Social Security Does Not Add to the Debt

This is a guest post by GW political scientist Robert Stoker. His previous guest posts for us are here, here, and here.  Bob elaborates on his post below over at HuffPo.


The Social Security program currently has a cash deficit.  That is, the payroll tax that finances the federal government’s largest social program is not generating sufficient revenue to pay current benefits.  As a result, the federal government is borrowing money to pay Social Security benefits.

On its face this suggests that the Social Security program is contributing to the nation’s debt.  However, the distinctive features of Social Security finance suggest otherwise.

The Congressional Budget Office explains that our nation has two types of debts; those owed to the public and those the government owes itself.  Debt to the public is owed to investors who have purchased Treasury securities.  Debts the government owes itself are IOUs held by various government trust funds that have had surplus revenues in the past.  The Social Security program ran a surplus from 1984 through 2009 (taking in more payroll tax revenue than was paid out in benefits).  Of the estimated $16.3 trillion of accumulated federal debt through the end of 2012, $11.5 trillion was public debt and $4.8 trillion was debt held by various government trusts.  The Social Security Trust Fund holds “assets” valued at $2.7 trillion.

Of course, the idea of a trust fund “asset” is controversial, since this is money the government owes itself. Trust funds are not assets to the federal government because the assets of any given fund are offset by liabilities owed by the Treasury Department; their net value to the federal government is zero.  However, the Social Security Trust Fund is an asset for the Social Security Administration.  That is, it represents a legitimate claim on the treasury backed by the full faith and credit of the U.S. government.  Beyond this, if you believe that the nation’s debt is $16.3 trillion and counting, it is inconsistent to deny that trust fund balances (which compose about 30% of the debt) are real.

When the Social Security program has a cash deficit, the Social Security Trustees request repayment for some of the Treasury securities they purchased when the program was in surplus (when payroll tax revenues were greater than the cost of benefits).  Since the government is currently in deficit, the Treasury Department must borrow money to finance these payments.  However, the new borrowing does not increase total debt because this transaction is more akin to refinancing existing debt than accumulating new debt.

If you owe a $5,000 credit card bill and you take a home equity loan to pay off the credit card, your total debt has not changed; you have refinanced the debt, transferring it from one financial instrument (and one creditor) to another.  Much the same can be said about repaying the OASDI Trust Fund.  The fund’s assets are composed of debts already accounted for as part of the nation’s total debt.  When the Treasury borrows to pay current Social Security benefits, the debt owed to the Social Security Trust Fund is repaid, refinanced, and transferred to whoever purchases Treasury securities.

Of course, the cost of refinancing the debt is a key concern.  However, the only scenario in which repaying the Social Security Trust Fund can increase the nation’s debt is if interest rates are higher now than they were when the original debt was incurred.  Given current market conditions (nominal interest rates are presently quite low, the rate on 10 year Treasury Bonds is around 2%), the more plausible claim is that refinancing the Social Security Trust Fund’s debt has reduced the nation’s debt slightly by reducing interest costs.

The current cash deficit in the Social Security program is not contributing to the nation’s debt.  This will remain true so long as the Social Security Trust fund holds Treasury Securities that are already counted as part of the debt (current forecasts suggest this will be so for approximately twenty more years) and interest rates remain low.

31 Responses to Social Security Does Not Add to the Debt

  1. RobC February 3, 2013 at 1:53 pm #

    This is a cogent analysis, except for the last five words, which are puzzling. What does the level of interest rates have to do with the conceptual issue of whether redemption of Treasury securities by the Social Security Trust Fund adds to Government debt?

    • Robert Stoker February 3, 2013 at 3:55 pm #


      Thanks for your comment.

      The core of the argument is that money is being borrowed to refinance the existing debt owed to the Social Security Trust Fund. That debt is finaced at interest rates that reflect market conditions when the debt was originated. Part of the nation’s debt is the interest payments that must be made to service this debt.

      If the debt to the Social Security Trust Fund is refinanced at interest rates higher than those that existed when the debt was originated, interest costs, total costs, and national debt will increase. However, given current market conditions (low interest rates) we are not now in that situation.

