Over the years since there has been a surplus, Congress and presidents alike have “raided” the Social Security Trust Fund, borrowing its surplus amounts to pay for other general budget programs and tax cuts.  Recently, the president proposed a budget for FY2006 using the amount in the Trust Fund to count against his deficit, lowering his total unified (on- and off-budget) deficit by $170 billion.  This means that instead of the often reported $390 billion, the true deficit projected for FY2006 is actually $560 billion.

As a result of budget-tightening policies under the Clinton Administration, the economy grew to produce a surplus in the general federal budget.  At that time, President Bill Clinton and Vice President Al Gore asked Congress to create a “lockbox” for Social Security revenues, so that the Trust Fund would no longer be used by the government for other spending.  This proposal found strong support in Congress.

During the 2000 presidential campaign and upon entering office, President Bush promised to preserve the Social Security surplus only for Social Security.  His priorities changed, however, and he used the surplus to help pay for tax cuts instead.  For more detailed analysis of how the surplus was used for tax cuts, click here to read information provided by the House Budget Committee (PDF file).

This does not mean that the Trust Fund is without value.  In fact, the Treasury bills, bonds and other debt instruments issued to secure the amount borrowed by the general fund to the Trust Fund is backed by the full faith and credit of the United States Government.  These are the same exact kinds of debt instruments issued to other creditors of the United States.

In a sense, the money in the Social Security Trust Fund is “in the bank.” Just as your own personal savings are not actually held in cash in a vault in a bank, but are invested in securities and bonds or used to provide credit for other bank customers.  The difference is that the Trust Fund’s bank is insured by the United States Government, and the United States has never defaulted on a debt, ever – the Constitution demands it.   Whenever privatization proponents claim that the Treasury bonds backing the Trust Fund are nothing but IOUs, they seek  to undermine the integrity of the Social Security program.  But along with that, they risk having an impact on the value of the U.S. Dollar and the health of the economy as a whole.