Reply #54: not exactly. [View All]

[Hannah Bell]

Q1. Which political party took Social Security from the independent trust fund and put it into the general fund so that Congress could spend it?

A1: There has never been any change in the way the Social Security program is financed or the way that Social Security payroll taxes are used by the federal government. The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government."

Most likely this question comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting.

Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget."

This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget.

But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no effect on the actual operations of the Trust Fund itself.

http://www.ssa.gov/history/InternetMyths2.html


The piece they don't explain is that all excess SS revenues have always been borrowed into the general fund in exchange for US securities. The trust fund consists of securities that are redeemable by the government.

If you think about it, there's nothing else that could be done with excess money collected.

Johnson's change in accounting practices didn't change that fact.

What did change things was Reagan's speedup of SS tax increases.

The increase in SS taxes above what was needed to finance current retirees increased revenues so much that the SS trust fund now contains five or six years' worth of SS payments, where the historical average was about one year or less.

One year was the mandate of the original legislation.