Recent Activity And Financial Status
The 2015 Trustees Report Press Release stated:
- “Income including interest to the combined OASDI Trust Funds amounted to $884 billion in 2014.
- Total expenditures from the combined OASDI Trust Funds amounted to $859 billion in 2014.
- Non-interest income fell below program costs in 2010 for the first time since 1983. Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.
- The asset reserves of the combined OASDI Trust Funds increased by $25 billion in 2014 to a total of $2.79 trillion.
- During 2014, an estimated 166 million people had earnings covered by Social Security and paid payroll taxes.
- Social Security paid benefits of $848 billion in calendar year 2014. There were about 59 million beneficiaries at the end of the calendar year.
- The cost of $6.1 billion to administer the program in 2014 was 0.7 percent of total expenditures.
- The combined Trust Fund asset reserves earned interest at an effective annual rate of 3.6 percent in 2014.”
Some basic equations for understanding the fund balance include:
- Fund ending balance for a given year = Fund starting balance + program revenues + interest – program payouts
- Program annual surplus = program revenues + interest – program expenses
- Program annual cash surplus = program revenues – program expenses
Effects On The Budget
Some of the trust funds income is in the form of intragovernmental transfers. Those transfers include interest credited to the trust funds payments from the Treasurys general fund to cover most of the costs of payments for outpatient medical services and for prescription drugs under Parts B and D of Medicare and the governments share of payments for federal employees retirement programs. Transfers have also been made to protect trust funds from the financial effects of certain policies, most notably to offset a reduction in Social Security payroll taxes during calendar years 2011 and 2012.8 Intragovernmental transfers shift resources from one category of the budget to another, but they do not directly change the total deficit or the governments borrowing needs. Intragovernmental transfers are projected to total $847 billion in 2020 and to reach $1.2 trillion in 2030.
Excluding those transfers and counting only income from sources outside the government , CBO estimates that the trust fund programs spending will exceed designated receipts by $923 billion in 2020. That excessthe amount that the programs add to federal deficitsis projected to be $820 billion in 2021 and to grow to $1.7 trillion in 2030.
Social Securitys Trust Funds
Social Security provides benefits to retired workers, their families, and some survivors of deceased workers through the OASI program it also provides benefits to some people with disabilities and their families through the DI program. Those benefits are financed mainly through payroll taxes that are collected on workers earnings at a rate of 12.4 percent6.2 percentage points of which are paid by the worker and 6.2 percentage points by the employer. Since January 2000, of that 12.4 percent tax, 10.6 percentage points have been credited to the OASI trust fund and the remaining 1.8 percentage points to the DI trust fund.9
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Pay Back The Money Borrowed From Social Security
Throughout its 75 year history, Social Security has provided critical economic security to millions of retirees, families, children and the disabled. Social Security is paid for by the dedicated contributions of workers and their employers, has administrative costs of less than one percent, and since it cannot borrow to fund its operations, Social Security does not contribute to the deficit. No wonder that Americans from all walks of life consistently and overwhelmingly support our nation’s most successful social insurance program — a level of support that is not achieved by other governmental programs.
Social Security currently has a $2.6 trillion surplus which has been building up since the 1983 amendments and is intended to help absorb the retirement of the baby boomers. This surplus is invested in US Treasury securities that are backed by the full faith and credit of the US government. According to the Social Security Trustees 2010 report, Social Security can pay full benefits until 2037, at which time, if nothing were done to strengthen its financing, Social Security would still be able to pay about 78 percent of benefits. This quarter of a century means there is time to strengthen its financing without cutting benefits for future beneficiaries. The American people will insist that Congress do what is needed for the program to pay full benefits and protect these benefits they were promised and have earned.
Social Security Opponents Use Fear to Manipulate Debate
Myth #: The Government Raids Social Security To Pay For Other Programs
The facts: The two trust funds that pay out Social Security benefits â one for retirees and their survivors, the other for people with disabilities â have never been part of the federal government’s general fund. Social Security is a separate, self-funded program. The federal government does, however, borrow from Social Security.
Here’s how: Social Security’s tax revenue is, by law, invested in special U.S. Treasury securities. As with all Treasury bonds, the federal government can spend the proceeds on a variety of programs. But as with all bondholders, Treasury has to pay the money back, with interest. Social Security redeems the securities to pay benefits.
This borrowing fuels the notion that the government is raiding or even stealing from Social Security and leaving it with nothing but IOUs. But the government has always made full repayment, and the interest increases Social Security’s assets, to the tune of $76.1 billion in 2020.
