Currently, the federal budget is in deficit.  The U.S. Treasury reported a deficit of $147 billion after eight months of the current fiscal year that ends in September.(1)  When the budget is in deficit the Treasury automatically uses any surplus Social Security payroll taxes to cover spending on other government programs.  If the budget is in balance or surplus, Social Security surpluses are used to reduce the federal debt held by investors who buy government bonds and U.S. Treasuries.(2)

Either way, by law the Social Security Trust Fund receives a special type of Treasury bond representing a claim on the Treasury or I.O.U.  "Increases to the Trust Fund balances do not automatically guarantee future benefits can be paid," Smith notes.  "Tax revenues will be needed to redeem those I.O.U.s at some point in the future."

When the federal budget is in deficit the government takes on more debt and higher interest costs.  Higher interest means less revenues for other vital needs such as senior food or energy assistance programs.  "When Social Security surpluses are used to reduce debt, this increases national savings," says Smith. "This in turn reduces the number of U.S. Treasury bonds available to investors who invest in corporate stocks and bonds instead.  This builds the national economy by generating more jobs and payroll tax revenue to pay benefits.  It reduces federal interest costs, freeing up that money for other uses, and promotes the government's ability to raise cash to pay future benefits," he further explains.

"Seniors nationwide should contact their Members of Congress and demand a Social Security lock box to help guarantee future benefits," urges Smith.  "Excess Social Security payroll taxes should be used to strengthen the program by paying down debt.  Unless we control deficit spending now, Social Security will be put into jeopardy years sooner because of higher interest costs.  This could spell future benefit cuts and higher taxes," warns Smith.

TSCL is a national group of politically active seniors concerned about the protection of their earned Social Security, Medicare, military, and other retirement benefits.  TSCL members participate in a number of grassroots lobbying and public education campaigns to ensure governmental bodies, including the Social Security Administration and the Centers for Medicare and Medcaid Services, live up to their commitments. For more free information on this issue and our organization, please contact TREA Senior Citizens League, Department SF20701, 909 N. Washington St., Suite 300, Alexandria, VA  22314, or visit our website at: http://www.tscl.org.         

(1) "U.S. Budget Deficit Widened in May, Treasury Says," Reuters, June 20, 2002. (2)"Social Security and the Federal Budget, Andrew Eschtruth, Center for Retirement Research at Boston College, October 2000, Number 2.

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July 2002