For other versions of this document, see http://wikileaks.org/wiki/CRS-RL33028
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Prepared for Members and Committees of Congress
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The Social Security program is financed primarily through taxes, which are deposited in the U.S.
Treasury and credited to the Social Security trust fund. Any revenues credited to the trust fund in
excess of the costs (benefit payments and administrative costs) are invested in special U.S.
obligations (debt instruments of the U.S. government).
The Social Security trust fund represents funds dedicated to pay current and future Social
Security benefits. However, it is useful to view the trust fund in two ways: (1) as the balance of an
internal federal accounting concept, and (2) as the accumulated holdings of the Social Security
program.
For internal accounting purposes, certain accounts within the U.S. Treasury are designated by law
as trust funds to properly track revenues dedicated to certain purposes (or expenditures). A
number of trust funds are in the U.S. Treasury, including those for Social Security, Medicare,
unemployment compensation, and federal employee retirement. The monies in the Social
Security trust fund in the U.S. Treasury are owned by the U.S. government, which can (by
changing the law) raise or lower revenues to the trust fund, or payments from the trust fund.
By law, any positive annual balance (or cash flow surplus) in the Social Security trust fund must
be invested in U.S. government obligations. The accumulated holdings of U.S. obligations are
often viewed as being similar to assets held by any other trust on behalf of the beneficiaries.
However, the holdings of the Social Security trust fund differ from those of private trusts because
(1) the types of investments it may hold are limited; and (2) the U.S. government is both the
buyer and seller of the investments.
This paper will review some of the basics of how the Social Security program is funded, and how
the Social Security trust fund works. This report will be updated as needed to reflect legislative or
other activity.
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Introduction ..................................................................................................................................... 1
How the Social Security Program is Financed ................................................................................ 1
The Social Security Trust Fund as a Designated Account............................................................... 1
Social Security Trust Fund Revenues........................................................................................ 2
Social Security Costs................................................................................................................. 2
Social Security Balance............................................................................................................. 2
Investment of the Social Security Balances .............................................................................. 7
The Social Security Trust Fund and the Federal Budget........................................................... 8
On-Budget Versus Off-Budget .................................................................................................. 8
The Social Security Trust Fund as Accumulated Holdings ............................................................. 9
The Social Security Trust Fund and the Level of Federal Debt ...............................................11
The Social Security Trust Fund and Federal Default .............................................................. 12
The Social Security Trust Fund and Benefit Payments........................................................... 12
Figure 1. Ratio of Current (Annual) Revenues to Costs for the Social Security Trust Fund,
Selected Years, 1957-2040 ........................................................................................................... 7
Table 1. Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund,
1957-1983..................................................................................................................................... 3
Table 2. Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund,
1984-2006..................................................................................................................................... 4
Table 3. Estimated Annual Revenues, Costs, and Annual Balance for the Social Security
Trust Fund, 2007-2040 ................................................................................................................. 5
Table 4. Accumulated Holdings of the Social Security Trust Fund, 1957-2006 ........................... 10
Table 5. Estimated Accumulated Holdings of the Social Security Trust Fund, 2007-2040............11
Author Contact Information .......................................................................................................... 12
�
The Social Security program is financed primarily through taxes, which are deposited in the U.S.
Treasury and credited to the Social Security trust fund. Any revenues credited to the trust fund in
excess of the costs (benefit payments and administrative costs) are invested in special U.S.
obligations (debt instruments of the U.S. government). The Social Security trust fund is both a
designated account within the U.S. Treasury and the accumulated holdings of special U.S.
obligations. Both represent the funds designated to pay current and future Social Security
benefits.
