Has Social Security Gone ‘Cash Negative’?

-Submitted by David Drumm (Nal), Guest Blogger

According to a Washington Post article, a “treacherous milestone” was reached earlier than expected when Social Security went “cash negative” last year. With high unemployment and the subsequent loss of payroll taxes, the outlays of benefits outstripped the income from payroll taxes. There’s just one small detail that the article didn’t take into account: the interest income on the government bonds that the Social Security trust fund generates. When the interest income is added to the payroll tax income, Social Security is ‘cash positive,’ that is, more money is coming into the system than is going out.

The omission of the trust fund’s interest income from the equation is a glaring oversight, but it makes for a more scary headline.

Social Security has its own budget and can only spend money from its trust fund. Its trust fund is financed via payroll taxes and interest on the bonds purchased using those payroll tax revenues. The article appears confused about the operation of the trust fund when the author writes:

The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.

So? That’s true for anyone owning government bonds. When a government bond comes due and is cashed in, the government “must raise taxes, cut spending or borrow more heavily from outside investors” to pay the bond holder. That’s how the Social Security bond holdings have always been paid. What’s so dire about that?

The article notes that in an MSNBC interview, Sen. Harry Reid said:

Social Security does not add a single penny, not a dime, a nickel, a dollar to the budget problems we have. Never has and, for the next 30 years, it won’t do that.

However, the article claims: “Such statements have not been true since at least 2009, when the cost of monthly checks regularly began to exceed payroll tax collections.” Again, the article is omitting the interest from the bonds that the trust fund holds. Of course Sen. Reid is exactly right. The Social Security system is self-financed and the trust fund is estimated to last for another 30 years.

Kevin Drum suggests:

If we gradually raise the payroll tax from 6.2% to 7.2% and gradually raise the earnings cap from $100,000 to $250,000 between 2030 and 2050, Social Security will be solvent forever.

H/T: Dean Baker, Paul Krugman, Dean Baker.

18 thoughts on “Has Social Security Gone ‘Cash Negative’?”

  1. The desire to totally bankrupt the system keeps on giving……tis the season…. It should read…..Boehner: House Republicans Oppose Senate Payroll Tax Cut Bill and wishes to finish off Social Security as we know it and finally create the Haves and Have Nots….

    Boehner: House Republicans Oppose Senate Payroll Tax Cut Bill

    WASHINGTON, Dec 18 (Reuters) – U.S. House Speaker John Boehner on Sunday threw into doubt an extension of a popular tax break for wage earners, saying he and his fellow House Republicans opposed the two-month extension passed by the Senate.

    Boehner said on NBC’s “Meet the Press” he wants a longer-term extension of the reduced rate for U.S. payroll tax paid by workers to fund Social Security.

    The Senate on Saturday passed a two-month extension but Boehner said he wanted to work out differences with the Senate before the end of the year, when the tax cut expires. (Reporting By David Lawder)



    The key dates regarding cash flows are shown in the following table.

    First year outgo exceeds income excluding interest 2010

    First year outgo exceeds income including interest 2023

    The trustees report clearly includes interest as part of “cash flow.”

  3. Even the Social Security Trust fund in its annual report to congress makes a clear distinction on what is cash and what is not cash. Interest is a non cash item on their books.

    So therefore you are the only one one out there who makes the claim that interest should be added into the equation.

    The facts please. SS is cash flow negative. Period. It will be negative every year for the next 75.

    PS You say the deficits at SS came, “a little early”. Hogwash. It came seven years early. That’s not little at all.

  4. The people’s need for jobs is secondary: what they need is money.
    The government’s need for the people to have jobs is primary: to keep them off the streets.

  5. Those who claim that SSA’s (mandatory) investments in government bonds are merely IOUs with nothing to back them also need to explain why such a regressive tax should be justified to pay “ongoing” government expenses (AKA: “borrowed”).

    It’s really rich: require low level employees to pay far greater percentage of their income in taxes in order to fund their own retirements, and then, when those retirements are imminent just say sorry, we stole all your money and don’t plan to give it back because it’s all just scraps of piece of paper and we spent it all.

    It’s one thing if a person chooses to make their own investments and they go south, but when those investments are a condition of employment, there is no excuse for not upholding the bargain. If that means the wealthy need to (finally) pay an equivalent percentage on their income, then that’s what it means. We’ve been paying 7% all these years to SS; let the wealthy (finally) pay an additional 7% on their income henceforth.

