Order Code RL33028 CRS Report for Congress Received through the CRS Web Social Security: The Trust Fund August 11, 2005 Christine Scott Specialist in Tax Economics Domestic Social Policy Division Congressional Research Service ˜ The Library of Congress Social Security: The Trust Fund Summary The Social Security program is financed primarily through taxes, which are deposited in the U.S. Treasury and credited to the Social Security trust fund. Any revenues credited to the trust fund in excess of the costs (benefit payments and administrative costs) are invested in special U.S. obligations (debt instruments of the U.S. government). The Social Security trust fund represents funds dedicated to pay current and future Social Security benefits. However, it is useful to view the trust fund in two ways: (1) as the balance of an internal federal accounting concept, and (2) as the accumulated holdings of the Social Security program. For internal accounting purposes, certain accounts within the U.S. Treasury are designated by law as trust funds in order to properly track revenues dedicated to certain purposes (or expenditures). There are a number of trust funds in the U.S. Treasury including those for Social Security, Medicare, unemployment compensation, and federal employee retirement. The monies in the Social Security trust fund in the U.S. Treasury are owned by the U.S. government, which can (by changing the law) raise or lower revenues to the trust fund, or payments from the trust fund. By law, any positive annual balance (or cash flow surplus) in the Social Security trust fund must be invested in U.S. government obligations. The accumulated holdings of U.S. obligations are often viewed as being similar to assets held by any other trust on behalf of the beneficiaries. However, the holdings of the Social Security trust fund differ from those of private trusts because: (1) the types of investments it may hold are limited; and (2) the U.S. government is both the buyer and seller of the investments. This paper will review some of the basics of how the Social Security program is funded, and how the Social Security trust fund works. This report will be updated as needed to reflect legislative or other activity. Contents How the Social Security Program is Financed . . . . . . . . . . . . . . . . . . . . . . . . 1 The Social Security Trust Fund As A Designated Account . . . . . . . . . . . . . . 2 Social Security Trust Fund Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Social Security Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Social Security Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Investment of the Social Security Balances . . . . . . . . . . . . . . . . . . . . . . 9 The Social Security Trust Fund and The Federal Budget . . . . . . . . . . . 9 On-Budget Versus Off-Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 The Social Security Trust Fund As Accumulated Holdings . . . . . . . . . . . . 10 The Social Security Trust Fund and the Level of Federal Debt . . . . . . 13 The Social Security Trust Fund and Federal Default . . . . . . . . . . . . . . 13 The Social Security Trust Fund and Benefit Payments . . . . . . . . . . . . 14 List of Figures Figure 1. Ratio of Current (Annual) Revenues to Costs for the Social Security Trust Fund, 1957-2040 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 List of Tables Table 1. Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund, 1957-1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Table 2. Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund, 1984-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Table 3. Estimated Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund, 2005-2040 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Table 4. Accumulated Holdings of the Social Security Trust Fund, 1957-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Table 5. Estimated Accumulated Holdings of the Social Security Trust Fund, 2005-2041 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Social Security: The Trust Fund The Social Security program is financed primarily through taxes, which are deposited in the U.S. Treasury and credited to the Social Security trust fund. Any revenues credited to the trust fund in excess of the costs (benefit payments and administrative costs) are invested in special U.S. obligations (debt instruments of the U.S. government). The Social Security trust fund is both a designated account within the U.S. Treasury and the accumulated holdings of special U.S. obligations. Both represent the funds designated to pay current and future Social Security benefits. How the Social Security Program is Financed The Social Security program is primarily financed by revenues from Federal Insurance Contributions Act (FICA) taxes and Self Employment Contributions Act (SECA) taxes, commonly known as “Social Security taxes.” FICA taxes are paid by both employers and employees, but it is employers who