No, Social Security Does Not Add to the Debt

Robert Stoker:

Of course, the idea of a trust fund “asset” is controversial, since this is money the government owes itself. Trust funds are not assets to the federal government because the assets of any given fund are offset by liabilities owed by the Treasury Department; their net value to the federal government is zero.  However, the Social Security Trust Fund is an asset for the Social Security Administration.  That is, it represents a legitimate claim on the treasury backed by the full faith and credit of the U.S. government.  Beyond this, if you believe that the nation’s debt is $16.3 trillion and counting, it is inconsistent to deny that trust fund balances (which compose about 30% of the debt) are real.

When the Social Security program has a cash deficit, the Social Security Trustees request repayment for some of the Treasury securities they purchased when the program was in surplus (when payroll tax revenues were greater than the cost of benefits).  Since the government is currently in deficit, the Treasury Department must borrow money to finance these payments.  However, the new borrowing does not increase total debt because this transaction is more akin to refinancing existing debt than accumulating new debt.

If you owe a $5,000 credit card bill and you take a home equity loan to pay off the credit card, your total debt has not changed; you have refinanced the debt, transferring it from one financial instrument (and one creditor) to another.  Much the same can be said about repaying the OASDI Trust Fund.  The fund’s assets are composed of debts already accounted for as part of the nation’s total debt.  When the Treasury borrows to pay current Social Security benefits, the debt owed to the Social Security Trust Fund is repaid, refinanced, and transferred to whoever purchases Treasury securities.

Of course, the cost of refinancing the debt is a key concern.  However, the only scenario in which repaying the Social Security Trust Fund can increase the nation’s debt is if interest rates are higher now than they were when the original debt was incurred.  Given current market conditions (nominal interest rates are presently quite low, the rate on 10 year Treasury Bonds is around 2%), the more plausible claim is that refinancing the Social Security Trust Fund’s debt has reduced the nation’s debt slightly by reducing interest costs.


  1. As as FICA tax inflows exceed benefit payment outflows, you are correct. Once that line crosses (and it will), as long as the government is still in a deficit spending position, each $1 of SS benefit payments will increase the national debt by $1.

    Your “debt refinance” approach is interesting – so you want to bring future SS obligations onto the budget? You might want to think that one over.

  2. “However, the only scenario in which repaying the Social Security Trust Fund can increase the nation’s debt is if interest rates are higher now than they were when the original debt was incurred”

    LOL, where do you get this shit?

    How about in John’s scenario which will become likely in the very new future we will have too few individuals paying for too many individuals? The problem with social security is the off the books liabilities of what was promised to retirees vs. what was actually collected via taxes and the mortality tables which are currently being used but have a very poor track record of underestimating just how long somebody will live.
    The reality is the boomers were not taxed enough during their lifetime and the government stole away the deposits to fund other frivolous bullshit and like most things, punted the effects of this to the next generation. Changes need to come to SS shortly and that will be in the forms of higher taxes, lower payments out, means testing etc.

    • Jon Geeting says:

      We’ve already seen a big drop in the ratio of workers to retirees. The current ratio of workers to retirees is 2.8 to 1, it hasn’t been 5 to 1 since the early 1960s. It is projected to fall to 2.0 to 1 by the mid 2030s. This isn’t causing a crisis now, and it’s not going to cause a crisis in the future. Lots of people hate Social Security and want to persuade you that there’s a crisis, but there is nothing of the sort.

      The changes that need to come to Social Security include raising the cap on taxable earnings, and giving people more generous benefits.

  3. …….and giving people more generous benefits.


    I have a hy skool education….I bet I can understand it if you explain it… do you give more benefits with less revenue

  4. That is interesting – you have a program that Jon admits is short both revenue and people paying in (but there’s no crisis! Nothing to see here, just keep moving) and part of his solution is to make it more expensive.

    The 2nd part is even more intriguing – hit the middle class with one of the largest tax hikes in our nation’s history. Example – person in NYC making $200k/year would be hit with a $5,600 tax increase.

    More words of wisdom from our youth. God help us all.

  5. Holy christ on a stick…..
    With that kind of financial acumen Jon, you would fit right in with this administration….

  6. no, no ease up on him, I’ll bet he has an explaination that, at least in his universe, hangs together logically.

Speak Your Mind