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Muddying the Budget Waters With Social Security

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Forget-me-not Social Security
Forget-me-not Social Security

We’ve mentioned this before, but it bears repeating…

And that is the issue hanging like a dark cloud over the broader discussion to bolster Social Security, especially in such a politically charged atmosphere.

Many people misunderstand how the program operates. Payroll taxes stream into the trust fund that is used to pay current retirees’ benefits. When there is a surplus, that money is invested in a special type of Treasury bond that pays interest to the trust fund. At the end of last year, the trust fund had about $2.6 trillion. And though last year was the first year since 1983 that the fund paid out more than it received in tax revenue, it still continued to grow because of the interest accrued — and it is estimated to continue to grow through 2022.

Since the money in the trust fund is held in Treasury securities, taxes collected are essentially being lent to the federal government to pay for whatever it wants (and this allows the government to borrow less from the public). That is where some of the confusion comes into play about how Social Security is used to pay for things that are unrelated to the program. But it is really no different from China lending the government money by investing in Treasuries.

Social Security does not, and cannot by law, add a penny to the federal debt,” said Nancy Altman, co-director of Social Security Works, an advocacy organization that promotes the preservation of the program. “It, by law, cannot pay benefits unless it has sufficient income to cover the cost, and it has no borrowing authority to make up any shortfall.”

And, she added, it is not in crisis. “Its long-range funding shortfall should be dealt with on its own legislative vehicle, separate from deficit-reduction talks and after those talks are concluded,” she added.

(click here to continue reading Muddying the Budget Waters With Social Security – NYTimes.com.)

 

Written by Seth Anderson

July 30th, 2011 at 9:44 am

Posted in government

Tagged with ,

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  1. […] Muddying the Budget Waters With Social Security Many people misunderstand how the program operates. Payroll taxes stream into the trust fund that is used to pay current retirees’ benefits. When there is a surplus, that money is invested in a special type of Treasury bond that pays interest to the trust fund. At the end of last year, the trust fund had about $2.6 trillion. And though last year was the first year since 1983 that the fund paid out more than it received in tax revenue, it still continued to grow because of the interest accrued — and it is estimated to continue to grow through 2022. […]

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