remit the taxes to the U.S. Treasury. Employers remit FICA taxes on a regular basis through the year (for example — weekly, monthly, quarterly or annually), depending on the employer’s level of total employment taxes (generally FICA, Medicare, and federal personal income tax withholding). Currently, both the employer and employee pay a FICA tax rate of 6.2% on the employee’s wages up to $90,000. SECA taxes are paid by self-employed individuals, and are normally paid once a year as part of filing an annual individual income tax return. The current SECA tax rate is 12.4% (of 92.35% of net income, with one-half of the SECA taxes allowed as a deduction for federal income tax purposes. In addition to these two major sources of funding, the Social Security program has two other sources of revenue. Certain Social Security recipients must include a portion of Social Security benefits in taxable income for the federal income tax, and the Social Security program receives part of those taxes.1 In addition, the Social Security program receives interest from the U.S. Treasury on its investments (in special U.S. obligations). The Internal Revenue Service (IRS) processes the tax returns and tax payments for federal employment taxes and federal individual income taxes. All of the tax payments are deposited in the U.S. Treasury along with all other receipts from the public for the federal government. 1 The taxes associated with including Social Security benefits in federal taxable income go to the Social Security trust fund and the Health Insurance trust fund (Medicare). See CRS Report RL32552, Social Security: Calculation and History of Taxing Benefits, by Christine Scott. CRS-2 The Social Security Trust Fund As A Designated Account Within the U.S. Treasury, there are numerous accounts for federal accounting purposes. The Social Security trust fund is one of the accounts designated, by law, as a trust fund. While all of the monies within the Treasury are federal monies, the designation of an account as a trust fund allows tracking of certain funds for internal accounting purposes. One reason an account would be designated as a special fund in law is because the funds are dedicated to specific purposes, and are not for general government program use. The monies or holdings of a trust fund in the Treasury are owned by the U.S. government. The U.S. government can, by changing the law, raise or lower the revenues going into the trust fund, and the payments made by the trust fund. Social Security Trust Fund Revenues. The Social Security trust fund receives a credit equal to the employment taxes deposited in the U.S. Treasury by the IRS. In practice, there are two separate accounts for the Social Security program: the Old Age and Survivors Insurance (OASI) trust fund; and the Disability Insurance (DI) trust fund. The FICA and SECA taxes are allocated between the OASI and DI trust funds based on a proportion specified in law.2 The combination of the OASI and DI trust funds, often referred to as OASDI, is generally what is meant by the phrase “the Social Security Trust Fund.” Social Security Costs. The U. S. Treasury on a regular basis makes Social Security benefit payments to eligible individuals. The U.S. Treasury is directed by the Social Security Administration (SSA) as to whom to pay, and the amount of the payment. When benefit payments are made by the Treasury, the Social Security trust fund is debited for the payments. Periodically, the Social Security trust fund is also debited for the administrative costs of the Social Security program. These administrative costs are incurred by several government agencies, including the Social Security Administration, the U.S. Treasury, and the IRS. Social Security Balance. The revenues to the trust fund each year are used to pay Social Security benefits and program costs. If in any year revenues are greater than costs, the Secretary of the Treasury, as Managing Trustee of the trust funds, is required to invest this positive annual balance (or cash flow surplus) in securities backed by the U.S. government.3 The purchasing of the securities allows the surplus to be used for other government purposes.4 If in any year, costs are greater than revenues, this negative annual balance (or cash flow deficit) is offset by selling accumulated security holdings to pay the benefits and administrative costs. 2 Social Security Act, Title II, §201(b). Currently the 6.2% is split 5.3% for OASI and 0.9% for DI. The DI share was last changed in 2000 (to 0.9%), and has been changed five times in the last 20 years (since 1985). 3 Social Security Act, Title II, §201(d). 