      Bob Stoker

      • RobC February 3, 2013 at 4:19 pm #

        It’s certainly true that refinancing debt at a higher interest rate will eventually increase the debt as interest payments become due that can’t be financed through current revenues. But that has nothing to do with the total amount of debt outstanding at the time of the refinance, which I thought was the point of your post here.

        If the total of future debt service costs is treated as part of the calculation, then refinancing debt with a maturity of 2013 with debt with a maturity of 2043 also adds to the debt, even at interest rates lower than the existing debt bore–it’s 30 years more of interest payments. Also, shifting debt from the category of debt the Government owes itself to public debt is likely to cause interest rates to increase because of simple supply and demand, thereby raising the cost to the Government of refinancing all its current debt and financing its future deficits, with the consequence that ultimately debt levels will be higher than they would otherwise be.

        But the point in your post, I thought, wasn’t to consider all such factors but to dispel the myth that it increases the debt today. You’re convincing on that point, but your shifting the focus to the amount of debt that will exist in the future introduces other issues that deserve a much more thorough discussion, as well as tending to undermine your fundamental assertion.

  2. RobW February 3, 2013 at 2:13 pm #

    It may be an interesting question to ask whether Social Security contributes to the debt given the current focus on America’s overall debt level in both Congress and the popular media. However, it seems that from a policy perspective, the more important question is whether or not the underfunding of Social Security contributes to a net social burden on current and future taxpayers. The answer here must be an unequivocal yes even if you suggest that Treasury could seek financial from abroad….eventually those bills must be paid. “We owe it to ourselves” works no more magic than an IOU I hold with myself. These IOUs do not represent real wealth and that is the key concern when discussing the fiscal solvency of Social Security.

    • Robert Stoker February 3, 2013 at 3:58 pm #


      I understand the controversy about whether or not trust fund assets are “real.” But, as the blog notes, if the assets aren’t real, 30% of the nation’s debt isn’t real.

      Bob Stoker

      • Joe February 3, 2013 at 5:10 pm #

        To clarify, If congress passed a law changing social security so that it was paid out of general revenues, what would happen? Would the 30% of the national debt just disappear. If this is the case I don’t see how it harms the us in any way and perhaps it should be seen as not real.

        • Robert Stoker February 4, 2013 at 8:05 am #


          The 30% figure is the debt to all government trusts; although the Social Security Trust Fund is the largets such fund, it composes about 16.5% of the nation’s accumulated debt. However, if the Social Security Trust Fund is not real, are any trusts real?

          If Congress decided to use general revenues to finance Social Security the debt would not be eliminated. In fact, Congress did direct that general revenues should be provided to Social Security to repay the revenue lost when payroll taxes were temporarily reduced as part of the stimulus package.

          The Social Security Administration is one of our nation’s largets creditors. Only by defaulting on the Treasury bonds can the debt be eliminated.

          Bob Stoker

  3. Mark February 3, 2013 at 2:26 pm #

    This analysis is correct and demonstrates precisely why President Obama has deliberately misled the public in the 2011 and 2012 debt ceiling debate by saying that the payments to social security recipients are at risk if the ceiling was not raised. It should also be added that currently social security does add to the annual budget deficit.

    • ElegantFowl February 4, 2013 at 3:25 pm #

      I think the connection is that social security payments can’t be made if the employees responsible for arranging the payments are furloughed. Federal employees are not allowed to work without pay.

      • Mark February 4, 2013 at 9:03 pm #

        To clarify this issue, Congress passed a law in 1996, PL 104-121, that codified Treasury’s authority to use Social Security trust funds to pay benefits AND administration expenses in the event a debt ceiling is reached. The President was just being a demagogue.

  4. Skeptic February 3, 2013 at 10:40 pm #

    The ananlysis is correct butin my view misses the point.

    Not the rhetorical point about cash deficits not increasing national debt that is accounted for. I grant you that, and also that it is a political football.

    Rather the important point is not the cash deficit or debt in the books but the contingent liabilities incurred by the govt.

    Workers expect a flow of real resources in the future, yet a million government IOUs cannot guarantee that flow. Either the size of the economic pie increases, or taxation of real resources increases, or the gov defaults on its promises. Ultimately what’s important is bot so much the debt as whether it is repaid.

