Social Security: What You Should Know

A little-recalled provision of the 14th Amendment of the U.S. Constitution says:

The validity of the public debt of the United States, authorized by law ... shall not be questioned.

The Social Security Trust Fund consists of about $2.5 trillion of U.S. Treasury notes, purchased by the Trust Fund, with the proceeds going to the General Fund and spent by Congress on wars and bridges and Sesame Street. The money is gone, but the Trust Fund is guaranteed -- by law and the Constitution -- to get that money back to make sure your grandmother gets her monthly stipend from the government.

The Social Security Trust Fund is solvent (unless the U.S. government goes into catastrophic default, in which case the Trust Fund would likely be one of the least of our worries). Any insinuation that retirees have anything to worry about in terms of the availability of funds to the Social Security Administration, for the next 25 or so years, is false.

However, all is not roses. Recall that I said the money's already been spent. Over the next 25 years, that's $2.5 trillion tacked on to our federal expenditures, an average of about $100 billion a year. After that, the General Fund will no longer have any Trust Fund liabilities to pay back, but Social Security benefits will be cut by about a quarter.

And if you're looking at the entire historical federal budget, don't merely include an additional $2.5 trillion in expenditures: you also need to consider the losses in revenue to the General Fund that the Trust Fund had been providing for years.

And that's starting now. The General Fund has already paid back tens of billions, and lost that historical revenue. Social Security's probably added about $50 billion to the deficit in the last year. It might go back into the black briefly, but by 2015 it will dip into the red and stay there if something isn't done.

Bottom line: for the next 25 years, we have absolutely nothing to fear about the ability of Social Security to pay retirees; we only have to be concerned with how the federal government will repay Social Security to pay retirees. The money doesn't exist. It will be paid back, but at a very high cost to taxpayers.