4 This is often referred to as “borrowing from the Social Security trust fund.” CRS-3 There are two measures of the Social Security balance: the current or annual balance, and the accumulated holdings.5 The current or annual balance in the Social Security Trust fund is a measure of current (or annual) revenues and current (or annual) costs. The current balance can be either positive or negative. That is, current revenues can exceed current costs, or current costs can exceed current revenues. However, unlike other federal programs without trust funds, the Social Security program may use the accumulated holdings of the Social Security trust fund from prior years to pay current or future benefits.6 While Social Security is often referred to as a pay-as-you go system (meaning that the current revenues are used to pay current costs), changes made to Social Security in 1983, including coverage of federal workers, increasing the retirement age, and the taxation of Social Security benefits began a sustained period of positive annual balances. The positive annual balances are expected, by the Social Security Trustees, to continue through 2016. Beginning in 2017, the Social Security Trustees expect the annual balance to turn negative, when annual costs exceed annual revenues. As shown in Table 1 below, during the 1957 to 1983 period, the current balance (annual revenues less annual costs) was negative in 21 of the 27 years. 5 The accumulated holdings of the Social Security trust fund in U.S. government obligations is often referred to as “the Social Security trust fund balance.” 6 Certain government projects may be given “budget authority until expended,” which allows the authority to spend funds on the project to be carried over each year until all of the authority to spend funds has been exhausted. CRS-4 Table 1. Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund, 1957-1983 ($ in billions) Year Annual Revenue (not including interest) Current Balance (annual revenue less annual costs) Annual Cost 1957 $7.5 $7.6 ($0.1) 1958 8.50 8.90 (0.40) 1959 8.90 10.80 (1.90) 1960 11.90 11.80 0.10 1961 12.30 13.40 (1.10) 1962 13.10 15.20 (2.10) 1963 15.60 16.20 (0.60) 1964 16.80 17.00 (0.20) 1965 17.20 19.20 (2.00) 1966 22.60 20.90 1.70 1967 25.40 22.50 2.90 1968 27.00 26.00 1.00 1969 31.50 27.90 3.60 1970 34.70 33.10 1.60 1971 38.30 38.50 (0.20) 1972 42.90 43.30 (0.40) 1973 $51.9 $53.1 ($1.20) 1974 58.90 60.60 (1.70) 1975 64.30 69.20 (4.90) 1976 71.60 78.20 (6.60) 1977 78.70 87.30 (8.60) 1978 88.90 96.00 (7.10) 1979 103.00 107.30 (4.30) 1980 116.70 123.60 (6.90) 1981 139.40 144.40 (5.00) 1982 145.70 160.10 (14.40) 1983 156.30 171.20 (14.90) Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 2005 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Washington, DC, Mar. 23, 2005, Table VI.A4. CRS-5 Table 2 shows the annual revenues, costs, and annual balance for the 1984 through 2004 period. Table 3 shows the estimated (using the intermediate assumptions of the Social Security trustees) annual revenues, costs, and annual balance for the 2005-2040 period. Table 2. Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund, 1984-2004 ($ in billions) Year Annual Revenue (not including interest) Annual Cost Current Balance (annual revenue less annual costs) 1984 $183.1 $180.4 $2.7 1985 197.50 190.60 6.90 1986 212.80 201.50 11.30 1987 225.60 209.10 16.50 1988 255.20 222.50 32.70 1989 276.70 236.20 40.50 1990 301.10 253.10 48.00 1991 307.80 274.20 33.60 1992 317.20 291.90 25.30 1993 327.70 308.80 18.90 1994 350.00 323.00 27.00 1995 364.80 339.80 25.00 1996 385.70 353.60 32.10 1997 413.90 369.10 44.80 1998 439.90 382.30 57.60 1999 471.20 392.90 78.30 2000 504.80 415.10 89.70 2001 529.10 438.90 90.20 2002 546.30 461.70 84.60 2003 546.90 479.10 67.80 2004 568.70 501.60 67.10 Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 2005 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Washington, DC, Mar. 23, 2005, Table VI.A4. CRS-6 Table 3. Estimated Annual Revenues, Costs, and Annual Balance for the Social Security Trust Fund, 2005-2040 ($ in billions) Year Annual Revenue (not including interest) Annual Cost Current Balance (annual revenue less annual costs) 2005 $596.1 $526.6 $69.5 2006 634.90 548.20 86.70 2007 667.00 574.10 92.90 2008 702.70 605.50 97.20 2009 736.60 643.50 93.10 2010 773.80 682.40 91.40 2011 814.30 725.80 88.50 2012 854.10 775.60 78.50 2013 894.30 828.90 65.40 2014 935.40 886.40 49.00 2015 978.70 947.10 31.60 2016 1,023.60 1,012.50 11.10 2017 1,070.30 1,082.40 (12.10) 2018 1,118.70 1,156.30 (37.60) 2019 1,169.20 1,234.50 (65.30) 2020 1,221.20 1,317.50 (96.30) 2021 1,275.40 1,404.80 (129.40) 2022 1,331.30 1,495.80 (164.50) 2023 1,389.40 1,591.00 (201.60) 2024 1,449.40 1,690.60 (241.20) 2025 1,511.70 1,794.80 (283.10) 2026 1,576.40 1,903.90 (327.50) 2027 1,644.40 2,016.70 (372.30) 2028 1,715.60 2,132.40 (416.80) 2029 1,789.10 2,250.40 (461.30) 2030 1,865.60 2,371.70 (506.10) 2031 1,945.40 2,497.60 (552.20) 2032 2,029.10 2,627.00 (597.90) 2033 2,116.60 2,758.20 (641.60) 2034 2,207.70 2,890.90 (683.20) 2035 2,301.80 3,026.10 (724.30) 2036 2,399.90 3,165.00 (765.10) 2037 2,502.50 3,307.40 (804.90) CRS-7 Year Annual Revenue (not including interest) Annual Cost Current Balance (annual revenue less annual costs) 2038 