Myths And Realities About Social Security And Privatization
For 86 years the Social Security program has been protecting Americans against the loss of income due to retirement, death or disability. Over 178 million workers and their families are covered by their contributions to Social Security, and about 65 million Americans currently receive Social Security benefits.
Social Security is an enormously successful program which is essential to the retirement security of the vast majority of Americans. Social Security is the single largest source of retirement income. About 62 percent of Social Security beneficiaries receive over half their income from Social Security. For over 20 percent of retirees, Social Security is their only source of income. Without Social Security, over 40 percent of the elderly would fall into poverty. Social Security provides a sound, basic income that lasts as long as you live.
Myths and Realities
Myth 1: Privatization is a plan to save Social Security.
Reality: Privatization isnt a plan to save Social Security. It is a plan to dismantle Social Security. Private accounts do nothing to address Social Security solvency. In fact, because private accounts are financed by taking money out of Social Security, privatization nearly doubles Social Securitys funding gap and moves forward the date of its insolvency.
Myth 2: Returns from private accounts will make up for the cuts in Social Security benefits.
Myth 3: Private account assets can be passed along to ones heirs.
Myth 4: Private accounts are voluntary.
Who ‘borrowed’ The Social Security Taxes We Paid
President George W. Bush made a shocking assertion back in 2005when he was pushing to privatize Social Security. A lot of peoplein America think there is a trust, he said, that we take yourmoney in payroll taxes and then we hold it for you and then whenyou retire, we give it back to you. But thats not the way itworks. There is no trust fund just IOUs .
Actually, working Americans have paid so much in Social Securitypayroll taxes during the past three decades that they have built upa $2.6 trillion surplus in the account. That money should make thesystem strong enough to cover the current level of benefits for thenext 26 years. In the interim, a prudent government couldrestructure the program for the rest of the century, perhaps bymeans-testing benefits and rejiggering contributions.
Just IOUs. In a lockbox.
They are, however, IOUs that are supposed to be backed by thefull faith and credit of the United States. So this year, as theSocial Security Administration is beginning to fall short of whatit needs to pay retiree benefits, it is cashing in $45 billion ofthe bonds. And because the country is upside down in debt, it hasto borrow the $45 billion from China or somewhere else to makeolder peoples ends meet. Those maneuvers will presumably continueuntil 2037 unless the system is adjusted in the meantime or UncleSams credit line runs out.
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Facts About Social Security
When President Franklin D. Roosevelt signed the Social Security Act into law 80 years ago this month, he said that while e can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.
In the decades since then, Social Security has developed into one of the most popular federal programs, though that popularity is tempered by concern over its long-term financial outlook. In a 2014 Pew Research Center survey, for instance, 50% of Gen Xers and 51% of Millennials said they believed they would receive no Social Security benefits at all by the time theyre ready to retire. Earlier this year, 66% of Americans said taking steps to make Social Security financially sound should be a top priority for President Obama and Congress this year, placing it fifth among 23 issues asked about.
But any reform plan entailing cuts to benefits likely would face an uphill battle for public support. The 2014 Pew Research survey also found large majorities across all generations agreeing that Social Security benefits shouldnt be reduced even among Millennials, the generation furthest from retirement, only 37% said future benefit reductions should be considered.
Note: This is an update of an earlier post originally published on Oct. 16, 2013.
Myth #: Social Security Is Going Broke
The facts: As long as workers and employers pay payroll taxes, Social Security will not run out of money. It’s a pay-as-you-go system: Revenue coming in from FICA and SECA taxes largely cover the benefits going out.
Social Security does face funding challenges. For decades it collected more than it paid out, building a surplus that stood at $2.85 trillion at the end of 2021. But the system is starting to pay out more than it takes in, largely because the retiree population is growing faster than the working population, and living longer. Without changes in how Social Security is financed, the surplus is projected to run out in 2035, according to the latest annual report from the program’s trustees.
Even then, Social Security won’t be broke. It will still collect tax revenue and pay benefits. But it will only bring in enough to pay 80 percent of scheduled benefits, according to the latest estimate. To avoid that outcome, Congress would need to take steps to shore up Social Security’s finances, as it did in 1983, the last time the program nearly depleted its reserves. The steps then included raising the full retirement age , increasing the payroll tax rate and introducing an income tax on benefits .
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Myth #: The Annual Cola Is Guaranteed
The facts:Since 1975, Social Security law has mandated that benefit amounts be adjusted annually to keep pace with inflation. But there is no requirement that this cost-of-living adjustment produce a yearly increase.
