Social Security Taxes: Where Do Surplus Taxes Go and How Are They Used? Page: 3 of 6
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of a bank account, the balances represent a promise that if needed to pay Social Security
benefits, the government will obtain resources equal to the value of the securities. The
Social Security trustees project that the balances of the trust funds would reach nearly $1.1
trillion by the end of CY 2000. (See the following table.)
Projected Social Security Trust Funds' Income, Outgo, and
Calendar Tax Income Interest Total Income Outgo End-of-year
Year Income balance
($s in billions)
2000 501 65 566 410 1,052
2005 635 120 755 539 2,022
2010 810 194 1,004 737 3,263
2015 1,035 281 1,315 1,045 4,640
2020 1,310 352 1,662 1,492 5,739
2025 1,650 376 2,026 2,065 6,008
2030 2,078 316 2,394 2,762 4,866
2035 2,620 136 2,757 3,572 1,729
Source: 2000 Social Security Trustees' Report, March 30, 2000.
Are the Federal Securities Issued to the Trust Funds the Same Sort of
Financial Assets That Individuals and Other Entities Buy?
Yes. While generally the securities issued to the trust funds are not marketable, they
do earn interest at market rates, have specific maturity dates, and by law represent
obligations of the U.S. government. What often confuses people is that they see these
securities as assets for the government. When an individual buys a government bond, he
or she has established a financial claim against the government. When the government
issues a security to one of its own accounts, it hasn't purchased anything or established a
claim against some other person or entity. It is simply creating an IOU from one of its
accounts to another. Hence, the building up of federal securities in federal trust funds -
like those of Social Security - is not a means in and of itself for the government to
accumulate assets. It certainly establishes claims against the government for the Social
Security system, but the system is part of the government. Those claims are not resources
that the government has at its disposal to pay future Social Security benefits.
What Then is the Purpose of the Trust Funds?
Generally speaking, the federal securities issued to any federal trust fund represent
"permission to spend." As long as a trust fund has a balance of securities posted to it, the
Treasury Department has legal authority to keep issuing checks for the program. In a
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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/m1/3/: accessed December 16, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.