2,609.60 3,452.90 (843.30) 2039 2,721.30 3,602.00 (880.70) 2040 2,837.30 3,756.20 (918.90) Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 2005 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Washington, DC, Mar. 23, 2005, Table VI.F8. (Intermediate Assumptions). One way to measure the annual balance over time is to take the ratio of current revenues to current costs each year. If the ratio is greater than 1, the current balance is positive, and if the ratio is less than 1, the current balance is negative. In the past there have been periods in which the current balance was negative (the ratio of revenues to cost is less than 1). Figure 1 shows the ratio of annual revenues to annual costs in the Social Security Trust fund for the historical period (1957-2004), and for the future period (2005-2040) as projected by the Social Security Trustees in their 2005 Annual Report.7 The forecast (of annual revenues and annual costs) for the ratios shown in Figure 1 uses the intermediate forecast of the Trustees. Under this forecast, the current balance is expected to begin to be negative (a ratio of less than 1) beginning in 2017. 7 Social Security Trustees, The 2005 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Washington, DC, Mar. 23, 2005. Based on data from Tables VI.A4 and VI.F8 (intermediate assumptions). CRS-8 Figure 1. Ratio of Current (Annual) Revenues to Costs for The Social Security Trust Fund, 1957-2040 1.50 Historical Period Projected Period 1.00 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 0.50 Source: Figure prepared by the Congressional Research Service (CRS) from The 2005 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Washington, D.C., Mar. 23, 2005, Tables VI.A4 and VI.F8 (Intermediate Assumptions). Note: Annual revenues do not include interest on accumulated holdings of U.S. government obligations. CRS-9 Although the Social Security program has had negative annual balances (run cash flow deficits) in the past, and is expected to become negative again beginning in 2017 (assuming current benefit levels and projected revenues) Social Security benefits can continue to be paid at the levels promised under current law by the U.S. Treasury as long as the accumulated balance in the Social Security Trust Fund is positive. This is because the Social Security program has budget authority to pay benefits as long as the balance in the designated account is positive. However, if current revenues are not sufficient to pay benefits, the U.S. government must raise the funds necessary to honor the redemption of the U.S. obligations held by the Social Security trust fund when they are needed to pay benefits. The U.S. government may raise the necessary funds through increasing taxes, reducing spending, or a combination of both methods. Investment of the Social Security Balances. The Social Security trust fund receives interest on its holdings of special U.S. government obligations. As noted earlier in this report, the Secretary of the Treasury, as Managing Trustee of the trust funds, is required to invest the taxes credited to the trust funds that are not needed to pay current benefits and administrative costs in securities backed by the U.S. government.8 Each security issued by the Treasury for purchase by the trust funds must be a paper instrument in the form of a bond, note or certificate of indebtedness.9 In addition, any interest or proceeds from the sale of securities held by the trust funds must be paid in the form of paper checks from the general fund of the U.S. Treasury to the trust funds.10 The interest rates paid on the securities are tied to market rates. For internal federal accounting, when the special obligations are purchased by the trust fund, one account (the “general” account) is borrowing funds from another account (the Social Security trust fund account). The Social Security trust fund maintains a positive balance, with the balance invested in special obligations. The special obligations are physical documents held by the Social Security Administration (SSA), and not the U.S. Treasury. The obligations are redeemed on a regular basis. The special securities however are not resources for the government as they are both an asset and a liability for the government. The Social Security Trust Fund and The Federal Budget. The Social Security program is indirectly part of the annual congressional budget process. This creates some confusion on the part of the public. On-Budget Versus Off-Budget. For the federal budget, “on-budget” generally refers to those programs included in the annual congressional budget process, while “off-budget” generally refers to programs not included in the annual congressional budget process. 8 Social Security Act, Title II, §201(d). 