�
The Social Security program is primarily financed by revenues from Federal Insurance
Contributions Act (FICA) taxes and Self Employment Contributions Act (SECA) taxes,
commonly known as "Social Security taxes." FICA taxes are paid by both employers and
employees, but it is employers who remit the taxes to the U.S. Treasury. Employers remit FICA
taxes on a regular basis through the year (for example--weekly, monthly, quarterly or annually),
depending on the employer's level of total employment taxes (generally FICA, Medicare, and
federal personal income tax withholding). Currently, both the employer and employee pay a FICA
tax rate of 6.2% on the employee's wages up to $97,500. SECA taxes are paid by self-employed
individuals, and are normally paid once a year as part of filing an annual individual income tax
return. The current SECA tax rate is 12.4% (of 92.35% of net income, with one-half of the SECA
taxes allowed as a deduction for federal income tax purposes.
In addition to these two major sources of funding, the Social Security program has two other
sources of revenue. Certain Social Security recipients must include a portion of Social Security
benefits in taxable income for the federal income tax, and the Social Security program receives
part of those taxes.1 In addition, the Social Security program receives interest from the U.S.
Treasury on its investments (in special U.S. obligations).
The Internal Revenue Service (IRS) processes the tax returns and tax payments for federal
employment taxes and federal individual income taxes. All of the tax payments are deposited in
the U.S. Treasury along with all other receipts from the public for the federal government.
�
Within the U.S. Treasury, there are numerous accounts for federal accounting purposes. The
Social Security trust fund is one of the accounts designated, by law, as a trust fund. Although all
of the monies within the Treasury are federal monies, the designation of an account as a trust fund
allows tracking of certain funds for internal accounting purposes. One reason an account would
1
The taxes associated with including Social Security benefits in federal taxable income go to the Social Security trust
fund and the Health Insurance trust fund (Medicare). See CRS Report RL32552, Social Security: Calculation and
History of Taxing Benefits, by Christine Scott.
�
be designated as a special fund in law is because the funds are dedicated to specific purposes, and
are not for general government program use. The monies or holdings of a trust fund in the
Treasury are owned by the U.S. government. The U.S. government can, by changing the law,
raise or lower the revenues going into the trust fund, and the payments made by the trust fund.
�
The Social Security trust fund receives a credit equal to the employment taxes deposited in the
U.S. Treasury by the IRS. In practice, there are two separate accounts for the Social Security
program: the Old Age and Survivors Insurance (OASI) trust fund and the Disability Insurance
(DI) trust fund. The FICA and SECA taxes are allocated between the OASI and DI trust funds
based on a proportion specified in law.2 The combination of the OASI and DI trust funds, often
referred to as OASDI, is generally what is meant by the phrase "the Social Security Trust Fund."
�
The U. S. Treasury on a regular basis makes Social Security benefit payments to eligible
individuals. The U.S. Treasury is directed by the Social Security Administration (SSA) as to
whom to pay, and the amount of the payment. When benefit payments are made by the Treasury,
the Social Security trust fund is debited for the payments. Periodically, the Social Security trust
fund is also debited for the administrative costs of the Social Security program. These
administrative costs are incurred by several government agencies, including the Social Security
Administration, the U.S. Treasury, and the IRS.
�
The revenues to the trust fund each year are used to pay Social Security benefits and program
costs. If in any year revenues are greater than costs, the Secretary of the Treasury, as Managing
Trustee of the trust funds, is required to invest this positive annual balance (or cash flow surplus)
in securities backed by the U.S. government.3 The purchasing of the securities allows the surplus
to be used for other government purposes.4 If in any year, costs are greater than revenues, this
negative annual balance (or cash flow deficit) is offset by selling accumulated security holdings
to pay the benefits and administrative costs.
There are two measures of the Social Security balance: the current or annual balance and the
accumulated holdings.5 The current or annual balance in the Social Security Trust fund is a
measure of current (or annual) revenues and current (or annual) costs. The current balance can be
either positive or negative. That is, current revenues can exceed current costs, or current costs can
exceed current revenues. However, unlike other federal programs without trust funds, the Social
2
Social Security Act, Title II, �201(b). Currently the 6.2% is split 5.3% for OASI and 0.9% for DI. The DI share was
last changed in 2000 (to 0.9%), and has been changed five times in the last 20 years (since 1985).
