Social Security contributions which are not needed to pay current benefits are invested in government securities which are required by law to have maturity dates with due regard to the needs of the trust funds. The government also pays interest to the trust funds, at a long term rate determined by law. The government uses the invested funds to finance other government spending. The government owes the money which the trust funds have loaned to it and the government will have to repay it as the securities come due.

24.2 In 1968, when the trust fund was allowed to be put into the general fund, who was responsible, and how can they be held accountable?

This was done by legislation during the Johnson Administration and the build-up of the Vietnam War. The action taken was perfectly legal, even though many people consider it to be wrong.

24.3 What year did the government begin borrowing from the Social Security trust funds for general government expenses?

This has really always been the case. About 10 years ago the Social Security surplus began to increase rapidly, and the government counted it so as to hide part of its own operating deficit.

24.4 Surpluses now accumulating are invested in special issues of treasury securities, which earn interest. Who pays the interest? Is this not the same as writing yourself an IOU?

The investments of the trust funds in government securities are an investment in the same way that the purchase of government securities by private investors is an investment that earns interest. In both cases, the General Fund of the Treasury pays the interest.

24.5 Please clarify the earlier question about the federal government owing the trust funds over $600 billion. Is this true?

The government pays interest to the trust funds. The government owes the money which the trust funds have loaned to it and will have to repay it as the securities come due.

24.6 Is there a way that the trust funds can be made stand alone and independent of partisan politics?

To a great extent, this is already the case. The trust fund reserves are invested according to law-ie. any assets not needed to pay current benefits and administrative expenses are invested in special interest bearing Treasury securities.

Social Security's trust funds are managed by a Board of Trustees that reports to the American public on the financial status of the trust funds each year. The board consists of four cabinet members and two public representatives appointed by the President.

Each year, this report assesses both the short range and long range financial health of the Social Security system. When there is a projected imbalance in the system, it is reported so that the American public-acting through their elected representatives-can take corrective action.

The political partisanship had historically been over how to address trust fund imbalances. There have always been differing views as to the wisest course of action. In a democracy, with a Social Security system that accounts for more than 25 percent of the Federal budget, it is hard to see how it could be otherwise.

24.7 How would the problem be changed if the government stopped taking money out of the trust funds?

The Social Security system would offer a way to increase national saving and capital accumulation. The budget realities of the federal operating budget would become clear to the public. The government might also have to borrow more money from the public, or reduce its own spending.

24.8 Since the interest on government securities is ultimately paid by the taxpayer, in what way are the "trust funds" an investment?

The investment of the trust funds in government securities are an investment in the same way that the purchase of government securities by private investors is an investment that earns interest.

24.9 What is the excess paid (in 1997) into the Social Security trust funds? i.e. those monies above the monies paid out. What is that dollar amount?

In 1997, the excess of income over outgo (the "surplus") was $88.6 billion. It is projected to be $101 billion in 1998.

24.10 Do the governmental politicians understand that the "trust fund" is not a "goods and services" reservoir? i.e. it is not an "IOU" that the current workers must provide through their current taxes.

Many people think that Social Security tax contributions are held in individual interest bearing accounts earmarked for their retirement needs. Social Security is actually an intergenerational compact, in which the Social Security taxes of today's workers fund benefit payments for today's retirees. It is basically a pay-as-you-go system, but for the last decade, the trust funds have been building large reserves to help finance the retirement of the baby boom generation. By law, Social Security monies are invested in Treasury bonds. Social Security, in effect, loans money to the government, as does any other investor who buys Treasury bonds. And the government has always paid Social Security back with interest.

24.11 Does the trust fund get raided?

No, the trust fund "surplus" is invested in government securities which are backed by the full faith and credit of the U. S. Government. Interest is paid by the federal government to the trust funds. The government then uses the proceeds invested to finance other government spending. This is also what happens when private investors buy government securities.

24.12 Are the trust funds separate from the general fund?

Yes, the trust funds are separate in an accounting sense.

24.13 Where is the Social Security "fund" held?

The law requires that trust fund assets not needed for current benefits and administrative expenses be invested in interest bearing obligations of the United States. Special obligations of the United States are issued exclusively to the trust fund and must pay interest equal to the prevailing rate on outstanding Federal securities with a maturity date of 4 years or longer. In 1997, the combined Old Age and Survivors Insurance and Disability Insurance Trust Fund investments earned $43.8 billion, at an effective interest rate of 7.5 percent.

24.14 Regarding money borrowed from the trust funds, when will it be paid back?

Whenever it is needed, the Treasury Department will pay the money, just as it does when securities owned by private investors come due.

24.15 With how much interest?

Interest is payable currently, depending on the rate specified in each security (averaged 7.5% in 1997).

24.16 What is the total "loan" on the trust funds from the federal government (even if backed by treasury bonds/notes)?

At the end of 1997, $656 billion.

24.17 Why are the assets of the trust funds available to the federal government?

Simply because the law provides that such assets must be invested in government securities, and then naturally the government uses the money for whatever purposes the Congress has approved (just as private issuers of bonds "spend" the proceeds).

24.18 From information from the Cato Institute, there are only IOU's in the trust funds. Why do they do this?

All government bonds (and, in fact, all bonds) are IOU's, whether held by the trust funds or by the general public.

24.19 If we pay an additional 2 percent in FICA taxes, and this money is used by the trust funds to buy treasury bonds, what does the Government then do with the money received for the bonds? Is it then spent for current operations of the budget, or is it used to buy back previously issued treasury bonds not held by the trust funds?

Such additional money can be used in either of the two ways mentioned (and it is impossible to say which one because monies in the General Treasury are mingled).

24.20 Can you, tell us what the current balance in the trust fund is and how much went out in benefits in 1997? How much came in taxes? What was the income to the funds in interest?

The fund balance was $656 billion. Benefit outgo was $362 billion. Payroll tax receipts were $406 billion. Interest income was $44 billion.

24.21 Do companies which go overseas continue to pay into the Social Security trust funds?

Only for their employees who are U.S. citizens or legal residents.

24.22 Will the money that was taken out of the Social Security trust funds and put into the general fund ever be replaced?

Yes, it will be replaced in full (just as in the case of any government securities held by the general public).

24.23 I would like specific information about the Social Security trust funds.

They are invested entirely in government securities that are recognized as part of the National Debt. At the end of 1997, the total securities amounted to $656 billion.

24.24 What is the difference between the "Trust Fund" and the "General Fund"?

The Social Security trust funds are separate accounts maintained by the Treasury; the General Fund is almost all other government money.

24.25 Has money for Social Security been paid into the general budget fund?

Social Security revenue goes to the trust funds, not to the General Fund. When the Social Security trust fund has a surplus, it is invested in Treasury bonds. That is equivalent to "loaning" it to the rest of the government. The Treasury bonds held by the trust funds represent a legal commitment for the rest of government to pay back the bonds with interest when they come due.

24.26 If Social Security is a pay-as-you-go system, why does it have a trust fund?

Social Security isn't exactly pay-as-you-go in any month or year, and certainly hasn't been since 1983. Excess revenue is invested through the trust fund; shortfalls are met by the trust funds. The trust fund is a way to keep separate accounting of the FICA taxes that workers pay for Social Security.