9 Social Security Act, Title II, §201(d). The trusts funds may purchase certain other government securities, such as those issued by Fannie Mae or Freddie Mac, but this option is seldom used. 10 Social Security Act, Title II, §201(f). CRS-10 The Social Security program is a government program, like the Postal Service, that has had it receipts and (most) outlays designated as off-budget by law. The offbudget designation has no actual effect on the funding, spending, or operations of these programs. The congressional budget resolution, in its legislative language, separates the off-budget totals (receipts and outlays) from the on-budget totals (receipts and outlays). The report language accompanying the resolution usually shows the unified budget totals, which combine the on- and off-budget amounts, as well as showing the on- and off-budget totals. The President’s budget tends to use the unified budget measures in discussing the budget totals. The Administrations’s budget documents also include, as required, the totals for the on- and off-budget components. The Congressional Budget Office uses the unified budget numbers in its analyses of the budget; it does not generally include on- and off-budget data in its regular annual reports. The annual congressional budget process provides the budget authority for relevant federal agencies (including the SSA), which are on-budget, to spend the administrative funds provided by the Social Security trust fund to administer the Social Security program. The Social Security program has budget authority to pay benefits as long as the balance in the trust fund (the designated account) is positive. The unified budget framework is important because, by including all federal government revenues and expenditures, it provides a more comprehensive picture of the size of federal government revenues and spending in the economy, and the impact of the federal budget on the economy. In the unified budget, Social Security is both a large source of federal government revenues (24.3% of the total in FY2004) and expenditures (21.6% of the total in FY2004).11 For the unified budget, the accumulated holdings of the Social Security trust fund are counted in determining the federal budget deficit or surplus. The Social Security Trust Fund As Accumulated Holdings The Social Security Trust Fund can be, and often is, viewed as a trust fund, similar to any private trust fund, that is to be used for paying current and future benefits. As noted earlier, any revenues credited to the trust fund (in the Treasury) in excess of costs are invested in non-marketable U.S. government obligations. These obligations are physical (paper) documents issued to the trust fund, and held by the SSA. When the obligations are redeemed, the Treasury must issue a check, a physical document, to the trust fund for the interest earned on the obligation. However, unlike a private trust that may hold a variety of types of assets, and obligations of different borrowers, the Social Security trust fund can only hold nonmarketable U.S. obligations. The sale of these obligations by the U.S. government to the trust fund is federal government borrowing (from itself) and counts against the 11 Percentages calculated by the Congressional Research Service (CRS) from data contained in Office of Management and Budget, Historical Tables, Budget of the U.S. Government, Fiscal Year 2006, Tables 2.1, 2.4, 6.1 and 13.1. CRS-11 federal debt limit. The requirement that the Social Security trust fund purchase U.S. obligations serves several purposes: ! ! ! ! ! it offers a mechanism for Social Security to recoup the surpluses it lent to the rest of the government, it pays interest so that the loan of the surpluses does not lose value (over time), it ensures that the trust fund, and not general government receives credit for the interest earnings, it ensures a level of return (interest) to the trust fund, and it provides a means outside of the securities market for the U.S. government to borrow funds. Investment of Social Security trust funds in other private security instruments such as stocks, would increase the potential returns and the risk (for negative earnings) for the trust fund. Purchases of private security instruments increases the risk in the future value of trust fund holdings. It is important to note that the current accumulated holdings of the Social Security trust fund are lower than the projected future obligations (for benefits) of the Social Security program. The accumulated holdings of the Social Security trust fund are the sum of the positive annual balances for all past years (which were invested in U.S. obligations), plus the interest earned on those holdings. As a result of more than 20 years of positive annual balances, the accumulated holdings of the Social Security Trust fund are large (approximately $1.7 trillion). It is these accumulated holdings that many people are referring to when discussing the Social Security trust fund. Tables 4 and 5 show the accumulated holdings of the Social Security trust fund. Table 4 shows the accumulated holdings each year for 1957-2004, the historical period. Table 