Congress raided Social Security, and that’s why the program’s trust fund is running dry. At least that’s what many people believe about why this popular retirement program is in serious financial trouble. There’s just one problem with this often-repeated theory: It’s not true.
There are a few reasons people believe it is, but the facts actually tell a very different story.
Why do people believe that Congress raided the Social Security trust fund?
The first is an accounting change that took effect in 1969. Before that there was a separate budget for Social Security’s trust fund.
However, having multiple budgets for different federal programs was confusing, so President Lyndon Johnson created a “unified budget” in 1968.
Under the unified budget system, transactions to Social Security’s trust funds were presented along with the larger budget for all federal spending.
To be clear, the money collected in Social Security taxes was never mixed with general revenue, and the money in Social Security’s trust fund never became part of the general operating fund. It was just treated differently for accounting purposes for a brief time. This changed again when Social Security was amended in 1983, and the program has been off-budget since 1990.
The second source of confusion comes from the fact that the money in the Social Security trust fund is on loan to the federal government, so it technically is used to fund the spending included in the general budget. But that doesn’t mean that Congress has stolen this money — instead the government sold special issue bonds that the trust fund is invested in, as required by law.
These bonds are backed by the full faith and credit of the United States, they’ve always been paid back in full, and they will always continue to be paid back in full (as long as the country doesn’t default on its debt, in which case there would be much bigger problems than the future of Social Security).
Without the government borrowing from it, Social Security would be in more serious financial trouble
Still concerned about the fact that Washington is borrowing from Social Security, even though they’re using special interest bonds to do it?
Here’s why you shouldn’t be: The Treasury bonds that the trust fund has invested in are a very safe investment that have produced substantial income for it. In fact, the trust fund’s investments in Treasury bonds produced $77.9 billion in interest income for the Social Security retirement benefit program in 2019 alone.
If the trust fund money weren’t invested and were just sitting in a lockbox somewhere waiting to be used to pay out benefits, the program’s finances would be in worse shape. So next time you hear someone say that the trust fund was raided by Congress, tell them that the reality is very different.
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Source: The Motley Fool