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The US Treasury Department announced that the debt has increased to 40 Trillion dollars. In the articles explaining the debt, I keep reading about how Social Security payments are adding to the debt. Can someone please explain to me how that is? My understanding is the payments are made from collections of Social Security taxes from current employees and employers, as well as taking money from the Social Security trust fund. So please explain how a self funded program adds to the deficit. I know that some of Medicare payments are made from the general fund.
Some really good thoughts here. I was pondering this topic after reading a WSJ article on the deficit. My conclusion:the typical representation of huge deficits generated from Social Security and Medicare ignores revenue from employers, employees and taxation of SS.
Quick Answer: The government needs to borrow from the open market to repay the money it borrowed from the Trust Fund.
The Government pretends that the money that it owes to the trust fund is not truly a debt in order to reduce what the national debt looks like. If you believe the money it owes to the Social Security trust fund is an actual debt then the net effect of this is zero. It is all an accounting sleight-of-hand.
Also, the federal government is writing IOUs to the trust fund to cover the interest payments. It owes to the trust fund. At some point, these IOUs will need to be repaid, and that will be money borrowed.
All good and mostly accurate comments…as usual. Here’s how I try to explain to folks how Social Security affects the deficit/debt.I hope I’m accurate.
During the first 90 nyears or so more money was coming into the trust fund than going out. Congress said that excess money had to be invested in a special treasury security. Had FICA taxes or other rule changes kept up with the outflow ( money needed to pay benefits), the social security trust would have just kept on buying these treasuries with the excess.The mere purchasing of any treasury security adds to the debt year by year.
Then demographics changed about 5 years ago and and the trust fund started cashing in those treasuries to pay benefits. I’ve gotten a couple different figures but I think the U.S. treasury is having to sell about $100 billion in NEW treasuries to pay off the treasuries Soc Sec is cashing in as of late. So, technically, one type of treasury is coming off the books and is being replaced by another to pay it. Net affect is zero on the debt. If our budget was balanced prior to this event, our debt remains the same.
The problem is that the $100 billion was being used to pay for other things because our budget is not balanced. Therefore, debt is really going up $100 billion due to the Social Security situation.
Can some of you sharpies out there tell me if I mistated it? Thanks
The bottom line is the earlier excess SS taxes not needed to pay SS benefits was spent by the treasury for other purposes and thus represent a debt that must be repaid with interest from the Treasury.
The source of the funds the Treasury needs to pay back SSA is general revenue, i.e. current taxes or borrowing.
The social security trust fund is just the legal method the government came up with to do this. As such the Social Security Administration has legal authority to spend from general revenue up to the amount in the Social Security trust fund. The social security trust fund is considered “intergovernmental debt”, i.e. money owed by one part of the govenment to another, as opposed to public debt.
So, all redemptions from the trust fund must come from general revenue, i.e. taxes or borrowing. Similarly, the treasury pays off it bonds at maturity the same way, either from collected taxes or by issuing new debt.
Since the government is running a deficit, when the Social Security Administration withdrawals from the trust fund, the government has to borrow the money to pay by selling bonds to the public. That is the intergovernmental debt that is the trust fund is converted to a public debt.
So social security payments are not adding to the debt, what added to the debt was the earlier decision to spend excess SS taxes on something other than SS benefits.
The key issue is that when the trust fund is exhausted, the Social Security Administration will no longer have legal authority to tap general revenue to fund SS benefits and will only be able to rely on SS taxes collected.
The SSA does not have the authority to spend from general revenue. Interest paid to the trust is not general revenue. It is no different than any interest payed on government debt. .
The one minor exception that might be construed that way is that income taxes paid on SS benefits are credited to both the SS and Medicare trusts, which, of course, was one change to help build the trusts.
The 1939 trust fund was set up to fix economic issues caused by the original 1935 design (the accumulation of massive reserves), speed up the delivery of benefits to the public, and establish an organized mechanism to hold and manage payroll tax surpluses.
Then where does the treasury get the money to pay back the SSA the money it borrowed and spent?
Take a look at this FAQ from the SSA
Trust Fund Data
From the same place it gets it to pay any redeemed bonds from any investor it borrowed from and spent.
These days probably from selling new bonds to other investors – individuals, investment firms and foreign governments.
SS may be an intragovernmental trust like the highway and unemployment and Medicare trusts, but there is nothing unique about borrowing, investing and paying interest – except the SSA bonds don’t fluctuate in value.
