Which presidents borrowed from the social security fund?
Find out which presidents borrowed from Social Security and how the government borrows from the program.
Social Security provides various forms of benefits to millions of retired workers and their families, disabled workers, and survivors of deceased workers. It is funded with payroll taxes from workers, taxes on benefit payments, and interest on funds held by the treasury. However, there are concerns about the solvency of Social Security, with critics attributing the cash shortfalls to the plundering of Social Security by successive governments.
Since 1983, every US President has borrowed from Social Security to pay for government expenditures. However, there is no evidence that any of the presidents has stolen a dime from Social Security. Usually, payroll taxes paid by workers are deposited in the trust funds, and the surplus funds are invested in special-issue securities that are backed by the full faith and credit of the US government.
Did Bush borrow money from Social Security?
There were beliefs that George W. Bush financed income tax cuts and the Iraq war by plundering money from Social Security. These beliefs were attributed to the following statement:
“Next time a Republican tells you that ‘Social Security is broke,’ remind them that Pres. Bush ‘borrowed’ $1.37 trillion of Social Security surplus revenue to pay for his tax cuts for the rich and his war in Iraq and never paid it back”.
The statement appeared in a 2009 newsletter post by Allen W. Smith, a professor of economics at Eastern Illinois University. PolitiFact rated this statement as "mostly false" since the statement was a false interpretation of how the Social Security trust fund system works. Bush, like other former presidents, borrowed from the Social Security asset reserves to finance government expenditures.
The amount that Bush borrowed was $708 billion, which is nearly half of the $1.37 trillion that the statement claimed the Bush regime borrowed. Additionally, the claim that Bush never paid back the amount borrowed is false. The special-issue bonds have maturities of up to 15 years, the Treasury repays these principal and interest amounts when the Trust Funds start redeeming the bonds. The bonds only became redeemable in 2020, long after the Bush presidency ended.
How Congress borrows from Social Security
Congress requires the US Treasury to invest Social Security income in securities guaranteed as to both principal and interest by the federal government. The Treasury issues special issue securities specifically for Social Security as it does for US Treasury bonds.
However, special issue securities vary from US treasury bonds in several ways- they are not tradable, they are only purchased with payroll taxes, and they are only made available to the Trust Funds. When the special-issue securities mature, the treasury redeems the bonds and uses the proceeds to pay Social Security benefits.
When the US Treasury creates the bonds, it sends payroll taxes collected from American workers into the General Fund. The federal government uses the funds in the general fund to pay for government expenditures- this is how presidents have borrowed from Social Security over the years.
When the Treasury needs to pay for benefits, it uses the General Fund to redeem the special-issue bonds, plus the corresponding interest. The principal amount of the special issues redeemed and the interest income are enough to pay the required cost.
Did Congress steal from Social Security?
One of the arguments why Social Security is staring at a cash shortfall is that Congress raided the Social Security trust funds and never paid back the money. There were claims that lawmakers comingled the Social Security asset reserves with the General Fund to finance the war and tax cuts. However, these claims are incorrect, and Congress has not pilfered any Social Security monies.
The law requires Social Security asset reserves to be invested in special issue securities, instead of letting the cash sit in a vault. This means that the $2.9 trillion in cash reserves that Social Security has accumulated over time are required to be invested in special issue securities that are specially issued by the Treasury for Social Security. The bonds are backed by the full faith and credit of the federal government.
Since these bonds are sold by the federal government, it means that the government is borrowing money from Social Security and paying interest on the amount borrowed. Otherwise, if the money was not invested, it would lose value through inflation. The Congress’ borrowing is expected to yield $804 billion in aggregate interest income between 2018 to 2027.
The law gives Congress access to the payroll funds to finance government expenditures, and it is responsible for appropriating and determining how the funds will be spent. If the president needs to finance a deficit, he must submit the proposed budget to Congress to secure funding.
What is the Social Security Trust Fund?
The Social Security Trust Funds comprise the Old Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Fund. These Trust Funds are managed by the Department of Treasury, and they provide an accounting mechanism for tracking incomes and benefits payments and holding accumulated asset reserves. Social Security uses the accumulated reserves to pay benefits to eligible beneficiaries.
The OASI trust fund pays benefits to retired workers, their spouses and children, as well as families of deceased workers, while the DI Trust Fund pays benefits to disabled workers and their families. Both funds are funded with payroll taxes- workers contribute 6.2% of their pay, while employers match a similar percentage. A Board of trustees manages the trust fund’s operations and is required to report the financial status of the trust funds to Congress annually.
How are Trust Funds invested?
Surplus funds to the trust funds must be invested in "special issue" securities guaranteed by the federal government. Social Security purchases special-issue securities from the federal government at a defined interest rate.
This, in essence, means that the federal government borrows money from Social Security at different interest rates and maturity dates to finance deficit spending. The special issues can be redeemed at any time at face value, and they give Social Security the same flexibility as holding cash.
In the past, the federal government’s ability to tap into the Social Security surplus reverses has been incorrectly interpreted to mean that the funds have been pilfered or raided, with no chance of the government paying back. However, this is misleading, since the amount borrowed is paid back when the bonds mature.