Does Social Security Add To The Federal Budget Deficit?

Every time we have a national debate about the deficit, Republicans start talking about cuts to Social Security while Democrats, at least some of them, say that Social Security does not contribute to the deficit. So who is correct?

The short answer is that Democrats are correct on this issue. However, Republicans take advantage of the fact that government has (many times) borrowed from the Social Security Trust Fund.

What you should know is that Social Security is a self-sustaining government program. The payroll taxes collected (revenue) pay for the benefits that senior citizens receive. This rolls from generation to generation. And while it is true that the population is growing older, putting a strain on this methodology, the fact remains that historically Social Security has taken in more revenue than it has paid in benefits, that is until 2011. There are any number of fixes to this problem that do not require cuts in benefits for seniors, like increasing or eliminating the Social Security wage cap. We should explore all avenues first before cutting benefits.

And what you should know is that the trust fund earns interest, and if you add the interest earned into the equation, Social Security still shows a surplus through 2021.

Lock boxYou should also know that during the years when Social Security took in more revenue than it paid in benefits, government was able to “borrow” that surplus for other purposes, issuing IOUs in its place. Looks like we should have listened to Al Gore and his “lock box” idea and not make fun of it, huh?

And last, what you should know is the payroll tax holiday in 2011 and 2012 (now expired in 2013) is the biggest reason Republicans were able to make the case that Social Security should be part of any deficit reduction plan. The reason is simple. The missing revenue was paid by the U.S. Treasury. So we all saw our paychecks increase because the payroll tax was reduced from 6.2% to 4.2% for the past two years, but the federal government had to make up the difference, and that added to the deficit.

We always say the Social Security, CPI (consumer price index) should not be on the table as part of deficit discussions — Social Security has nothing to do with the deficit. And that is basically true. However, when you put in this payroll tax holiday, you took $110, $120 billion dollars a year away from the Social Security trust fund, and you substituted a direct check from the Treasury…And that robs you of the ability to say Social Security has nothing to do with the deficit.

– Representative Jerrold Nadler (D-NY) — Up with Chris Hayes on MSNBC, 1/5/2013

What this means is that for 2011 and 2012, Social Security was “on budget” and therefore it “did” add to the deficit in both these years. But that is only true because we tinkered with a historically self-sustaining program in a misguided attempt to achieve short-term economic gain. Social Security, void of misguided tinkering, is still self-sufficient, but it will require us to make reasoned changes along the way to allow it to remain so. I was never in favor of the payroll tax cut, and I’m glad to see it go away. This is one pay cut I’ll gladly accept.

/ photo by jasonwoodhead23

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GovernmentPoliticsSocial Safety Net

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