The process has worked fine for nearly 90 years, the problem is the failure of one Congress after another to address the revenue needs in light of changing demographics despite more than a decade of warnings from the trustees, several of whom are part of current and past administrations.
What you describe is what I call general revenue, i.e. taxes and borrowing.
The convoluted thinking claims that the treasury bonds previously purchased by the SS trust added to the federal debt. By law since 1939 excess revenue to the SS trust was required to purchase bonds. This, creates more debt not held by the public.
However, that is not actually adding to the debt. If those bonds hadn’t been issued to the trust, they would have been sold otherwise as the proceeds of those sales were used for general spending as are all treasury bond sales.
The need for that added federal revenue to cover deficit spending is the problem, not who buys the bonds.
Purchasing those bonds by the SS trust has stopped. They started to be redeemed in 2021, now presumably new bonds must be sold to send the cash to the SS trust to pay SS benefits.
SS adds to the debt like Japan and China do as they hold nearly $2 trillion is treasury bonds.
“Purchasing those bonds by the SS trust has stopped. They started to be redeemed in 2021, now presumably new bonds must be sold to send the cash to the SS trust to pay SS benefits.”
Maybe that is why there are people that claim the government stole the trust fund money, and maybe they are correct. I guess I forgot that the money was not really “saved” but by your explanation the government spent the money thus creating a further liability that they would have pay out. In other words more smoke and mirrors financing.
The trust earns about $69 billion a year in bond interest. The bonds are being redeemed to pay benefits.
Having the trust invest in Treasury bonds was the least investment risk guaranteed income way to invest such funds. Some argue they should be invested in the stock market, a very bad idea, but still an investment, not stolen.
You invest your money for growth and safety, maybe even in bonds. Is your money not really saved?
To imply the SS money was stolen is very irresponsible because that is not the case.
This creative accounting by our elected leaders is not limited to the Federal government. I live and pay taxes in New Jersey where the future unfunded liabilities for state worker pensions and retiree healthcare expenses are around $162 billion. That is over $42,000 per taxpayer. I guess I should be thankful I don’t live in Illinois, where it is even worse.
I sympathize. I could not do it any more and moved out of the poorly run state I was in some years ago. Just in time as it worked out…as it has since entered the fiscal proximity of Illinois and N.J.
I sat next to a person on a flight not long ago out of O’Hare who was moving from Illinois after over 50 years there and was on his last flight out. He was in a very jovial mood. He quipped that it might be easier for private sector employees/tax payers in poorly run states to just adopt a state worker family and pay part of their retirement etc.directly. He added “at least I might have gotten a Christmas card and invited to dinner once in awhile after I sent them a check each month.” 🙂
That’s because generous benefits were promised, but not paid for. Their “solution” was to make the NJ lottery an asset of the pension trust. At one point NJ paid the retirees Part B premium and allowed individuals to borrow from the pension trust at an interest rate below the assumed investment return of the trust.
The Social Security Trust Fund is in included in the approximate 40 trillion national debt as part of the debt from intragovernmental holdings. At 12/31/2025 a balance was about 2.5 trillion was due to the social security fund, which is shrinking fast, from the general fund. We even have pieces of paper to prove it. Per the last trustees report they estimate the trust fund will be fully depleted in late 2032. I hope it will last another six years.
I am unsure what you have been specifically reading where you write “I keep reading about how Social Security payments are adding to the debt”. My guess are articles are referring to the unfunded social security debt over the following 75 years that is not included the current “official” 40 trillion dollar debt.
The Social Security fund unfunded debt is basically a liability of how much the program would pay out over the next 75 years over the amount the program is projected to collect over the next 75 years with both measures using current rules and lots of assumptions. A big guess would likely be an understatement but the unfunded liability is currently in the official national debt number as a zero liability.
The balance as of the 1/1/2026 unfunded liability per the recently released trustees report was 29.3 trillion and that amount has been getting larger with each passing year. The US government balance sheet has massive items omitted, with the real liability balance being a mile long loaded freight train with very limited time to slow or stop before it crashes.
This is no way to run a railroad.
“… the unfunded liability is currently in the official national debt number as a zero liability.”
Ah, nothing like creative accounting!
What about the unfunded liability for Medicare?
I was purposefully only addressing Social Security funding. It is my understanding that a significant amount paid for Medicare services is paid out of the general fund, thusly it does affect the federal deficit.