3
Social Security Act, Title II, �201(d).
4
This is often referred to as "borrowing from the Social Security trust fund."
5
The accumulated holdings of the Social Security trust fund in U.S. government obligations is often referred to as "the
Social Security trust fund balance."
�
Security program may use the accumulated holdings of the Social Security trust fund from prior
years to pay current or future benefits.6
Although Social Security is often referred to as a pay-as-you go system (meaning that the current
revenues are used to pay current costs), changes made to Social Security in 1983, including
coverage of federal workers, increasing the retirement age, and the taxation of Social Security
benefits began a sustained period of positive annual balances. The positive annual balances are
expected, by the Social Security Trustees, to continue through 2016. Beginning in 2017, the
Social Security Trustees expect the annual balance to turn negative, when annual costs exceed
annual revenues.
As shown in Table 1 below, during the 1957 to 1983 period, the current balance (annual revenues
less annual costs) was negative in 21 of the 27 years.
tsurT ytiruceS laicoS eht rof ecnalaB launnA dna ,stsoC ,seuneveR launnA .1 elbaT
3891-7591 ,dnuF
)snoillib ni $(
euneveR launnA launnA ecnalaB tnerruC
raeY gnidulcni ton( tsoC ssel eunever launna(
)tseretni )stsoc launna
7591 05.7$ 06.7$ )01.0$(
8591 05.8 09.8 )04.0(
9591 09.8 08.01 )09.1(
0691 09.11 08.11 01.0
1691 03.21 04.31 )01.1(
2691 01.31 02.51 )01.2(
3691 06.51 02.61 )06.0(
4691 08.61 00.71 )02.0(
5691 02.71 02.91 )00.2(
6691 06.22 09.02 07.1
7691 04.52 05.22 09.2
8691 00.72 00.62 00.1
9691 05.13 09.72 06.3
0791 07.43 01.33 06.1
1791 03.83 05.83 )02.0(
2791 09.24 03.34 )04.0(
3791 9.15$ 1.35$ )02.1(
4791 09.85 06.06 )07.1(
5791 03.46 02.96 )09.4(
6
Certain government projects may be given "budget authority until expended," which allows the authority to spend
funds on the project to be carried over each year until all of the authority to spend funds has been exhausted.
03.87 09.293 02.174 9991
06.75 03.283 09.934 8991
08.44 01.963 09.314 7991
01.23 06.353 07.583 6991
00.52 08.933 08.463 5991
00.72 00.323 00.053 4991
09.81 08.803 07.723 3991
03.52 09.192 02.713 2991
06.33 02.472 08.703 1991
00.84 01.352 01.103 0991
05.04 02.632 07.672 9891
07.23 05.222 02.552 8891
05.61 01.902 06.522 7891
03.11 05.102 08.212 6891
09.6 06.091 05.791 5891
07.2$ 04.081$ 01.381$ 4891
)stsoc launna ssel tsoC )tseretni
eunever launna( launnA gnidulcni ton( raeY
ecnalaB tnerruC euneveR launnA
)snoillib ni $(
6002-4891 ,dnuF
tsurT ytiruceS laicoS eht rof ecnalaB launnA dna ,stsoC ,seuneveR launnA . 2 elbaT
annual revenues, costs, and annual balance for the 2007-2040 period.
Table 3 shows the estimated (using the intermediate assumptions of the Social Security trustees)
Table 2 shows the annual revenues, costs, and annual balance for the 1984 through 2006 period.
