Promoting freedom, innovation, and growth

Connect with IPI

Receive news, research, and updates

November 3, 2015

Budget Deal Perpetuates the Social Security Trust Fund Fiction


What do you do when a government “trust fund,” which holds nothing but IOUs from the government that controls it, exhausts those “assets” (that don’t really exist because the government has borrowed the money and spent it)?  Well, we now know what Congress does. It borrows from another trust fund that also has nothing but IOUs.  

Social Security has two trust funds: the Old Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund. 

Social Security operates on a pay-as-you-go basis, so money paid in as part of workers’ 12.4 percent payroll tax goes right back out to pay current beneficiaries, both seniors and the disabled.  

For many years workers contributed more to Social Security than the agency paid in benefits, leaving a surplus, which the federal government immediately borrowed and spent, giving the trust fund an IOU. The OASI currently has about $2.6 trillion in those IOUs. 

But part of the 12.4 percent payroll tax also goes to the Disability Insurance program. Because the number of Americans on disability exploded during the Obama years, the DI trust fund—also made up of government IOUs—has been depleted, prompting the Social Security trustees to warn it could only pay the current level of disability benefits until 2016. 

Liberals said: No problemo. Just borrow the money from the OASI trust fund. It’s sitting on $2.6 trillion so it can afford it.  

But wait, the government has already borrowed the money from OASI trust fund and spent it. So the OASI trust fund must redeem some of the IOUs in order to loan the money to the DI trust fund. But the federal government doesn’t have any loose change hanging around, so it must draw from general revenues or borrow the money to cover the IOUs. It’s one financial scam borrowing from another scam.  

Last January, conservatives refused to perpetuate this intra-trust fund fiction. They wanted fundamental Social Security reform.  

But the recently passed budget deal allows that transfer and provides only a fig leaf of reform, which may be one of several reasons why most conservatives opposed the budget deal.  

Forget about robbing Peter to pay Paul; this government has moved on to robbing Peter to pay Peter—and congratulating itself for saving Peter.


  • TaxBytes-New

Copyright Institute for Policy Innovation 2018. All Rights Reserved Privacy Policy Contact IPI.

e-resources e-resources