Social Security, Deficits, and Debt
June 1, 2020
Social Security, Deficits, and Debt
Social Security is a self-financing program that covers an
outgoing costs—this investment process results in Social
estimated 178 million workers and will provide monthly
Security revenues being exchanged for Treasury securities.
benefits to about 64 million beneficiaries in 2020. The
Said differently, during times of surpluses, Social Security
Social Security program is composed of the Old-Age and
is essentially lending cash to the General Fund of the
Survivors Insurance (OASI) program and the Disability
Treasury or the “rest of government.” Such lending from
Insurance (DI) program, commonly referred to on a
one part of the federal government to another part is called
combined basis as OASDI. Social Security, or OASDI, is
intragovernmental debt. Surpluses that are converted into
the federal government’s single largest program in terms of
government securities and held in the trust funds become
both the number of people affected (i.e., covered workers
indistinguishable from other revenues in the general fund.
and beneficiaries) and its finances (i.e., revenues and
payments).
Annual OASDI Surpluses and Deficits
The Social Security program is primarily financed through
When annual income (tax revenues plus interest income)
a payroll tax (employers and workers each pay 6.2%),
is greater than annual costs, the program is said to be in
which is applied to covered earnings up to an annual limit
surplus. Alternatively, when annual income is less than
($137,700 in 2020). A second source of funding is from the
annual costs, the program is in a deficit. Under the 2019
federal income tax imposed on a portion of Social Security
Board of Trustees’ intermediate assumptions, the
benefits of some beneficiaries. These tax revenues (i.e.
combined OASDI program wil be in deficit starting in
noninterest revenues) are used to pay monthly benefits. By
2021.
law, any surplus—arising when noninterest revenues are
When annual tax revenues are greater than annual costs,
greater than total costs—is loaned to the rest of the federal
the program is operating a cash surplus. Conversely,
government, creating assets in the form of interest-bearing
when annual tax revenues are less than annual costs, the
U.S. Treasury securities. These securities are known as
program is operating a cash deficit. On a combined
special issues and are nonmarketable (i.e., not available for
OASDI basis, the program has been operating cash
public purchase or sale). This process provides a third
deficits since 2010. These are also referred to as short
source of income, the interest payments those investments
term surpluses or deficits, respectively. Unlike surpluses
generate. This In Focus examines the relationship of the
and deficits described above, short-term cash surpluses
Social Security trust funds to the rest of government and
and cash deficits do not include interest income.
how this impacts federal deficits and the federal debt.
Conversely, times of short-term deficits—in which
The Trust Funds
outgoing costs exceed incoming tax revenues—result in the
A trust fund is an accounting mechanism that allows a
opposite transaction taking place. With a short-term deficit,
program to track revenues and costs and, if necessary,
Social Security would redeem trust fund asset reserves held
provides a means to hold any accumulated assets, such as
in U.S. Treasury securities for cash. Said differently, this
cash surpluses. The trust funds are dedicated to spend on
reverse transaction would result in the general fund paying
current and future scheduled monthly benefits. The trust
back the Social Security trust funds for amounts previously
funds provide automatic spending authority to pay benefits
borrowed. The trust funds’ holdings represent the amount
without the need for Congress to periodically re-authorize
of money that the general fund, or the rest of government,
the spending. The OASI and DI programs are two legally
owes the trust funds. A trust fund can redeem securities so
distinct trust funds and do not have the authority to borrow
long as the trust fund balance is positive: once depleted, a
from each other. Tax revenues are credited to each
trust fund no longer has Treasury securities to redeem to
program’s trust fund according to the percentage set in
augment income during a time of program deficit. For
statute, and payments to each program’s beneficiaries are
Social Security, this means the amount of scheduled
debited from its respective trust fund. Any interest earned
benefits that could be paid would be determined solely by
on asset reserves held in the trust funds is also credited to
incoming tax revenues.
the respective trust fund.
Under current law, the trust funds do not have the authority
Section 201 of the Social Security Act (42 U.S.C. §401)
to borrow money from the general fund or outside creditors
requires tax revenues not immediately needed for current
after they are depleted. That is, the trust funds cannot issue
costs (i.e., current monthly benefits) to be invested in
debt obligations to pay for benefits. For this reason,
interest bearing U.S. Treasury securities. Additionally, any
maintaining a positive trust fund balance (or sufficient
interest income from asset reserves held in the trust funds is
continuing tax revenues) is important, if tax revenues are
invested in government securities. During periods of short-
not sufficient to pay scheduled benefits. If holdings were to
term surpluses—in which incoming tax revenues exceed
be depleted, and continuing reserves and tax revenue were
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Social Security, Deficits, and Debt
not sufficient to pay scheduled benefits, then Social
projects that Social Security will run annual deficits
Security would not be able to pay full benefits on a timely
beginning in 2021, at which time there would no longer be
basis. Should this occur, as is projected in 2035 under the
a surplus to be subtracted from the general account deficit.
