Don’t steal Social Security funds with another round of reforms, cut spending now.

Let’s be perfectly clear: Social Security will never be bankrupt. But politicians use “it’s going bankrupt” as a scare tactic to get all the pork spending they really want. 

Don’t be fooled — reforming Social Security really means stealing money from Social Security payroll taxes to fund the rest of the welfare state. If you don’t believe me, ask yourself this question: why are politicians so eager to reform a program that has a 10-year runway before it would have to make any adjustments to benefits?

In every recent presidential election, candidates have discussed reforming entitlement programs like Social Security. During the Republican presidential debate, candidate Nikki Haley said, "Social Security will go bankrupt in 10 years…what we need to do is keep our promises. Those who have been promised, should keep it. But for my kids in their 20s, you go and say we are going to change the rules, change the retirement age for them." 

Candidate Chris Christie chimed in with a similar theme, “The most disgusting part of [President] Joe Biden’s State of the Union address this year was when he stood up, and he said, ‘We’ll all agree, right? We’re not going to do anything to Social Security?’ And both sides got up and cheered,” Christie said. “[They’re] a group of liars and cowards, because they know that in 10 years, Medicare will be bankrupt. And in 11 years, Social Security will be bankrupt.”

Alas, it appears both candidates were fed talking points and really don’t understand how Social Security operates or what reform really means. 

First off, Social Security does not “go bankrupt.” When the accumulated balance in a trust fund runs out, Social Security essentially reverts to a cash-in/cash-out system. The benefits paid can’t exceed the receipts. So, if the dollars coming into the system can’t meet projected benefit expenses, benefits would be reduced. But keep in mind that past reforms like raising retirement ages or taxing benefits were clearly a benefit reduction for those impacted. 

But I will let you in on a bigger secret: reforming Social Security is only partly about solidifying the benefits of this program; it is really about avoiding cuts to government spending on every other program. 

How does extending the life of Social Security forestall addressing the federal leviathan’s spending appetite? For that answer, we need to turn to some real data, not politicians’ talking points. Let’s go to the Office of Management and Budget’s historical table on Social Security data.

The main trust fund is the first and largest, the Old Age and Survivors Insurance Fund (OASI). It was first funded back in 1937. From 1937 until 1983, this fund brought in $1.312 trillion of income. And it paid out $1.303 trillion, meaning it was just slightly cash positive, by $9 billion, over all those years. 

However, from 1976 to 1983, it went cash negative. It paid out $30.8 billion more than it took in. Hence the 1983 Social Security reform.

This was the last major Social Security reform. Among other things, it raised the retirement age, increased contribution rates, and started the taxation of some benefits beginning in 1984. So, when you hear the term reform, it means that workers are expected to pay more and potentially get less.

From 1984 through 2023, OASI took in about $2.7 trillion more in total cash contributions than it paid out in benefits, according to data from the Office of Management and Budget (OMB).

This excess cash was used by the U.S. Treasury to cover deficit spending each year, and the cash was replaced with intergovernmental debt. This means the Treasury gave the OASI Trust Fund about $2.7 trillion in IOUs. These funds owed by the Treasury to Social Security comprise the trust fund balances commonly referred to. So, when you hear about the OASI trust fund “running out in ten years,” these are the funds provided when annual Social Security contributions don’t cover benefit payments. 

Beginning in federal fiscal year 2021(FY21), OASI began a string of negative cash flow years. The annual payments to beneficiaries again exceeded the total cash contributions from workers, employers, and interest earnings, just like in the mid-1970s (Note that FY18 was also negative, but in FY19 and 20, cash reserves increased). This is projected to continue until the entire accumulation of dollars runs out sometime around 2033. 

If 10 years seems like a long time from now, given that Congress generally completes its annual budget late, you are not wrong. You see what the reformers of Social Security want to forestall is not the depletion of the trust fund. They want to have Social Security generate annual positive cash flow for the Treasury so that every other program, like Medicaid, faces less financial pressure for cuts.

How so? Going to the official Social Security website and reviewing the OASI data, we see that the trust fund decreased about $170 billion from 2020 to 2023, from $2.812 trillion to $2.641 trillion, which is not comparatively large, when the annual federal deficits summed to nearly $9 trillion over those four years. But instead of contributing excess contributions to the Treasury, the Treasury had to redeem obligations it owed to OASI with cash. This is on top of all of the other borrowing done by the federal government for other programs. 

So, when national politicians speak of reforming Social Security (e.g. increasing Social Security contributions and delaying benefits), we now see the game that is being played. Give recipients some small benefit cuts, increase taxes on today’s workers, and scrape off the excess to feed existing programs. And then repeat the process when the next generation shows up. It’s like the instructions on a shampoo bottle, but instead of “wash, rinse, repeat,” Social Security politics is “spend, scare, repeat.”

Relying on borrowed federal funds, including those borrowed from Social Security contributions, to grow the government is one of the reasons the U.S. government faces a debt crisis with federal debt quickly approaching $35 trillion. Let’s take Social Security reform —  read: trust fund theft —  off the table. It’s time to tackle the beast. Cut spending in every other program first because we can’t wait two years, let alone 10 years, to avoid another round of big-spender policies that put us further in debt.