Do `Lock-Box' Proposals Really Protect Social Security?

By Greenstein, Robert | Nation's Cities Weekly, July 5, 1999 | Go to article overview

Do `Lock-Box' Proposals Really Protect Social Security?


Greenstein, Robert, Nation's Cities Weekly


Polls indicate there is a widespread belief among the public that a primary reason Social Security faces long-term financing problems is that the reserves that were supposed to accumulate in the Social Security trust funds to help finance the benefits of future retirees have been depleted by use of Social Security revenues for other purposes. Social Security "lock-box" proposals circulating on Capitol Hill are often portrayed as shoring up Social Security by ending these raids on the trust funds.

In fact, the Social Security trust funds have not been "raided," and such portrayals of lockbox legislation are incorrect. The Social Security trust funds now have reserves that equal $760 billion and are scheduled to rise to $4.5 trillion by 2021. Social Security's long-term financing problems are the result of entirely different factors. Moreover, lock-box proposals would not shore up Social Security or address its long-term financing problems. Doing so entails tackling Social Security's long-term financial problems directly.

How Social Security Financing Works

When the Social Security trust funds take in more in revenues in a year than the trust funds need to pay Social Security benefits that year, the Treasury borrows the surplus funds and provides the trust funds with Treasury bonds in return. This occurs regardless of whether the non-Social Security budget is in deficit or in surplus. The lock-box proposals do not change this.

If there is no deficit in the non-Social Security budget, the Treasury uses these surplus Social Security revenues to pay down the publicly held debt. If there is a deficit in the rest of the budget, the surplus Social Security revenues are used to cover that deficit, with any remaining surplus revenues going to pay down the debt. The Social Security trust funds receive the same amount of Treasury bonds regardless of whether the Treasury uses the surplus funds to help fund other government programs or to pay down debt. Social Security's assets increase by the same amount either way.

Deficits in the non-Social Security budget thus do not diminish the assets the Social Security trust funds hold and do not result in raids on trust funds. …

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