  5. Former Student February 4, 2013 at 12:00 am #

    What is especially important is that when the Social Security Trust Fund is depleted sometime in the next two or three decades, the program will technically run entirely on FICA and will necessarily receive funding from the general fund if seniors expect to receive full benefits. At that point, would you accept that SS does indeed add to the debt?

    • Robert Stoker February 4, 2013 at 8:10 am #

      When the Trust Fund’s assets have been fully repaid, additional borrowing to finance Social Security benefits will add to the nation’s debt.

  6. PJR February 4, 2013 at 12:42 am #

    This analysis is on the mark. As we pay down the Trust Fund, however, we do have a choice: either we borrow from Peter to pay Paul, which doesn’t affect total debt, or we increase tax revenues (other than Social Security contributions), which would act to reduce total debt.

    Also, I generally don’t think it makes sense to blame debt–or consequent interest payments–on the institutions that happen to have made the loans. Correct me if I’m wrong, but every dollar owed to Social Security is a dollar less that is owed to somebody else.

  7. darla hanger February 4, 2013 at 2:19 pm #

    I don’t really understand what the difference is. The Government has current debt to seniors and disabled of almost 3Trillion dollars. That is 3Trillion that they borrowed previously. They OWE it so it is DEFICIT. regardless if it is refinanced or not. Smoke n mirrors: You owe more than you take in =deficit.

    UNLESS you start making more money and paying it back = decreased debt=decreased deficit.
    The government can’t pay it back because it is running in deficit. NOt only that even if they wanted to pay it back — law requires all the excess to be invested in government back bonds etc. evidently the lawmakers didn’t anticipate the USA to be in deficit forever.

    • Robert Stoker February 4, 2013 at 6:23 pm #

      I don’t think this is smoke and mirrors. The difference is that in this case, the Social Security program is the creditor, not the debtor. So, although the government is borrowing money to pay current benefits, the nation’s debt is not increasing.

  8. ezra abrams February 4, 2013 at 2:33 pm #

    i have read many many explanations of why ss doesn’t contribute to the debt; this is the only one I have understood
    thanks for doing a great job, and whupping all your academic and pundit competitors
    If i may, some editorial suggestions
    paragraphs 1,5, and are superb
    I think you can delete the 3rd and 4th paragraphs; they are a little distracting
    In the first paragraph, the phrase “cash deficit” is wonkish –
    (i read somewhere on the web recently a guy who owns a small biz, on jan15, every employee came to hr, why is my paycheck smaller ..not one knew about cliff adjsuted payroll tax change)
    again, thanks

  9. kito February 4, 2013 at 3:53 pm #

    your article presents a half truth at best. it is irrefutable that a deficit is based on the federal government’s expenditures exceeding its revenue. most of the federal government’s revenue comes in the form of taxes. the federal government collects social security tax as part of its revenue. it then distributes that revenue to cover the cost of running the social security program. the cost to keep the social security program running annually is 724 billion a year. clearly the expenditure (growing every year) is burdensome when seeing that the government only brings 2.3 trillion in revenue. the social security expenditure is ABSOLUTELY PART OF THE OVERALL FEDERAL EXPENDITURE BUDGET. and it clearly adds to the overall deficit. for your edification, please review the breakdown of the federal government’s debt burden here–

    • Robert Stoker February 4, 2013 at 6:29 pm #

      I agree with your definition of the deficit…and the Social Security program is our largest single government program. That is why it is important to understand how we can be borrowing money to pay current benefits, yet not increasing national debt.

      Of course there is a difference between deficit spending and debt. In this case, deficit spending (which is certainly taking place, as you note) is not increasing debt because (in the case of the Social Security program) the deficit spending is buying back some of the existing debt.

  10. Skeptic February 5, 2013 at 1:10 am #

    Money is fungible.

    Suppose we doubled current social security payouts. Since SS has IOUs to finance this, it does not add to the nation’s debt. Surely there is something wrong with this logic.

    What matters here is not SS assets (e.g. its gov IOUs) but its liabilities. Those are driven by demographics.

    • Robert Stoker February 5, 2013 at 7:57 am #

      Doubling Social Security benefits would not immediately add to the nation’s debt, but it would hasten the day in which the Trust Fund’s assets are depleted…then Social Security payments would contribute to the debt.

