The Truth About the Trust Fund

Social Security will begin running a deficit by 2018, spending more on benefits than it takes in through tax revenue. However, some critics of individual accounts have suggested that the existence of the Social Security Trust Fund will enable Social Security to continue paying benefits without any problem until 2042. Some even point to a report by the Congressional Budget Office, which attributes a higher interest rate to Trust Fund bonds, suggesting that Social Security is solvent until 2052.

In reality, however, the Trust Fund is simply an accounting measure, a promise against future taxes, in essence an IOU.

These Trust Fund balances are available to finance future benefit payments…but only in a bookkeeping sense….They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of Trust Fund balances, therefore, does not by itself have any impact on the government's ability to pay benefits.
--- Clinton Administration, FY2000 Budget

[The Trust Fund] has no real economic resources….The key moments for Social Security are in 2018. Cash-flow benefits will equal cash-flow payroll taxes, and then after that, the Social Security Administration will have to come back to the rest of the budget for additional resources to pay promised benefits.
---Douglas Holtz-Eakin, director, Congressional Budget Office

Perhaps the biggest misperception is that the Social Security trust funds represent actual resources to be used for future benefit payments, rather than what is in reality a promise by the government to take the steps necessary to secure resources from the economy at that time. The accumulation of these securities in itself does not guarantee economic growth nor will it necessarily mitigate the problems associated with the rapid increase in Social Security's cost when the baby boom retires.
--- Congressional Research Service

In effect, the general account is spending the OASDI surpluses to finance general account deficits. . . . In this situation, the trust fund more accurately represents a stack of IOUs to be presented to future generations for payment, rather than a buildup of resources to fund future benefits.
--- Social Security Administration

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