SOCIAL SECURITY
is not part of the Federal Budget. It is a separate account from the General Fund, and has its own source of income ("Payroll Tax"). Social Security payments go in the Social Security trust fund, and should NOT be counted as general revenue. The trust fund is supposed to be used to pay future benefits. But, the Government is under NO OBLIGATION to pay Social Security benefits.
As of August 2010, there is less being paid into the Social Security Trust Fund than is being paid out to beneficiaries. Social Security is now using its "surplus".
Other Government agencies borrowed from that trust fund, and now have to pay it back. But they already spent it! So how will they pay it back? Through bailouts and taxes. Here is a "must read" about the problem. Your payroll taxes are going into a bottomless hole!
The Social Security Administration's iwb FAQ page about the Trust Fund, and their latest Report (August 2010) explain it well.
Beware the term "Social Security Surplus"; there is no such thing. Social Security is a Ponzi Scheme, there is never more in the Trust Fund than will ever be needed.
SOCIAL SECURITY
SSA Press Office 440 Altmeyer Building 6401 Security Blvd. Baltimore, MD 21235 410-965-8904 FAX 410-966-9973
Social Security Board of Trustees: Long-Range Financing Outlook Remains Unchanged The Social Security Board of Trustees today released its annual report on the financial health of the Social Security Trust Funds and the long-range outlook remains unchanged. The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2037, the same as projected last year. The Trustees also project that program costs will exceed tax revenues in 2010 and 2011, be less than tax revenues in 2012 through 2014, and then permanently exceed tax revenues beginning 2015, one year earlier than estimated in last year’s report. The worsening of the short-range outlook for the Social Security Trust Funds is due in large part to the recent economic downturn. In the 2010 Annual Report to Congress, the Trustees announced:
• The projected point at which the combined Trust Funds will be exhausted comes in 2037 – the same as the estimate in last year’s report. At that time, there will be sufficient tax revenue coming in to pay about 78 percent of benefits.
• The projected point at which tax revenues will fall below program costs comes in 2010. Tax revenues will again exceed program costs in 2012 through 2014 before permanently falling below program costs in 2015 -- one year sooner than the estimate in last year’s report.
• The projected actuarial deficit over the 75-year long-range period is 1.92 percent of taxable payroll -- 0.08 percentage point smaller than in last year’s report.
• Over the 75-year period, the Trust Funds would require additional revenue equivalent to $5.4 trillion in present value dollars to pay all scheduled benefits.
“The impact of the current economic downturn continues to be felt by the Social Security Trust Funds,” said Michael J. Astrue, Commissioner of Social Security. “The fact that the costs for the program will likely exceed tax revenue this year is not a cause for panic but it does send a strong message that it’s time for us to make the tough choices that we know we need to make. I
applaud President Obama for his creation of the Deficit Commission so we can start the national discussion needed to ensure that Social Security remains a foundation of economic security for our children and grandchildren.” Other highlights of the Trustees Report include:
• Income including interest to the combined OASDI Trust Funds amounted to $807 billion ($667 billion in net contributions, $22 billion from taxation of benefits and $118 billion in interest) in 2009.
• Total expenditures from the combined OASDI Trust Funds amounted to $686 billion in 2009.
• The assets of the combined OASDI Trust Funds increased by about $122 billion in 2009 to a total of $2.5 trillion.
• During 2009, an estimated 156 million people had earnings covered by Social Security and paid payroll taxes.
• Social Security paid benefits of $675 billion in calendar year 2009. There were about 53 million beneficiaries at the end of the calendar year.
• The cost of $6.2 billion to administer the program in 2009 was a very low 0.9 percent of total expenditures.
• The combined Trust Fund assets earned interest at an effective annual rate of 4.9 percent in 2009.
