BOHANON & STYRING: It’s time to own up to Social Security shortfall

Economic AnalysisThe trustees of the Social Security Trust Fund have released their annual report. By 2034, the retirement fund’s $2.8 trillion kitty will run out of money. Anxious denizens of the Old Folks Home saw the news and reached for their hypertension meds. Social Security is going broke!

No myth causes more mischief than the fiction of the “Social Security Trust Fund.” Even if never stated explicitly, the strongly implied sales pitch on Social Security has always been that a person’s “contributions” (OK, so they’re taxes) are deposited in an individual account for that person’s old age. In the interim between paying in and taking out, the person’s money is safely invested in a “trust fund” overseen by “trustees.” The implication is that there exists somewhere a steely-eyed fiduciary guarding a pile of solid assets. 

Here’s what’s really in the trust fund. In past decades, Social Security taxes exceeded payouts. In the 1960s through the 1980s, the huge baby boom generation (born 1946-1964) entered the workforce. Payroll taxes swelled. In the 1990s, the tiny Depression-era birth cohort began retiring. Growth in benefit payouts slowed. So the federal government borrowed the excess revenue, issued IOUs to the Social Security Trust Fund, and spent the money. The left hand of the federal government (U.S. Treasury) promised to repay the right hand of the federal government (Social Security Administration).

Demographics have reversed. Now those baby boomers are retiring. Social Security’s cash flow went negative—more benefits going out than taxes coming in. It started in 2014, and it’s getting worse. Under current law, when trust fund “assets” are exhausted, Social Security benefits will be limited to current payroll tax receipts. By 2034, current tax revenue will equal only 70 percent to 75 percent of promised benefits. But it won’t happen. Irate seniors would surround the U.S. Capitol and burn the place to the ground—with Congress in it.

Congress would not like this outcome. Congress will borrow whatever sums are necessary to pay Social Security. So why not explicitly recognize this now? The trust fund needs another $80 trillion or so of government IOUs to be “actuarially funded.” Let’s just print up another $80 trillion of Treasury bonds (four times the current federal debt) and stick them in the fund. Make them negotiable. Let the Social Security Administration sell them in the open market whenever they need money to pay benefits.

Presto! We’re solvent forever! And it wouldn’t change anything except recognizing the huge sums we’re committed to borrow for future old-age entitlements.•


Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at Send comments to

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