Social Security is an American success story

For many old people, Social Security make the difference between a life in modest comfort and a life in poverty.  For others, it is the margin of survival.

Social Security has been under attack for decades.  Many young people have been convinced by propaganda that there is a greater chance of encountering a flying saucer than receiving Social Security benefits, and their belief could make this a self-fulfilling prophecy.

The important things to remember about Social Security are:

  • Social Security is not broke.  The Social Security Trust Fund has been accumulating a surplus in the form of interest-bearing U.S. Treasury bonds for decades.  Even though Social Security is currently paying out more in benefits than collecting in payroll taxes, the trust fund surplus makes up the difference.
  • Social Security contributes nothing to the U.S. government deficit (or surplus).  It has its own financing system.
  • “Government IOUs” are the most secure form of investment there are.  The bonds in the trust fund are a fiduciary obligation of the U.S. government, just as much as bonds held in somebody’s Individual Retirement Account or by a foreign bank.
  • If there ever comes a time when the U.S. government is unable to fulfill its obligations, then no other U.S. financial asset will be worth anything either.
  • At some point the Social Security trust fund may reach a point in which it is unable to pay out benefits at the current level.  If that time comes, the choice will be to reduce Social Security benefits by some percentage or raise payroll taxes (or the cutoff point for taxes) by some percentage.  Neither would be catastrophic, according to current projections.
  • The best way to keep Social Security paying out at current levels is to have a growing high-wage full-employment economy.

The chart above is from the Economic Policy Institute.


Update 3/10/2021

I still think Social Security will be okay as long as the United States enjoys good economic growth, but I no longer think growth can be taken for granted.  This is a good time to raise the cap on income subject to payroll taxes.  The Council on Budget and Policy Priorities has a good report on the current situation.

Policy Basics: Understanding the Social Security Trust Funds by the CBPP.

What the 2020 Trustees Report Shows About Social Security by Kathleen Romig for the CBPP.


2 Responses to “Social Security is an American success story”

  1. Michael Edelman Says:

    There are several misconceptions here. First, the per-person expenditure on Social Security is also a function of shifting demographics. As the population ages, the expenditures will shift upwards, even if the per-senior expenditures remain constant. Second, SS expenditures have been expanded well beyond the intended recipients, I.e., senior citizens.

    Most importantly, though, is that you confuse cash flow with actual solvency. SS has had a positive cash flow even as the future indebtedness has increased. While current receipts may be sufficient to pay current obligations, future receipts are insufficient to pay future obligations.

    This was also the case in the 1980s, and was the reason for the bipartisan deal that changed the rules of age eligibility for full benefits.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: