How Social Security Funds are Invested

How can a system that has run a surplus every year for more than sixty years suddenly be in financial trouble? What has happened to all of that money?

Under the terms of the Social Security Act of 1935 surplus revenues are "invested" as "loans" to the U.S. government. This became the funding for the Civilian Conservation Corps, the Work Projects Administration and other programs that brought the U.S. through the Great Depression. These programs built canals, roads, bridges, facilities at National Parks and much more of our national infrastructure, including our first system of national, interstate highways. These investments, which facilitate rapid transportation of goods and interstate trade are the foundation of our national economic success. This plan has benefitted all Americans. The benefit that each American receives from these investments is proportional to that individual's participation in our economic system. (i.e. The more income you receive from interstate trade, the greater is your benefit from the investment of Social Security surpluses.)

The problem with this investment plan is that while it required that surplus funds be "invested" through the federal government, it did not specify any schedule for the federal government to repay these "loans". The result is that the federal government has never budgeted any repayment for funds received from the Social Security Administration.

Actually, it is apparent that our federal lawmakers have long ago decided that the federal government will never pay back any portion of this debt that is owed to American workers. The evidence of their intention lies in the change in the language that is used to refer to the surplus revenue that is collected each year by the Social Security Administration. Now, when lawmakers speak of the Social Security Fund, they are no longer speaking of the debt that is owed by the federal government to the American people, but only to the current year's surplus revenue. When lawmakers speak of the impending bankruptcy of the Social Security Fund, they are simply anticipating a time when Social Security benefit payments will equal or exceed Social Security revenues, ignoring the debt owed to the American worker.

So, Who Benefits from this Deception?

Even though it is clear that American workers are paying for benefits that federal lawmakers do not intend that they will ever receive, it is also clear that the Social Security System has provided a welcome supplement to the retirement income of many American workers and their dependents. It has not always been acknowledged, however, that the benefits of the Social Security System extend not only to those who receive benefit checks through the mail, but to all Americans, through the work that has been done with each year's surplus revenue. It is the surplus revenue that has made it possible for the U.S. government to fund the construction of our federal and interstate highway systems and much more of our national infrastructure. It is the surplus revenue from the Social Security taxes that has made it possible for the U.S. government to build the world's strongest economy upon that infrastructure while keeping federal income taxes at the lowest level in the industrialized world.

By providing this extra revenue to the federal government, the Social Security System has made it possible to do the work that has been mandated by the American people and American big business interests while keeping taxes low. The Americans who benefit most from this low tax rate are those Americans who enjoy the largest incomes and subsequently pay the highest income tax rates, which are kept artificially low through the existence of the ever-present surplus in the Social Security budget. In other words, the Americans who benefit most from the Social Security System are the wealthiest citizens of our nation. The average American worker, retiring with full benefits at age 65, will receive a benefit of less than $12,000 per year. Many wealthy Americans receive benefits that are many times that amount, through artificially low income tax rates, each year.