.4A.IV elbaT ,7002 ,32 .rpA ,CD
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launnA 7002 ehT ni dedivorp atad morf )SRC( ecivreS hcraeseR lanoissergnoC eht yb deraperp elbaT :ecruoS
)09.41( 02.171 03.651 3891
)04.41( 01.061 07.541 2891
)00.5( 04.441 04.931 1891
)09.6( 06.321 07.611 0891
)03.4( 03.701 00.301 9791
)01.7( 00.69 09.88 8791
)06.8( 03.78 07.87 7791
)06.6( 02.87 06.17 6791
)stsoc launna tsoC )tseretni
ssel eunever launna( launnA gnidulcni ton( raeY
ecnalaB tnerruC euneveR launnA
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)07.123( 03.249,1 06.026,1 6202
)05.972( 06.238,1 01.355,1 5202
)02.932( 02.727,1 00.884,1 4202
)07.002( 04.626,1 07.524,1 3202
)01.461( 09.925,1 08.563,1 2202
)04.921( 07.734,1 03.803,1 1202
)05.69( 00.943,1 05.252,1 0202
)08.46( 05.362,1 07.891,1 9102
)04.53( 04.281,1 00.741,1 8102
)08.8( 08.501,1 00.790,1 7102
07.41 08.330,1 05.840,1 6102
01.63 09.569 00.200,1 5102
03.55 03.209 06.759 4102
00.37 08.248 08.519 3102
02.78 06.787 08.478 2102
07.59 04.737 01.338 1102
00.79 02.496 02.197 0102
01.99 05.256 06.157 9002
02.29 03.716 05.907 8002
04.97$ 03.495$ 07.376$ 7002
)stsoc launna ssel tsoC )tseretni
eunever launna( launnA gnidulcni ton( raeY
ecnalaB tnerruC euneveR launnA
)snoillib ni $(
0402-7002 ,dnuF tsurT ytiruceS
laicoS eht rof ecnalaB launnA dna ,stsoC ,seuneveR launnA detamitsE . 3 elbaT
.4A.IV elbaT ,7002 ,32 .rpA ,CD
,notgnihsaW ,sdnuF tsurT ecnarusnI ytilibasiD dna ecnarusnI srovivruS dna egA-dlO laredeF eht fo seetsurT eht fo tropeR
launnA 7002 ehT ni dedivorp atad morf )SRC( ecivreS hcraeseR lanoissergnoC eht yb deraperp elbaT :ecruoS
01.78 04.555 05.246 6002
09.77 09.925 08.706 5002
01.76 06.105 07.865 4002
08.76 01.974 09.645 3002
06.48 07.164 03.645 2002
02.09 09.834 01.925 1002
07.98 01.514 08.405 0002
)stsoc launna ssel tsoC )tseretni
eunever launna( launnA gnidulcni ton( raeY
ecnalaB tnerruC euneveR launnA
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euneveR launnA launnA ecnalaB tnerruC
raeY gnidulcni ton( tsoC eunever launna(
)tseretni )stsoc launna ssel
7202 00.196,1 02.650,2 )02.563(
8202 02.467,1 00.571,2 )08.014(
9202 08.048,1 05.692,2 )07.554(
0302 06.029,1 09.024,2 )03.005(
1302 06.300,2 08.845,2 )02.545(
2302 05.090,2 02.086,2 )07.985(
3302 04.181,2 02.418,2 )08.236(
4302 05.672,2 02.059,2 )07.376(
5302 03.573,2 05.880,3 )02.317(
6302 09.774,2 02.032,3 )03.257(
7302 08.485,2 07.573,3 )09.097(
8302 05.696,2 06.425,3 )01.828(
9302 04.318,2 00.776,3 )06.368(
0402 07.439,2 06.338,3 )09.898(
launnA 7002 ehT ni dedivorp atad morf )SRC( ecivreS hcraeseR lanoissergnoC eht yb deraperp elbaT :ecruoS
,notgnihsaW ,sdnuF tsurT ecnarusnI ytilibasiD dna ecnarusnI srovivruS dna egA-dlO laredeF eht fo seetsurT eht fo tropeR
.)snoitpmussA etaidemretnI( .8F.IV elbaT ,7002 ,32 .rpA ,CD
One way to measure the annual balance over time is to take the ratio of current revenues to
current costs each year. If the ratio is greater than 1, the current balance is positive, and if the ratio
is less than 1, the current balance is negative. In the past there have been periods in which the
current balance was negative (the ratio of revenues to cost is less than 1). Figure 1 shows the
ratio of annual revenues to annual costs in the Social Security Trust fund for selected years over
the historical period (1957-2006), and for selected years over the future period (2007-2040) as
projected by the Social Security Trustees in their 2007 Annual Report.7 The forecast (of annual
revenues and annual costs) for the ratios shown in Figure 1 uses the intermediate forecast of the
Trustees. Under this forecast, the current balance is expected to begin to be negative (a ratio of
less than 1) beginning in 2017.