The Board of Trustees is comprised of six members. Four serve by virtue of their positions with the federal government: Timothy F. Geithner, Secretary of the Treasury and Managing Trustee;
Michael J. Astrue, Commissioner of Social Security; Kathleen Sebelius, Secretary of Health and Human Services; and Hilda L. Solis, Secretary of Labor. The two public trustee positions are currently vacant. President Obama nominated two individuals to serve as public trustees, and the Senate Finance Committee held hearings on July 29 for both trustee nominees. Their confirmations are pending.
The 2010 Trustees Report will be posted at www.socialsecurity.gov/OACT/TR/2010/ by Thursday afternoon.
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Trust Fund FAQs
ReplyDeleteFrequently Asked Questions about the Social Security Trust Funds 1.What are the Social Security Trust Funds?
2.How are the trust funds invested?
3.What interest rate do the trust funds' assets earn?
4.What happens to the taxes that go into the trust funds?
5.If all the income is invested, how do benefits get paid each month?
6.What were the amounts of securities bought and sold during recent years?
7.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?
8.Can the Social Security Trust Funds remain solvent without making changes to the program?
9.Were the assets of the Social Security Trust Funds depleted in the past?
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. These funds are accounts managed by the Department of the Treasury. They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets. These accumulated assets provide automatic spending authority to pay benefits. The Social Security Act limits trust fund expenditures to benefits and administrative costs.
Benefits to retired workers and their families, and to families of deceased workers, are paid from the OASI Trust Fund. Benefits to disabled workers and their families are paid from the DI Trust Fund. More than 98 percent of total disbursements in 2010 were for benefit payments.
A Board of Trustees oversees the financial operations of the trust funds. The Board reports annually to the Congress on the financial status of the trust funds.
How are the trust funds invested? By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.
In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.
Data on trust fund investments provide a breakdown by interest rate and trust fund for any month after 1989.
What interest rate do the trust funds' assets earn? The rate of interest on special issues is determined by a formula enacted in 1960. The rate is determined at the end of each month and applies to new investments in the following month.
The numeric average of the 12 monthly interest rates for 2010 was 2.760 percent. The annual effective interest rate (the average rate of return on all investments over a one-year period) for the OASI and DI Trust Funds, combined, was 4.642 percent in 2010. This higher effective rate resulted because the funds hold special-issue bonds acquired in past years when interest rates were higher.
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.
ReplyDeleteIf 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 2010 was $1,020 billion, while the amount sold was $929 billion. See investment transactions for more detail and earlier years.
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? As stated above, 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.
Many options are being considered to restore long-range trust fund solvency. These options are being considered now, over 20 years in advance of the year the funds are likely to be exhausted. It is thus likely that legislation will be enacted to restore long-term solvency, making it unlikely that the trust funds' securities will need to be redeemed on a large scale prior to maturity.
Can the Social Security Trust Funds remain solvent without making changes to the program? In the annual Trustees Report, projections are made under three alternative sets of economic and demographic assumptions. Under one of these sets (labeled "Low Cost") the trust funds remain solvent for the next 75 years. Under the other two sets (the "Intermediate" and "High Cost"), the trust funds become depleted within the next 25 years. The intermediate assumptions reflect the Trustees' best estimate of future experience.
Some benefits could be paid even if the trust funds are depleted. For example, under the intermediate assumptions, annual income to the trust funds is projected to equal about three-quarters of program cost once the trust funds become depleted. If no legislation has been enacted to restore long-term solvency by that time, about three-quarters of scheduled benefits could be paid in each year.
The Trustees believe that extensive public discussion and analysis of the long-range financing problems of the Social Security program are essential in developing broad support for changes to restore the long-range balance of the program.
Were the assets of the Social Security Trust Funds depleted in the past? The assets of the larger trust fund (OASI), from which retirement benefits are paid, were nearly depleted in 1982. No beneficiary was shortchanged because the Congress enacted temporary emergency legislation that permitted borrowing from other Federal trust funds and then later enacted legislation to strengthen OASI Trust Fund financing. The borrowed amounts were repaid with interest within 4 years.