Sunday, October 20, 2013

Borrowing From Social Security

The U.S. borrows money by selling U.S. Treasury Bonds. As the Social Security Trust Fund contains only U.S. Treasury Bonds, it would make no sense to borrow from the trust. The only way for Congress to use the Trust Fund to make funds available for other purposes would be by defaulting on Treasury Bonds held by the trust. That would not be "borrowing", it would be theft of money paid by low and middle income workers (income over a certain amount, currently $113,700, is exempt from payroll taxes). Also, the only reason the Trust Fund contains bonds worth $2.6 trillion is that the trust fund was built up in anticipation of the retirement of baby boomers.

Reduction of Social Security retirement benefits is another oft touted solution to budget problems. But since Social Security has its own revenue stream, reducing benefits only affects the Social Security Trust Fund. Payroll taxes collected in excess of benefits paid out (a surplus) are put into the trust fund. Should there be more benefits paid than payroll taxes collected (a deficit), U.S. Treasury Bonds in the trust fund are redeemed in order to pay those benefits. The cash paid out by the treasury would most likely be obtained by the sale of U.S. Treasury Bonds to other investors. So with Social Security running either a surplus or a deficit, the national debt is not affected. Reducing benefits only affects the trust fund, and only affects the long term health of Social Security. Including Social Security figures as part of the regular budget's numbers is misleading and unethical, and people who propose reducing benefits as part of a deficit reduction plan are simply lying.

So the next time someone proposes using Social Security to help with deficit reduction, ask yourself what their real motivation is. It most certainly is not the national budget.

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