Social Security Taxes: Where Do Surplus Taxes Go and How Are They Used? Page: 2 of 6
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A Few Basics About Social Security Financing
Financing to cover the
costs of the Social Security
program - both its benefits
and administrative expenses -
is provided by flat-rate taxes
levied on payrolls and self-
employment income (FICA and
SEC~~A t Th~ F~ICA t~ i~
axL L . e Lx 1's The rate for the self-employed is the same as the combined
levied on a worker's earnings employee/employer rate; however, only 92.35% of net self-
and is paid both by employees employment earnings is taxable and half of the taxes so computed is
and employers; the SECA tax is deductible for income tax purposes.
levied on self-employment
income. More than 95% of the
work force is required to pay them. Nonwork income is not taxed. Both the FICA and
SECA rates have three components: one for Old Age and Survivors Insurance (OASI),
another for Disability Insurance (DI), which together comprise what is commonly thought
of as Social Security, and a third for the Hospital Insurance (HI) portion of Medicare. In
2000, the OASDI portion will be levied on earnings up to $76,200. This amount rises
annually to reflect increases in average earnings in the economy. The HI portion is levied
on all earnings.
Where Do Surplus Social Security Taxes Go?
Contrary to popular belief, Social Security taxes are not deposited into the Social
Security trust funds. They flow each day into thousands of depository accounts
maintained by the government with financial institutions across the country. Along with
many other forms of revenues, these Social Security taxes become part of the
government's operating cash pool, or what is more commonly referred to as the U.S.
treasury. In effect, once these taxes are received, they become indistinguishable from
other monies the government takes in. They are accounted for separately through the
issuance of federal securities to the Social Security trust funds - which basically involves
a series of bookkeeping entries by the Treasury Department - but the trust funds
themselves do not receive or hold money.1 They are simply accounts. Similarly, benefits
are not paid from the trust funds, but from the treasury. As the checks are paid, securities
of an equivalent value are removed from the trust funds.
Does This Mean That the Government Borrows Social Security Taxes?
Yes. When more Social Security taxes are received than spent, the money does not
sit idle in the treasury, but is used to finance other operations of the government. The
surplus is then reflected in a higher balance of federal securities being posted to the trust
funds. These securities, like those sold to the public, are legal obligations of the
government. Simply put, the balances of the Social Security trust funds represent what
the government has borrowed from the Social Security system (plus interest). Like those
1 P.L. 103-296 requires the Secretary of the Treasury to issue "physical documents" to the trust
funds. Under prior practice, trust fund securities were only recorded electronically.
Social Security and HI Tax Rates
Under Current Law (in percent)
Employee rate Combined
CY OASI DI OASDI HI Total employer
1999 5.35 .85 6.20 1.45 7.65 15.3
2000 5.30 .9 6.20 1.45 7.65 15.3
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Social Security Taxes: Where Do Surplus Taxes Go and How Are They Used?, report, April 3, 2000; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc808767/m1/2/: accessed December 18, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.