REPRISE -- Replenish the Social Security Trust Fund

By Lawrence A. Hunter
January 18, 2011

By Cutting Other Spending...

For more than a quarter century after the 1983 amendments to Social Security, the federal government collected more in Social Security payroll taxes each year than it paid out in benefits.  Those surplus revenues were supposed to be saved but instead Congress spent every last dime of them and replaced the excess payroll tax revenue it looted from the Trust Fund with IOUs written to itself.  At the end of December 2010, the federal government owed the Trust Fund $2.609 trillion to be exact.

I began a campaign to Stop the Raid on Social Security in the late 1980s when I left the Reagan White House to join the U.S. Chamber of Commerce as Deputy Chief Economist.  I have continued this campaign ever since.  In fact, the Social Security Institute was launched to Stop the Raid. 

Despite our best efforts, however, we failed to convince Congress—Republicans and Democrats alike—to Stop the Raid.  Now the chickens are coming home to roost.  Social Security is beginning to take in less revenue than it pays out each year and must rely on the accumulated surpluses in the Trust Fund to make up the difference.  But there are no accumulated surpluses to draw upon; just a stack of IOUs that require the federal government to borrow more money from the public to make good on them. 

When we discovered Social Security was set to go into deficit last year, SSI recognized the fact in a change to the SSI website.  We changed our headline from “Stop the Raid” to “Raid Complete:  Social Security in Deficit.”  The Congress Has Drained the Trust Fund Dry. 

Now it is time to figure out how to replenish the Trust Fund to ensure no interruption in Social Security benefits and to prevent the Social Security deficit from being turned into a convenient “crisis” by the politicians to use as a pretext for cutting Social Security benefits.

There is no Social Security crisis although there will be one if Congress doesn’t get serious about reforming the program and reining in its other spending habits to protect Social Security for current retirees and to make it sustainable for tomorrow’s retirees without leaving them in the lurch.  Cutting benefits, increasing taxes and raising the retirement age are no solutions; these actions would only make a bad deal worse.  Younger workers already can look forward to a return on their Social Security payroll tax investment of one percent or less, and many of them will actually realize a negative return on their money.  The solution to long-term reform of Social Security is to allow younger workers to place a growing portion of their payroll tax obligation into personal retirement accounts that can earn a real market rate of return to create real retirement assets—a personal nest egg on which to draw in retirement. 

In the meantime, however, the government must make good on its obligation to current retirees and those workers soon to retire, an obligation manifested in the Trust Fund IOUs.  Specifically, Congress must find a way to redeem those IOUs without increasing the federal government’s annual deficit and ratcheting up the national debt even faster.

The solution is simple.  Congress should adopt a binding rule that requires as its first order of business each year that specific budget cuts to other portions of the federal budget be earmarked and dedicated to redeeming a sufficient amount of Trust Fund IOUs to cover any Social Security deficit without borrowing the money from the public.  The rule should provide that no other business shall be in order in either House of the Congress until specific budget cuts are enacted into law sufficient to redeem the IOUs necessary to cover the anticipated Social Security deficit that year.

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