Although the Social Security program has had negative annual balances (run cash flow deficits)
in the past, and is expected to become negative again beginning in 2017 (assuming current benefit
levels and projected revenues) Social Security benefits can continue to be paid at the levels
promised under current law by the U.S. Treasury as long as the accumulated balance in the Social
Security Trust Fund is positive. This is because the Social Security program has budget authority
to pay benefits as long as the balance in the designated account is positive. However, if current
revenues are not sufficient to pay benefits, the U.S. government must raise the funds necessary to
honor the redemption of the U.S. obligations held by the Social Security trust fund when they are
7
Social Security Trustees, The 2007 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance
and Disability Insurance Trust Funds, Washington, DC, Apr. 23, 2007. Based on data from Tables VI.A4 and VI.F8
(intermediate assumptions).
�
needed to pay benefits. The U.S. government may raise the necessary funds through increasing
taxes, reducing spending, or a combination of both methods.
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0402-7591 ,sraeY detceleS ,dnuF
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.)snoitpmussA etaidemretnI( 8F.IV dna 4A.IV selbaT ,7002
.snoitagilbo tnemnrevog .S.U fo sgnidloh detalumucca no tseretni edulcni ton od seunever launnA :etoN
�
The Social Security trust fund receives interest on its holdings of special U.S. government
obligations. As noted earlier in this report, the Secretary of the Treasury, as Managing Trustee of
the trust funds, is required to invest the taxes credited to the trust funds that are not needed to pay
current benefits and administrative costs in securities backed by the U.S. government.8 Each
8
Social Security Act, Title II, �201(d).
�
security issued by the Treasury for purchase by the trust funds must be a paper instrument in the
form of a bond, note or certificate of indebtedness.9 In addition, any interest or proceeds from the
sale of securities held by the trust funds must be paid in the form of paper checks from the
general fund of the U.S. Treasury to the trust funds.10 The interest rates paid on the securities are
tied to market rates.
For internal federal accounting, when the special obligations are purchased by the trust fund, one
account (the "general" account) is borrowing funds from another account (the Social Security
trust fund account). The Social Security trust fund maintains a positive balance, with the balance
invested in special obligations. The special obligations are physical documents held by the Social
Security Administration (SSA), and not the U.S. Treasury. The obligations are redeemed on a
regular basis. The special securities however are not resources for the government as they are
both an asset and a liability for the government.
�
The Social Security program is indirectly part of the annual congressional budget process. This
creates some confusion on the part of the public.
For the federal budget, "on-budget" generally refers to those programs included in the annual
congressional budget process, whereas "off-budget" generally refers to programs not included in
the annual congressional budget process.
The Social Security program is a government program, like the Postal Service, that has had it
receipts and (most) outlays designated as off-budget by law. The off-budget designation has no
actual effect on the funding, spending, or operations of these programs. The congressional budget
resolution, in its legislative language, separates the off-budget totals (receipts and outlays) from
the on-budget totals (receipts and outlays). The report language accompanying the resolution
usually shows the unified budget totals, which combine the on- and off-budget amounts, as well
as showing the on- and off-budget totals. The President's budget tends to use the unified budget
measures in discussing the budget totals. The Administrations's budget documents also include,
as required, the totals for the on- and off-budget components. The Congressional Budget Office
uses the unified budget numbers in its analyses of the budget; it does not generally include on-
and off-budget data in its regular annual reports.
