The Social Security Trust Funds are estimated to have enough revenue to pay scheduled benefits on time and in full for the next ten years. Yet apprehension over the potential for a national debt default and the potential fallout it could have on the timely payment of Social Security benefits climbed recently when the June deadline grew near, and lawmakers were still at a stalemate.
If enough revenue flowed into the program, why was the payment of your Social Security benefits thrown into doubt? Aren’t beneficiaries legally entitled to full scheduled benefits under the Social Security Act? Yes, but a default would affect a certain type of revenue flowing into the program — the “net interest” payments that the U.S. Treasury makes to the Social Security and Medicare Trust Funds for money it has borrowed from the Trust Funds in the past.
According to the Congressional Research Service, another law, the Antideficiency Act, prohibits government spending more than the amount of available (cash) funds. The Social Security Administration (SSA) would not have the legal authority to pay full Social Security benefits in full or on time should the trust funds fall short due to a debt ceiling default — such as the one our nation narrowly avoided in June.
Currently, no law provides for the specific actions that the SSA must take to ensure Social Security benefits are paid in full and on time if the Social Security Trust Funds were to fall short due to becoming insolvent, or in like manner, in the event of failing to lift the debt limit in a timely way, even though the U.S. Treasury continues to receive Social Security payroll taxes.
According to the Social Security Chief Actuary, the Social Security Trust Fund is the largest government Trust Fund holding U.S. debt, an estimated $2.8 trillion. By law, Social Security benefits are paid from the Social Security Trust Fund. When employers send in payroll tax revenues and the U.S. Treasury receives federal income taxes from taxation of Social Security benefits, the Treasury issues special non-marketable bonds, like an I.O.U., for the revenues which are credited to the Trust Fund.
In other words, by law, the federal government for years has been “borrowing” revenues from the Social Security Trust Fund. As Baby Boomers retire and costs exceed payroll tax revenue alone, the Social Security Administration depends on “the net interest” paid by the special bonds to pay the Social Security benefits of today’s retirees in full and on time.
The Social Security Trustees recently estimated that the retirement and survivors Trust Fund will receive about $66.4 billion in net interest in 2023. That money comes from the Federal General Budget and is subject to the debt limit.
Insufficient funds would not mean Social Security is completely broke and unable to pay any benefits. For example, a recent issue brief by the Congressional Research Service explains that even when the Social Security Trust Funds are depleted ten years from now, there would still be enough tax revenue to cover about 80% of scheduled benefits. But without legal authority, the Congressional Research Service states, “It is unclear what specific actions SSA would take if a trust fund were insolvent, even though the trust funds would continue to receive most of the tax revenues.”
What do you think about funding proposals for Social Security? Please take our 2023 Retirement Survey and let us know! https://seniorsleague.org/2023-retirement-survey/
Sources: Remarks by Secretary of the Treasury Janet L. Yellen at the Sacramento Metropolitan Chamber of Commerce’s 51st Annual “Capitol-to-Capitol” Program, April 25, 2023.
“Social Security: What Would Happen If the Trust Funds Ran Out?” Congressional Research Service, September 28, 2022, RL33514.