5 shows the accumulated holdings each year for the projected period of 2005-2040, using the estimates of the Social Security Trustees (intermediate assumptions). The Social Security Trustees estimate that the level of accumulated holdings will begin to decline in 2027, and be exhausted in 2041. CRS-12 Table 4. Accumulated Holdings of the Social Security Trust Fund, 1957-2004 ($ in billions) Year Accumulated holdings Year Accumulated holdings 1957 $23.0 1981 $24.5 1958 23.20 1982 24.80 1959 22.00 1983 24.90 1960 22.60 1984 31.10 1961 22.20 1985 42.20 1962 20.70 1986 46.90 1963 20.70 1987 68.80 1964 21.20 1988 109.80 1965 19.80 1989 163.00 1966 22.30 1990 225.30 1967 26.30 1991 280.70 1968 28.70 1992 331.50 1969 34.20 1993 378.30 1970 38.10 1994 436.40 1971 40.40 1995 496.10 1972 42.80 1996 567.00 1973 44.40 1997 655.50 1974 45.90 1998 762.50 1975 44.30 1999 896.10 1976 41.10 2000 1,049.40 1977 35.90 2001 1,212.50 1978 31.70 2002 1,378.00 1979 30.30 2003 1,530.80 1980 26.50 2004 1,686.80 Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 2005 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Washington, DC, Mar. 23, 2005, Table VI.A4. CRS-13 Table 5. Estimated Accumulated Holdings of the Social Security Trust Fund, 2005-2041 ($ in billions) Year Accumulated holdings Year Accumulated holdings 2005 $1,850.1 2024 $5,951.9 2006 2,037.70 2025 6,012.60 2007 2,241.70 2026 6,031.40 2008 2,461.80 2027 6,005.30 2009 2,690.20 2028 5,931.90 2010 2,930.30 2029 5,808.60 2011 3,182.00 2030 5,631.90 2012 3,438.60 2031 5,397.50 2013 3,697.10 2032 5,102.40 2014 3,954.60 2033 4,745.10 2015 4,211.10 2034 4,324.00 2016 4,463.70 2035 3,836.00 2017 4,709.70 2036 3,277.40 2018 4,946.60 2037 2,645.10 2019 5,171.90 2038 1,936.20 2020 5,378.50 2039 1,147.20 2021 5,563.30 2040 272.70 2022 5,722.90 2041 0.00 2023 5,853.90 Source: Table prepared by the Congressional Research Service (CRS) from data provided in The 2005 Annual Report of the Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Washington, DC, Mar. 23, 2005, Table VI.F8. (Intermediate Assumptions). The Social Security Trust Fund and the Level of Federal Debt. As part of the annual congressional budget process, the federal debt level is set for the budget by Congress. The federal debt limit includes not only debt held by the public, but the internal debt of the U.S. government. The investment of the Social Security trust fund in special U.S. obligations, and borrowing from the public fall under the restrictions of the federal debt limit. This means that there may be implications for the Social Security trust fund if the Congress does not establish a federal debt limit. The sale of securities to the Social Security trust fund is between federal accounts; it does not generate any resources for the government. It is the interest payments on publicly held federal debt that is considered the more relevant measure of the impact of the federal budget on the economy. The Social Security Trust Fund and Federal Default. The special obligations purchased by the Social Security trust fund are backed by “the full faith and credit “of the U.S. government. This is a promise by the U.S. government to CRS-14 redeem the security (debt instrument). The federal government can technically, like any other borrower, default on any or all of its outstanding securities. The implications for the economy and the private market for government securities of the federal government defaulting on the special obligations will depend upon the views of private investors. The impact would be determined by whether or not they think that this is a precursor to the government defaulting on its privately held securities (a general government default). However, there is no precedent for a government default, and therefore the actual implications of such a default cannot be accurately predicted. The Social Security Trust Fund and Benefit Payments. The accumulated holdings can be viewed as a measure of funds dedicated to pay future benefits. However, these funds will only be available as the government raises the resources necessary to pay for the securities as they are redeemed to pay benefits. The securities are a promise, by the U.S. government, to raise the necessary funds. The funds used to purchase the securities were used to fund other government activities, and cannot finance benefits directly. Projected benefits under current law exceed projected trust fund balances in 2041. When the accumulated holdings of the trust fund are exhausted in 2041, Social Security benefits can continue to be paid, but benefits can only be paid up to the funds available. This means that the Social Security benefits paid to beneficiaries will be lower than the calculated benefits.12 12 For information on the legal entitlement to benefits and the exhaustion of the trust fund, see CRS Report RL32822, Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues, by Kathleen S. Swendiman and Thomas J. Nicola.