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The Friday Podcast: In Search Of The Social Security Trust Funds

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According to a recent report from the Social Security Board of Trustees, the program's trust funds have $2.5 trillion in them. But there's an argument about whether that $2.5 trillion actually exists or not, and it centers around the use of this term "trust fund."

The way these trust funds work is that every dollar you and your employer pay into Social Security is invested in government Treasuries. These Treasuries are simply the way the government borrows money, it’s literally an IOU from the government. So, the government gets money in from Social Security payments, takes that money and loans it to itself, and then gives itself an IOU to pay the loan back.

Maya MacGuineas, President of the bipartisan Committee for a Responsible Federal Budget, says because the government owes this money, calling these trust funds is dangerous.

In the end the question is -- did you actually increase the overall level of government savings because of the extra money that went into Social Security? And the profound belief is no, not at all, that money all got spent and in fact the money you borrow from Social Security isn't counted in those deficit numbers so when we talk about a trillion dollar deficit we are not even counting how much we borrowed from Social Security.

Monique Morrissey of the Economic Policy Institute, disagrees. She says you should think about these trust funds like a kid's piggy bank. The kid is putting money in the piggy bank, but the parents are living beyond their means so they borrow from the kid's piggy bank. But if the kid wants to buy a mountain bike, the parents will have to pay that money from the piggy bank back. Morrissey says where they get the money from doesn't matter, the kid still has to be paid back.

...Imagine that for whatever reason the parents have credit cards galore so really it doesn't matter to them whether they are putting it on plastic. They will put other stuff on plastic and pay back the kid. And this is the situation of the federal government right now so it, the federal government the plastic is China or whoever else, they got the plastic they can spend what they want so it really doesn't matter whether they are paying back their kid and putting more on plastic or not, that really doesn't matter.

For more about the Social Security trust funds, read this FAQ from the government.

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