Talking Points on Social Security: Trust Fund? What Trust Fund?

Americans may believe that when they pay their Social Security taxes, the federal government sets that money aside to finance their public pension benefits. Don’t bet on it.

In fact, Uncle Sam immediately pays most of that money to today’s retirees. At the moment, the government collects more in payroll taxes than it pays in retirement checks. This surplus is called the Social Security Trust Fund.

This money is not held in cash, nor is it converted to gold, diamonds or real-estate deeds. The truth is far less promising:

*  The Social Security Trust Fund resides within the H.J. Hintgen Building in Parkersburg, West Virginia near the Ohio River.1

*  The Trust Fund is stored inside the locked bottom drawer of a gray filing cabinet controlled by employees of the U.S. Bureau of Public Debt.

*  That drawer contains $1.76 trillion worth of Special Issue U.S. Treasury Bonds.  Each of these, 225 pieces of paper in all, is contained in one of two white, loose-leaf notebooks that hold plastic page covers.

*  Despite the protective plastic, these certificates have no more financial value than the ink with which they are printed.  “The paper is symbolic,” Bureau of Public Debt spokesman Pete Hollenbach told the Associated Press.2  As a 2004 Congressional Budget Office report explained, the Trust Fund is an “accounting mechanism” with “no economic resources.”

*  The key reason these notes have no value is that the money that should be behind them – the excess payroll taxes not spent on today’s retirees – instead gets spent by Congress on everything from farm subsidies to national parks to armored Humvees.

*  To make matters worse, these Special Issue bonds are not traded in the capital markets, where investors could infuse them with cash value. In reality, they are merely IOUs that obligate tomorrow’s Congresses to finance the Treasury’s future Social Security checks by raising taxes, approving increased federal borrowing or cutting retirement benefits.

*  Beginning in 2041, Washington will have to bridge an anticipated 30 percent gap between what Uncle Sam will collect in payroll taxes and what retirees have been promised.

That task will be plenty difficult for the senators, congressmen, and presidents of tomorrow. And they will get precious little help from a drawer full of plastic-wrapped sheets of paper deep inside an Appalachian filing cabinet.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.