What's the Social Security "Surplus" Got to Do with It Anyway?

In Congress, "saving the Social Security surplus" has become a veritable mantra during the current appropriations process. What does this mean?

In Congress, "saving the Social Security surplus" has become a veritable mantra during the current appropriations process. What does this mean?

In Congress, "saving the Social Security surplus" has become a veritable mantra during the current appropriations process. What does this mean?

The President recently released a plan that includes a provision to "extend the solvency of Social Security" until 2050. The basis of his proposal is saving the Social Security surplus. In Congress, "saving the Social Security surplus" has become a veritable mantra during the current appropriations process. What exactly does "saving the Social Security surplus" have to do with saving Social Security? In spite of all the rhetoric, the answer is "not much."

What is the Social Security surplus? The Social Security benefit program is self-financed. It collects enough payroll taxes to pay current benefits. Even after paying those benefits, there is money left over. That surplus is now called the "Social Security surplus" to distinguish it from any general surplus where government receipts exceed government spending. The Social Security surplus is set aside from the rest of the budget--called "off-budget." The overall surplus in FY 2000 is projected to be approximately $161 billion. Of that amount only $14 billion is general surplus. The rest, $147 billion, is Social Security surplus. Over the next ten years, an overall surplus of $3 trillion is estimated. The Social Security surplus is projected to be in the range of $2 trillion, while the general, on-budget, surplus is estimated at about $1 trillion.

The Social Security surplus is never "saved"-never was and probably never will be. There is no provision for literally putting that money aside and holding onto it. Instead, the U.S. Treasury borrows the Social Security surplus. If there is a deficit in the general budget, the Treasury uses the surplus to balance the budget. If there is money left over, it is used to pay on the national debt. If there is no deficit in the general budget, the entire Social Security surplus goes to pay down the national debt. In exchange for borrowing the Social Security surplus, the Treasury issues interest paying U.S. Treasury bonds to the "Social Security Trust Fund" in the full amount of the Social Security surplus. In other words, no matter how the Social Security surplus is spent, Treasury bonds are issued for the full amount of the surplus.

The reason the fiscal viability of Social Security is in question is not because the trust fund has been "raided" for other spending, but because of changing demographics, including longer life spans and lower fertility rates. At some point, Social Security payroll taxes will not be sufficient to pay current benefits, because there will be less workers paying into the system and more beneficiaries drawing money out of the system. Presently, there are about three workers to one retiree. By 2030, there will only be two workers to one retiree. The Social Security Trust Fund, consisting of Treasury bonds, will need to be redeemed--the bonds paid for by general funds-when Social Security begins paying out more in benefits than it receives in payroll taxes. Estimates are that in 2014, the interest on the trust funds will need to be tapped. By 2022, the actual trust fund accounts will have to be used. By 2034, it is projected that the trust fund will not contain enough money to pay full and timely benefits.

So, if saving the Social Security surplus won't save Social Security and the accusation of "raiding" retirees' future benefits is nonsense, what is the political point? It plays well. People are concerned about their future Social Security benefits. If you want to stop a tax cut, accuse tax cut proponents of threatening Social Security. If you want to cut down on government spending (or at least give the appearance of doing so), loudly proclaim that government spending is raiding Social Security. Saving the Social Security surplus to pay down the national debt, rather than using it to pay off a general spending deficit, is another argument that is being made, though less noisily. However, polls have shown that many people in this country would rather the government spend money on education for their children over a tax cut OR over paying down the national debt. And, polls also reveal that almost everyone is concerned about making sure that Social Security is able to pay benefits to future workers. Tax cuts and paying down the national debt are not the highest priorities of Americans--while preserving Social Security and improving the quality of life are. It should come as no surprise then that the political rhetoric centers on "saving" Social Security by saving the Social Security surplus.

Saving the Social Security surplus actually means using most, if not all, of the Social Security surplus to pay off the national debt and not using the money for tax cuts or government spending. The real issue is whether or not we want to make our primary goal paying off the national debt. That issue is distinct from saving Social Security. Paying down the national debt will not "ensure the solvency of Social Security."

The question as it is now being framed is whether it is more important to save Social Security than attend to our crumbling infrastructure, provide good education and training for our children, protect the environment, and reduce poverty. The question ought to be whether we want to make paying off the national debt the priority over these other important governmental activities. Paying off the national debt may be a good thing, and it might put the country in a better position to deal with the demographics of many more retirees drawing Social Security than workers paying Social Security payroll taxes. However, the argument can also be made that other priorities, such as supporting the education of children and young people, job training for workers, environmental protection, the welfare of low and middle income families, health, research, and viable communities ought to come before paying off the debt. Presidential candidates are putting forth their visions of the future-"investing in America," revitalizing health care for the American people, helping children in poverty, and improving the education of America's children-all of which require resources. The choice is not between spending on domestic priorities or preserving Social Security. It is a choice between spending on domestic priorities or paying down the debt. We haven't begun to debate that choice, because it has been disguised behind a false controversy about saving Social Security.

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