The annual congressional budget process provides the budget authority for relevant federal
agencies (including the SSA), which are on-budget, to spend the administrative funds provided by
the Social Security trust fund to administer the Social Security program. The Social Security
program has budget authority to pay benefits as long as the balance in the trust fund (the
designated account) is positive.
9
Social Security Act, Title II, �201(d). The trusts funds may purchase certain other government securities, such as
those issued by Fannie Mae or Freddie Mac, but this option is seldom used.
10
Social Security Act, Title II, �201(f).
�
The unified budget framework is important because, by including all federal government
revenues and expenditures, it provides a more comprehensive picture of the size of federal
government revenues and spending in the economy, and the impact of the federal budget on the
economy.
In the unified budget, Social Security is both a large source of federal government revenues
(21.6% of the total in FY2006) and expenditures (17.2% of the total in FY2006).11 For the unified
budget, the accumulated holdings of the Social Security trust fund are counted in determining the
federal budget deficit or surplus.
�
The Social Security Trust Fund can be, and often is, viewed as a trust fund, similar to any private
trust fund, that is to be used for paying current and future benefits. As noted earlier, any revenues
credited to the trust fund (in the Treasury) in excess of costs are invested in non-marketable U.S.
government obligations. These obligations are physical (paper) documents issued to the trust fund
and held by the SSA. When the obligations are redeemed, the Treasury must issue a check, a
physical document, to the trust fund for the interest earned on the obligation.
However, unlike a private trust that may hold a variety of types of assets and obligations of
different borrowers, the Social Security trust fund can only hold non-marketable U.S. obligations.
The sale of these obligations by the U.S. government to the trust fund is federal government
borrowing (from itself) and counts against the federal debt limit. The requirement that the Social
Security trust fund purchase U.S. obligations serves several purposes:
� it offers a mechanism for Social Security to recoup the surpluses it lent to the rest of
the government,
� it pays interest so that the loan of the surpluses does not lose value (over time),
� it ensures that the trust fund, and not general government receives credit for the
interest earnings,
� it ensures a level of return (interest) to the trust fund, and
� it provides a means outside of the securities market for the U.S. government to
borrow funds.
Investment of Social Security trust funds in other private security instruments such as stocks
would increase the potential returns and the risk (for negative earnings) for the trust fund.
Purchases of private security instruments increases the risk in the future value of trust fund
holdings. It is important to note that the current accumulated holdings of the Social Security trust
fund are lower than the projected future obligations (for benefits) of the Social Security program.
11
Percentages calculated by the Congressional Research Service (CRS) from data contained in Office of Management
and Budget, Historical Tables, Budget of the U.S. Government, Fiscal Year 2008, Tables 2.1, 2.4, 6.1 and 13.1.
�
The accumulated holdings of the Social Security trust fund are the sum of the positive annual
balances for all past years (which were invested in U.S. obligations), plus the interest earned on
those holdings. As a result of more than 20 years of positive annual balances, the accumulated
holdings of the Social Security Trust fund are large (approximately $1.9 trillion). It is these
accumulated holdings that many people are referring to when discussing the Social Security trust
fund. Tables 4 and 5 show the accumulated holdings of the Social Security trust fund. Table 4
shows the accumulated holdings each year for 1957-2005, the historical period. Table 5 shows
the accumulated holdings each year for the projected period of 2006-2039, using the estimates of
the Social Security Trustees (intermediate assumptions). The Social Security Trustees estimate
that the level of accumulated holdings will begin to decline in 2027, and be exhausted in 2040.
