) at somewhere between $93.1 trillion and an astonishing $210 trillion.
Taking the smaller number, it would mean that government would need to allocate $4 trillion per year for 23 years to pay off its obligations. That's not reducing spending by $4 trillion, that is creating a $4 trillion dollar a year average surplus, using that money to pay off the the SS Trust Fund as well as the official national debt, while also setting aside money for the future cost of all the promises it has made to veterans, seniors, the disabled, students, other countries, and all the other programs it has agreed to pay for but has not funded.
The federal budget for 2025 is $4.636 trillion, with an expected deficit of $936.3 billion. The reader can see the overwhelming magnitude of the problem. It's not sustainable, and we would assert that it isn't even solvable. There isn't the political will or the popular support to address this problem.
The bubble must burst at some point. Various economists have been predicting it for decades, but somehow the can keeps getting kicked down the road. The road inevitably leads to a cliff, and we will be going over if we don't stop.
If we can stop...
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