2020 Board of Trustees’ intermediate assumptions, a
distinction would arise between scheduled benefits (e.g.,
Federal Debt
level of benefits specified under current law) and payable
Trust fund reserve changes have no effect on total federal
benefits (level of benefits supported by continuing
debt, which equals publicly held debt plus
revenues).
intragovernmental debt (including debt owed to trust
funds). Trust fund reserve accumulation results in an
Social Security and Interest Income
increase in intragovernmental debt and an offsetting
The trust funds balance is continually turning over.
decrease in publicly held debt, leaving total federal debt
Specifically, incoming revenues are invested in Treasury
constant.
securities and the securities closest to maturation are
redeemed to pay benefits. As with other Treasury securities,
The trust fund investment process decreases the amount of
the federal government is obligated to make timely
money needed to be borrowed from the public. Were it not
repayments of principal and interest. Maturing securities
for the availability of Social Security cash surpluses and
that are not needed to pay benefits are reinvested in new
other forms of intragovernmental debt, all else being equal,
Treasury securities.
the federal government would need to increase its publicly
held debt. Unlike intragovernmental debt, publicly held
Although trust fund reserves and other intragovernmental
debt increases federal spending devoted to net interest
debt generate interest, this is money that the federal
payments. Publicly held debt is also typically the
government owes itself and hence does not affect the total
measurement used by economic analysts to measure federal
federal fiscal balance (i.e., balance between total
fiscal health. Higher levels of publicly held debt increase
government revenues and total government expenditures).
overall financing costs and reduce the capacity for future
When the general fund spends money owed to the trust
borrowing.
funds, these typically represent funds that would have to be
borrowed from other sources. When the Social Security
The Board of Trustees project that in 2021 Social Security
program experiences short-term deficits, as it is projected to
will begin to run program deficits and will need to start
in 2021, the program can draw down from the existing
drawing from their assets to pay full scheduled benefits on a
reserves held in the trust fund.
timely basis. This will involve the trust funds redeeming the
principal amounts in the trust funds. The government will
Off-Budget Status
have to increase revenues, reduce government spending
All federal programs are included in the unified budget,
elsewhere, or increase publicly held debt holdings (i.e.,
which provides an exhaustive view of all federal receipts
borrow from the public).
and expenditures. Some programs—such as Social
Security—use trust funds to track receipts and expenditures,
Under current law, the Social Security trust funds cannot
or revenues and costs. In the case of Social Security, the
borrow money or go into debt. Thus, projections of benefit
trust fund mechanism essentially links the Social Security
payments after trust fund depletion (i.e., beyond the
payroll tax to the payment of Social Security benefits.
program’s ability to pay them based on continuing tax
revenues) are presented on a hypothetical basis. Any
The Budget Enforcement Act (BEA), a portion of the
change to current-law benefit schedules that would
Omnibus Budget Reconciliation Act (OBRA) of 1990 (P.L.
extended the projected date of trust fund depletion, whether
101-508), took the Social Security programs “off-budget”
through revenue increases or benefit reductions, would
while most other federal programs remained “on-budget.”
reduce both the unified budget deficit and publicly held
The off-budget status means that the Social Security
debt.
programs are not included in the annual congressional
budget resolution or the President’s budget. That is, the
Related Resources
Social Security programs’ revenues and costs are not
CRS Report RL33028, Social Security: The Trust Funds
included in the federal totals.
CRS Report R44383, Deficits, Debt, and the Economy: An
Federal Deficits
Introduction
Despite the implication of its off-budget status, Social
Security spending and revenues affect annual net deficit
CRS Report RL33514, Social Security: What Would
measurements.
Happen If the Trust Funds Ran Out?
Under the unified budget, Social Security surpluses reduce
Social Security Trust Fund Cash Flows and Reserves, by
total annual deficits (i.e., the surpluses are subtracted from
David Pattison, Social Security Bulletin, vol. 75, no. 1,
the general account deficit). If instead Social Security trust
February 2015
funds run annual deficits, those amounts would increase
annual deficits.
Barry F. Huston, Coordinator, Analyst in Social Policy
Grant A. Driessen, Analyst in Public Finance
Since 1984, Social Security has run large surpluses that
have reduced annual deficits. The Board of Trustees
IF11560
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Social Security, Deficits, and Debt
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