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Last week, the Congressional Budget Office released its annual Budget and Economic Outlook. The agency projects federal debt will rise from 100 percent of GDP today to 175 percent by 2056. Avoiding that bleak future will require significant tax increases, spending cuts, or a combination of both.
If you’re trying to improve the fiscal outlook, the biggest budget line item would seem like a ripe target for reform. The problem, though, is that the biggest program is Social Security. In 2026, it will account for 26 percent of all non-interest spending and it will rise to 28 percent by 2056. It’s also nearing insolvency. CBO expects the Social Security trust fund to be depleted early next decade.1
But wait, hasn’t the Social Security trust fund been robbed to pay for other programs? Wouldn’t the program be on a firm financial footing if Congress hadn’t stolen the money for tax cuts or wars?
This week’s Plot Point solves the mystery of what happened to the Social Security trust fund.
The plots
We need two graphs to solve this mystery. The first looks at all the income that has gone into the trust fund since 1971.2
Social Security has several revenue sources:
Payroll taxes. By far the largest source. Currently, the rate is 6.2 percent for both workers and employers for any earnings below $184,500 per year. From 1971 through 2024, the program collected $25.1 trillion in payroll taxes. It is projected to collect an additional $16.1 trillion by 2034.
Taxation of benefits. Seniors with incomes above certain thresholds pay income tax on up to 85 percent of their Social Security benefits.3 From 1971 to 2024, Social Security raised $779 billion from the taxation of benefits. It expects to raise another trillion through 2034.
General fund reimbursements. Congress has occasionally transferred money from the Treasury’s general fund to the trust fund—$256 billion in total from 1971 to today. The most recent example came in 2011 and 2012, when payroll taxes were temporarily reduced and the trust fund was credited for the lost revenue.
Interest. The US Treasury pays interest on the trust funds’ balances at rates comparable to what it would pay to borrow from the public. From 1971 to 2034, those payments are expected to total about $3.1 trillion.
Taken together, these sources will provide roughly $46.4 trillion in income to the trust fund between 1971 and 2034. So where did all the money go?
The answer: benefits! As the figures show, Social Security expects to spend $46.6 trillion in benefits to Social Security recipients from 1971 to 2034.
Why have we stopped at 2034? The trust fund balance is the gap between the blue and red lines—and that gap will close in 2034. In that year, the program is forecast to be insolvent, with cumulative costs exceeding cumulative income by about $200 billion.
The point
Your Social Security contributions weren’t stolen. Every dollar of payroll taxes, taxes on benefits, and interest ever credited to the trust fund will have been paid out to Social Security recipients by sometime in the next decade. In fact, the federal government has transferred additional funds into the program over the years.
There is a kernel of truth in the claim that Congress “stole” Social Security money. The funds weren’t stolen; they were borrowed and spent on other government programs. No money was saved and set aside. The cash that was received from payroll taxes and other sources was immediately spent, but IOUs were created and paid back by future taxpayers. That is why Social Security is already straining the federal budget. Current taxpayers are paying back the IOUs. CBO expects Social Security will spend $166 billion more than it takes in from non-interest revenue sources in 2026. From 2026 to the expected projected depletion date of Social Security’s retirement trust fund, CBO expects Social Security to spend $2.2 trillion more than it receives.4
When the trust fund is depleted, current law requires benefits to be cut. CBO estimates that this will amount to a 28 percent cut in scheduled benefits. Some think Congress won’t allow that to happen and instead will allow Social Security to permanently draw payments from the general fund. At that point, Social Security’s funding shortfalls should be obvious to all.
In short, prior Congresses created a massive obligation, claimed to dedicate revenue to pay for it, and then promptly spent that money on other programs. Social Security will be made whole, but today’s taxpayers won’t be.
Further reading
Learn more about the history of Social Security’s current benefit formula—and why the program’s path to insolvency was already clear in the 1980s—in this Hoover Institution economic working paper.
Daniel Heil is a policy fellow at the Hoover Institution whose focus is on the federal budget, tax policy, and the federal antipoverty programs. He participates in Hoover’s Healthcare Policy Working Group and Fiscal Policy Initiative.
Tom Church is a policy fellow at the Hoover Institution. He studies health care policy, entitlement reform, income inequality, poverty, and the federal budget. He and Daniel Heil are co-authors of “Choices for All,” a set of commonsense health care reforms. He participates in Hoover’s Healthcare Policy Working Group, Fiscal Policy Initiative, and Tennenbaum Program for Fact-Based Policy.
There isn’t a single Social Security trust fund; there are two trust funds. The Old-Age and Survivors Insurance (OASI) trust fund pays for retirement benefits, while the Disability Insurance (DI) trust fund finances disability benefits. For simplicity, however, they are often discussed together when examining Social Security’s finances, and we follow that convention here.
In case you’re wondering, the starting-year trust fund balance was $38 billion.
That doesn’t mean recipients face an 85 percent tax rate; it means up to 85 percent of their benefits are included in taxable income. With marginal tax rates ranging from 10 percent to 37 percent, higher-income seniors who owe income tax effectively pay between 8.5 percent and 31.45 percent on their Social Security benefits.
See Table B-2 in CBO’s the Budget and Economic Outlook: 2026 to 2036.