There is a page on the Social Security website entitled Trust Fund FAQ. I highly recommend reading this page firsthand. For brevity, I’ll share a few sections for the purpose of this discussion.
- What are the social security trust funds? The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance(DI) Trust Funds.
- What happens to the taxes that go into the trust funds? Tax income is deposited on a daily basis and is invested in “special-issue” securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.
- If all the income is invested, how do benefits get paid each month? Money to cover expenditures (mainly benefit payments) from the trust funds comes from the redemption or sale of securities held by the trust funds. When “special-issue” securities are redeemed, interest is paid. In fact, the principal amount of special issues redeemed, plus the corresponding interest, is just enough to cover an expenditure.
- What were the amounts of securities bought and sold during recent years? The amount bought in 2017 was $2,000 billion, while the amount sold was $1,156 billion. See investment transactions for more detail and earlier years.
Side note comment: If you stop and think about those previous numbers, that’s $2 Trillion of inputs and roughly $1.15 Trillion in social security expenditures – leaving $850 Billion that was added to the general fund – and spent elsewhere.
- Why do some people describe the “special issue” securities held by the trust funds as worthless IOUs? What is SSA’s reaction to this criticism? Money flowing into the trust funds is invested in U. S. Government securities. Because the government spends this borrowed cash, some people see the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future. Without legislation to restore long-range solvency of the trust funds, redemption of long-term securities prior to maturity would be necessary. Far from being “worthless IOUs,” the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government.
There’s more to digest including discussions of future trust fund solvency. But the question you must answer is: do these representations make you more confident, or less confident, in the financial future of the country?
At the end of the day, the government’s only capital asset is you. The solution [in practice] means more taxes, a reduced standard of living, or both. Debt-based Ponzi schemes never end well.