Why Does The Myth Persist That Congress Raided Social Security?

Periodically somewhere in the media there's an article or a story about how the Social Security Trust Fund will be depleted by 2033 and if nothing is done Social Security beneficiaries will see their benefits reduced to 75-80% of currently calculated amounts. 

This is true.

These articles typically attract a number of commenters who suggest that the Trust Fund wouldn't be facing a shortfall if Congress would pay back what the borrowed, or raided, or stole. 

That's not true.

But why do people think it is?

The first myth to dispel is that the money that we all "paid in" (more accurately, taxed) is in accounts with our names on them from which benefits are paid out of. The benefits that are paid to retirees come directly from what current workers are being taxed. If those two numbers happened to be equal, then no money would be deposited into the Trust Fund. If they were always equal there would never be a Trust Fund balance. Until 2020, however, the amount coming in every year exceeded what was being paid out, so there was an annual surplus of funds. Were those funds deposited in a vault or bank account? No, by law they were required to be invested in Special Issue, interest-bearing, Treasury Bonds. This is where it gets confusing for many people. 

Let's say the Social Security surplus for a given year is $20 billion. The Social Security Trust Fund buys $20 billion in Special Issue Treasury Bonds. The other side of that transaction is $20 billion goes into the federal government general fund. But — this is the important part — the ledger for the Trust Fund still shows that it has received $20 billion. 

Most people have heard about the federal deficit. The deficit is the amount each year by which expenditures exceed revenue. The government makes up that difference by selling various types of interest-paying Treasury bonds — it's borrowing to close the gap. Let's say the deficit for the year is $100 billion. The government will need to borrow $100 billion — but they effectively borrowed $20 billion from Social Security, so they only need to go outside the government for $80 billion. Once again, this transaction does not reduce the Social Security Trust Fund balance. 

Now it may look like the government is taking Social Security funds and using it for other purposes, and in one respect they are. But think about it like your deposits at your local bank. You may have a checking account balance of $2,000, but the bank is using that money to lend to its other customers. But you will never see a ledger entry indicating that $1,500 of your money went to Joe Smith in the form of a car loan. The federal government likewise is using the accumulated surpluses to finance the annual budget deficits, but there will never be a ledger entry indicating that money is coming out of the Social Security Trust Fund. 

Since 2020 the amount being paid in benefits each year has exceeded what is being collected via payroll taxes. The difference, the deficit, is made up by cashing in some of those Treasury bonds, including the accrued interest. Let's say the difference is $15 billion. The trustees go to the Treasury and cash in $15 billion in bonds. That $15 billion comes out of the federal government general fund and flows to the Trust Fund briefly before it is disbursed to beneficiaries. The Trust Fund balance is then reduced by $15 billion (I have not accounted for interest in this example in order to keep it simple). 

Without any changes to the system the Trust Fund balance will decrease each year as bonds are cashed in to cover the annual deficits. That is what is causing the projected shortfall, not "raiding", just the simple fact of demographics fewer — workers per retiree and retirees living longer. 

A related subject that you hear about is how the general fund budget and the Social Security Trust Fund were combined during the Johnson administration. All this did was allow Congress to list the deficit as the combination of the two figures. If the general fund deficit was $100 billion and the Social Security surplus was $20 billion, the deficit would be $80 billion. The practice of using the surpluses to reduce borrowing is not new, and did not start with Johnson, but was a feature of the system since 1937, when the first payroll taxes were collected. 

Some action will have to be taken in order to avoid the catastrophe of having to reduce benefit payments by 25% or more. Removing the income cap is one suggestion that is thrown around. Increasing the withholding percentage is another. Raising the retirement age is also discussed. There is borrowed money that has to be paid back, but that it will be paid back, with interest, is fully reflected in the Trust Fund balance.

So yes, money that was "paid in" to Social Security was used by Congress and various presidents. But not to "fund wars" or any other pet projects. It was used to reduce outside borrowing to fund deficits, but only in years when Social Security revenue exceeded benefits, and did not reduce the Trust Fund balance by doing so.