    Any pol who claims SS to be insolvent needs to explain why lower income people have been excessively taxed all these years to fund “ongoing” government expenses, and needs to explain how refunds covering those excess taxes will now be issued.

  6. “The omission of the trust fund’s interest income from the equation is a glaring oversight, but it makes for a more scary headline.”

    That was no oversight. It was an obvious manipulation and omission of facts – a lie, to advance a particular point of view. You were just being something short of incendiary in your use of language. 🙂

    Good article as always Nal.

  7. Outstanding story David. It always amazes me when the Post or other venerable newspaper allows lies and misconceptions to be printed. Social Security is under attack and the 1% are doing the best to destroy it. Thanks for the corrections David.

  8. Damn and Bill Clinton is giving some zingers to Obama……..

    Bill Clinton Book ‘Back To Work’ Offers Job Creation Policies

    NEW YORK — Former President Bill Clinton says in a new book that last summer’s political fight over raising the U.S. debt ceiling made the nation look “weak and confused” overseas and he doesn’t know why President Barack Obama didn’t seek a hike in the limit when Democrats still controlled both houses of Congress.

    He says the final deal did little to create jobs or solve the longer-term debt crisis.

    In his book, “Back to Work,” Clinton analyzes the factors that contributed to the nation’s current economic woes and offers several policy prescriptions he says would create jobs and make the U.S. more competitive. While he generally praises Obama for taking steps to mitigate the financial crisis and deep recession, he also gently dings the president for poor communication and strategic misfires.


  9. I don’t claim to fully understand the complexities of this, but it seems to me that there is a “problem” because the money that has been collected has been spent on things other than Social Security. True there are bonds, but the resolution of the issue will require today’s children to repay the cost of those bonds.

    Sen. Reid may well be correct in that SS has not caused a problem, but there is a burden on young people cause by government overspending. By overspending, I mean spending money designated for SS and, if I understand it, money that should have been in a “trust,” and replacing that money with IOUs (i.e., bonds).

  10. “will not ‘get’ them is anything but a toxic dead zone that they can never hide from or be safe in.” (Woosty’s still a cranky Cat with a really cool gravatar)



  11. Changes Are Coming
    Posted on May 17, 2011 by stargazer12


    There is nothing political about this email. It simply points out very probable changes that are in our future. And, to me, some of these, are indeed a big worry!!


    Whether these changes are good or bad depends in part on how we adapt to them. But, ready or not, here they come


  12. “I personally see the OWS as a first step in the healing process….:)”

    Woosty, I hope you are right (as in correct).

  13. I know 1 thing. What the public is being told is waaaaaay more complicated than is factual or necessary to convey truth. That the reason for this ‘complicated’ explose’ has more to do with what Nal just said…and that has to do with some groups idealistic desire to control and manipulate what has already been covenanted and set in stone…and that that breach of trust and faith will probably bankrupt and break more than just Social Security.

    To have to listen to deliberate complicated twistings of fact and the delivery of half-fact is just plain sick making. Most people get that it’s the $$$ that those who want to break the system are after….and what those (ok I’ll say it….1%) don’t get is that the environment that will be created by continung to push against the compassionate forces that stand behind social security and a non-privatised for profit healthcare system…what that will not ‘get’ them is anything but a toxic dead zone that they can never hide from or be safe in.

    Chopras 7 spiritual laws hold a lot of wisdom, law # 2) “The Law of Giving-
    This law could also be called the Law of Giving and Receiving, because the universe operates through dynamic exchange. The flow of life is nothing other than the harmonious interaction of all the elements and forces that structure the field of existence. Because your body and your mind and the universe are in constant and dynamic change, stopping the circulation of energy is like stopping the flow of blood.”

    This Country has suffered a heart attack because of the nasty greed and irresponsible behavior of Wall Street and those who encouraged the banks, bullies, and brokers into this ‘creative dismantling’ of what wasn’t broken and did not need fixed.

    I personally see the OWS as a first step in the healing process….:)

  14. Nal,

    Great article, but one should never let facts get in the way when writing propaganda in the main stream media let alone that dubious institution the Washington Post.

  15. Nal,

    Another glaring defect in the article is that the amount of tax rate paid has gone down for employee hence employer, which usually doubles the employee contribution….It is a game to bankrupt the system….it was started under one of the Bush’s….

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