The COLA is tied to a federal index of prices for select consumer goods and services called the CPI-W. Benefits are adjusted annually based on changes in the CPI-W from the third quarter of one year to the third quarter of the next. In 2021, the index showed a 5.9 percent increase in prices, so benefits are 5.9 percent higher in 2022.
But if the index doesn’t show a statistically measurable rise in prices â if there’s effectively no inflation â then there’s no adjustment to benefits. This has happened three times since the current formula was adopted, in 2010, 2011 and 2016. Whether or not it produces a benefit increase, this process is automatic it does not involve the president or Congress. They would have to take separate action to change the COLA.
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What Happened To The $26 Trillion Social Security Trust Fund
Heres how President Barack Obama answered CBSs Scott Pelleys question about whether he could guarantee that Social Security checks would go out on August 3, the day after the government is supposed to reach its debt limit: I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.
And Treasury Secretary Timothy Geithner echoed the president on CBSs Face the Nation Sunday implying that if a budget deal isnt reached by August 2, seniors might not get their Social Security checks.
Well, either Obama and Geithner are lying to us now, or they and all defenders of the Social Security status quo have been lying to us for decades. It must be one or the other.
Heres why: Social Security has a trust fund, and that trust fund is supposed to have $2.6 trillion in it, according to the Social Security trustees. If there are real assets in the trust fund, then Social Security can mail the checks, regardless of what Congress does about the debt limit.
President Obamas budget director, Jack Lew, explained all this last February in USA Today:
Notice that Lew said nothing about raising the debt ceiling, which was already looming, and it shouldnt matter anyway because Social Security is entirely self-financing and off budget. What could be clearer?
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. http://twitter.com/MerrillMatthews
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Want To Blame Something Blame Congressional Inaction
If you yearn to point the blame for Social Security’s imminent cash shortfall on Congress, go right ahead. Just make sure you’re blaming lawmakers for the right issue.
What Congress hasn’t done is steal from Social Security. However, lawmakers have known of the program’s shortcomings since 1985, and have yet to find a middle-ground solution to fix it. If you want to point the finger at lawmakers, do so because bountiful solutions exist, but political hubris appears to be getting in the way.
As you probably know, Democrats and Republicans each have a primary fix for Social Security that works. Democrats wants to see the payroll tax earnings cap raised or eliminated, which would require the well-to-do to pay more into the program. Meanwhile, Republicans favor a gradual increase to the full retirement age, which would lead to a reduction in long-term outlays from Social Security. Although both solutions get the job done, neither has the votes to pass in the Senate.
Perhaps even more baffling, the perceived weakness of each solution is perfectly addressed by their opposition. For instance, the GOP’s plan to reduce outlays takes decades before lower expenditures are realized. This is remedied by the Democrats’ plan to immediately boost tax revenue. Comparatively, the Republicans’ plan helps to tackle lower birth rates, rising longevity, and lower net-immigration rates that the Democrats’ solution fails to account for.
A Close Look At Joe Bidens Social Security Proposals
My Urban Institute colleagues Karen Smith, Richard Johnson, and I recently compared Social Security proposals advanced by Democratic presidential nominee Joe Biden and four of his primary rivals. President Trump has not released a detailed Social Security plan, though he has made several statements about Social Security payroll taxes.
Like his Democratic primary challengers, Biden would reduce the programs long-range financial imbalance by expanding Social Securitys payroll tax base, now limited to $137,700 of earnings. He would expand some benefits while not reducing any, reducing economic hardship. While Bidens proposal would not eliminate Social Securitys 75-year shortfalla standard goal of policymakers for decadeshis approach, if enacted by Congress, would reduce the size of the projected gap by about one quarter.
Broadly, Biden departs from many earlier, though unsuccessful, reform efforts. His plan raises four key questions.
Should we bolster Social Securitys long-range financing with tax revenue from high earners only?
Biden would raise payroll taxes only on those now earning over $400,000 annually. Because this threshold is not indexed for inflation, by about 2050 about six percent of workers would contribute more under Bidens plan. Financing benefits this way is highly progressive because increasinglypeople with higher incomes live longer and therefore receive Social Security benefits for longer.
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Factcheck: Moved Trust Fund To On
A: There has never been any change in the way the Social Security program is financed or the way thatSocial Security payroll taxes are used by the federal government. This question comes from a confusion about the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 the transactions to the Trust Fund were included in what is known as the “unified budget.” This is sometimes described by saying that the Social Security Trust Funds are “on-budget.” This budget treatment of the Social Security Trust Fund continueduntil 1990 when the Trust Funds were again taken “off-budget.” But whether the Trust Funds are “on-budget” or “off-budget” is primarily a question of accounting practices–it has no effect on the actual operations of the Trust Fund itself.