6002-7591 ,dnuF tsurT ytiruceS laicoS eht fo sgnidloH detalumuccA .4 elbaT
)snoillib ni $(
raeY detalumuccA raeY detalumuccA
sgnidloH sgnidloH
7591 0.32$ 2891 08.42$
8591 02.32 3891 09.42
9591 00.22 4891 01.13
0691 06.22 5891 02.24
1691 02.22 6891 09.64
2691 07.02 7891 08.86
3691 07.02 8891 08.901
4691 02.12 9891 00.361
5691 08.91 0991 03.522
6691 03.22 1991 07.082
7691 03.62 2991 05.133
8691 07.82 3991 03.873
9691 02.43 4991 04.634
0791 01.83 5991 01.694
1791 04.04 6991 00.765
2791 08.24 7991 05.556
3791 04.44 8991 05.267
4791 09.54 9991 01.698
5791 03.44 0002 04.940,1
6791 01.14 1002 05.212,1
7791 09.53 2002 00.873,1
8791 07.13 3002 08.035,1
9791 03.03 4002 08.686,1
federal debt limit. The sale of securities to the Social Security trust fund is between federal
there may be implications for the Social Security trust fund if the Congress does not establish a
and borrowing from the public fall under the restrictions of the federal debt limit. This means that
the U.S. government. The investment of the Social Security trust fund in special U.S. obligations
Congress. The federal debt limit includes not only debt held by the public, but the internal debt of
As part of the annual congressional budget process, the federal debt level is set for the budget by
�
.)snoitpmussA etaidemretnI( .8F.IV elbaT ,7002 ,32 .rpA ,CD
,notgnihsaW ,sdnuF tsurT ecnarusnI ytilibasiD dna ecnarusnI srovivruS dna egA-dlO laredeF eht fo seetsurT eht fo tropeR
launnA 7002 ehT ni dedivorp atad morf )SRC( ecivreS hcraeseR lanoissergnoC eht yb deraperp elbaT :ecruoS
6.122 0402 4.697,5 3202
2.080,1 9302 1.376,5 2202
6.758,1 8302 0.125,5 1202
1.855,2 7302 6.343,5 0202
3.481,3 6302 3.641,5 9102
9.837,3 5302 1.139,4 8102
3.522,4 4302 0.107,4 7102
7.646,4 3302 3.954,4 6102
5.500,5 2302 7.902,4 5102
8.203,5 1302 6.359,3 4102
7.045,5 0302 6.396,3 3102
0.227,5 9202 5.134,3 2102
2.058,5 8202 8.071,3 1102
8.729,5 7202 6.619,2 0102
9.659,5 6202 9.576,2 9002
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accounts; it does not generate any resources for the government. It is the interest payments on
publicly held federal debt that is considered the more relevant measure of the impact of the
federal budget on the economy.
�
The special obligations purchased by the Social Security trust fund are backed by "the full faith
and credit "of the U.S. government. This is a promise by the U.S. government to redeem the
security (debt instrument). The federal government can technically, like any other borrower,
default on any or all of its outstanding securities. The implications for the economy and the
private market for government securities of the federal government defaulting on the special
obligations will depend upon the views of private investors. The impact would be determined by
whether they think that this is a precursor to the government defaulting on its privately held
securities (a general government default). However, there is no precedent for a government
default, and therefore the actual implications of such a default cannot be accurately predicted.
� �
The accumulated holdings can be viewed as a measure of funds dedicated to pay future benefits.
However, these funds will only be available as the government raises the resources necessary to
pay for the securities as they are redeemed to pay benefits. The securities are a promise, by the
U.S. government, to raise the necessary funds. The funds used to purchase the securities were
used to fund other government activities and cannot finance benefits directly. Projected benefits
under current law exceed projected trust fund balances in 2040.
When the accumulated holdings of the trust fund are exhausted in 2040, Social Security benefits
can continue to be paid, but benefits can only be paid up to the funds available. This means that
the Social Security benefits paid to beneficiaries will be lower than the calculated benefits.12
Christine Scott
Specialist in Social Policy
cscott@crs.loc.gov, 7-7366
12
For information on the legal entitlement to benefits and the exhaustion of the trust fund, see CRS Report RL32822,
Social Security Reform: Legal Analysis of Social Security BenefitEntitlement Issues, by Kathleen S. Swendiman and
Thomas J. Nicola.
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For other versions of this document, see http://wikileaks.org/wiki/CRS-RL33028