      There may be good reasons to consider Social Security as part of a deficit reduction deal, but the false idea that borrowing to finance current benefits contributes to the debt is not one of them.

      • Skeptic February 5, 2013 at 3:55 pm #

        If the government had a surplus, buying IOUs from SS would lower debt. So then a SS deficit LOWERS national debt!

        Money is fungible.

        In any case what matters is not the cash deficit but NPV of income and expenses.

        You are right of course but in my view that is moot.

        • Robert Stoker February 5, 2013 at 9:47 pm #


          Your first sentence would be true, but it is based on a false premise.

          The government does not have a surplus…however, if it did, I agree that the deficit in Social Security could lower the debt. If the government used surplus revenue to buy-back existing debt…that would reduce the debt. But what is actually happening, as I explained in the post, is that the existing debt owed to the Social Security program is being refinanced.

          Money is fungible within limits. If I have $20 in my pocket, you do not have a plan to buy your lunch. In other words, ownership matters. My money is fungible…I can spend my $20 on a hairicut or on a decent bottle of wine. Thus, it matters who has a legitimate claim. The Social Security Adminsistration has a legitimate claim against the Treasury. The Social Security program is a creditor, holding Treasury securities worth roughly $2.7 trillion. Until that debt is repaid, your point about the money being fungible is not relevant.

          I agree that the NPV of the Social Security program is another significant concern. However, it is not the concern I addressed in the blog (which focused on finance, not the long-term balance of benefits and costs).

          It seems to me that when I write a blog about Social Security finance and you try to change the subject, your reply, not my post, is missing the point.

          Bob Stoker (confident enough not to use a pseudonym)

          • skeptic February 6, 2013 at 2:06 am #


            I don’t get the point about the pseudonym. In science there is nothing worse than an ad hominem critique. What matters is what is said not who says it. I am a strong defender of anonymity in public discourse, so long as it is not abused to insult etc.

            Now, regarding your answer you point to ownership. Let me ask you this: I SS runs out of IOUs but still has huge liabilities, will the government bail them out?

            You are right in highlighting the ownership. As a political scientist I just don’t share the view that there is a binary distinction. Esp with SS.

            I am not changing your question, I’m questioning your premise.

  11. Rieher February 6, 2013 at 11:10 am #

    The key error in the original analysis is: “… the Social Security Trust Fund is an asset for the Social Security Administration. “

    The SS Trust Fund is not an ‘asset’ in any legitimate accounting terms (“Generally Accepted Accounting Principles” – GAAP), nor in any common sense understanding of genuine financial assets.

    The “Treasury Securities” comprising the Trust Fund are not normal government securities nor financial bonds — they are ‘special’ non-negotiable, internal Federal IOU’s of zero intrinsic value.
    The (empty) SS Trust Fund is not an asset for the SS Administration/Trustees — it is a debt to SS beneficiaries the Trustees incurred by transferring real FICA Dollars to the U.S. Treasury. There are formal rules in honest accounting.

    Asserting that the “distinctive features” (i.e., accounting gimmicks) of SS do not contribute to the nation’s debt is incorrect.
    FICA assets consumed by the U.S. Treasury equals more Federal debt; intermediary processes in that debt do not change the bottom line.

    Essentially the SS Trust Fund and its “securities” are a dishonest accounting gimmick that would be totally illegal in private corporations. The Federal GAO has long bemoaned this and many other bizarre Federal Government accounting practices.

    The current SS financial model is absolutely unsustainable, as acknowledged even by the SS Trustees. Strained efforts to bolster public confidence in that failing system are unhelpful.

    • Robert Stoker February 7, 2013 at 3:38 pm #

      As I explained in the post, you cannot simultaneously believe that the trust fund is real debt and not a real asset…

      And if the trust fund is not an asset for the Social Security Admninistration, how do you explain the use of trust fund securities to establish the basis of cash infusions to the program since 2010?

  12. Ballard February 7, 2013 at 9:14 am #


  13. Ballard February 7, 2013 at 9:15 am #


  14. Caleb September 12, 2013 at 2:22 pm #

    Thank you for detailing these concepts. It was a very good read.