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What's in the Social Security Trust Fund? Recently a Social Security Administration (SSA) publication stated that one of the top myths about the Social Security Trust Fund is the assertion that "it's full of nothing but worthless IOUs!" In answer, the SSA explained that "by law all Social Security money is invested in treasury bonds, similar to bonds purchased by millions of other investors." Are the special bonds really similar to bonds purchased by other investors? Not exactly. Here are the facts: • Every dollar of Social Security tax revenue is immediately spent on payments to beneficiaries or "borrowed" by the federal government in exchange for special obligation bonds. No Social Security tax revenues are invested in real assets. • Special obligation bonds are not like other bonds. Social Security Trustees cannot sell them on the open market like other bonds. The bonds that private investors buy can be sold. • When Social Security begins to pay out more in benefits than it collects in excess payroll taxes, the government must redeem these special obligation bonds. To do this the government increases payroll taxes, borrows the money, or cuts benefits. This is why many in Congress, and some economists describe special obligation bonds as IOUs. n Source: "Social Security Today," January/February 1999, SSA publication #05-10110; Testimony by John C. Goodman, President, National Center for Policy Analysis on Social Security, "The Need for Radical Reform," to Subcommittee on Social Security of the U.S. House Committee on Ways and Means, June 24, 1997. This article first appeared in Volume 4, Issue 7 of "The Social Security and Medicare Advisor" newsletter (June/1999). To receive future editions of "The Advisor" in its special, free e-mail version, please click here. | ||||||||
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