Social Security's dirty little secret: A Game of borrowing

The Hill

24-06-2025

The Social Security trustees have released their annual report highlighting 'the current and projected financial status' of the Social Security trust fund. And the media duly reported on the fund's declining prospects. But neither the trustees nor the media revealed, or typically even acknowledged, the trust fund's dirty little secret.
First, a short explanation of how Social Security works. Social Security is a pay-as-you-go system. The FICA payroll tax (12.4 percent) is taken from current workers and employers and deposited into the Social Security trust fund. The government then uses that trust-fund money to pay current retirees. Money in, money out.
For most of Social Security's history, current workers were paying in more than was needed to pay retiree benefits, leaving annual trust-fund surpluses. This is why, today, the trust fund boasts some $2.5 trillion in assets, which leaves the impression that there is something like a savings account that can be used to pay Social Security benefits.
Unfortunately, however, since 2010 the government has spent more paying benefits that it has received from workers' payroll taxes each year. The government has had to draw upon the trust fund surplus to make up the difference.
According to what the trustees call their 'best estimates,' 'The Old-Age and Survivors Insurance (OASI) Trust Fund [that is, Social Security] will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year's report. At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 77 percent of total scheduled benefits.'
The key thing to notice is the claim that by 2033 'the fund's reserves will become depleted.' But what if the trust fund is already essentially, if not technically, depleted?
The trustees report that the OASI trust fund had $2.641 trillion at the end of 2023. The trust fund received $1.106 trillion in payroll taxes in 2024, plus $54 billion from taxes collected on Social Security benefits and $64 billion in interest. That's a total income of $1.224 trillion.
However, Social Security paid out $1.327 trillion in 2024 — more than it received — meaning it had to withdraw $103 billion from the trust fund, leaving $2.538 trillion.
And then here's the dirty little secret about the trust fund: That $2.5 trillion isn't invested in stocks or bonds or loaned out to interest-paying banks or companies. The federal government has borrowed that money and spent it, writing itself interest-bearing IOUs. As the Peter G. Peterson Foundation explains, 'As with other trust funds, Social Security's surpluses are credited with securities issued by the Treasury; that excess income is used to reduce the amount of new federal borrowing necessary to finance governmental activities.'
Consider this situation in a family context. Suppose a family's income is usually enough to pay the bills each month. But an unexpected debt — perhaps a car repair bill, a hospital visit, home repair, etc. — arrives, and it's more than the family's normal budget. If the family has other real assets, it can withdraw funds from a savings account or perhaps a brokerage account and pay the debt. Problem solved.
But if the family doesn't have other real assets available, it might have to borrow the money to pay the debt — creating new debt to pay old debt.
When the trustees speak of drawing down the 'fund's reserves,' it sounds like the government is doing what the family did when it tapped other assets to pay the unexpected debt. But that's not what's really happening.
If the government's general account had a budget surplus in 2024, then the government could just transfer $103 billion from the general account to the trust fund. But the federal government had a $1.8 trillion deficit in 2024.
So, in order to cover that $103 billion trust fund shortfall to pay current retirees, the government had to borrow the money. Creating new debt to pay old debt. It's even borrowing money at interest to pay the trust fund interest.
Whenever anyone exposes this borrowing shell game, defenders of Social Security's pay-as-you-go system — usually Democrats — vigorously respond by saying the federal government has never defaulted on its debt. But that misses the point.
The trust fund's assets are just an entry on paper. If the Social Security trust fund wants to redeem some of its IOUs, the government must borrow the money to pay it.
So, when the trustees warn that by 2033 Social Security won't have the money to pay retirees' full benefits, it would be more accurate to say it already doesn't have the money to pay full benefits now.
Merrill Matthews is a public policy and political analyst and the co-author of 'On the Edge: America Faces the Entitlements Cliff.'.