April 19, 2014

Untangling the Confusion Over Trust Funds

  • Social Security, established in 1935, is the federal government’s largest program. It represents approximately one-fifth of the federal budget and...

A recently released paper by Charles Blahous, one of the two public trustees for Social Security and Medicare, has received considerable attention because of its discussion of trust fund accounting and the 2010 Affordable Care Act. The annual report from the trustees of these programs is usually issued about this time of the year, and Concord Coalition Executive Director Robert L. Bixby warns that differing perspectives and bookkeeping sleights of hand often lead to public confusion over the trust funds.

The “assets” in the trust funds, Bixby points out in a new blog posting, “are nothing more than promises from the government to pay itself a lot of money in the future regardless of whether any resources have been saved for that purpose.” As a result, he says, trust fund balances are “easily manipulated to increase their claims on general revenues.”

He points to two recent examples. In one, Congress and the President cut the Social Security payroll tax to help stimulate the economy.  But to avoid accusations that they were ‘‘raiding’ the Social Security trust funds, they said those funds would still be credited with the same amount of revenues and interest income as if the full payroll tax had been collected.

The other example involves cutting spending from Medicare and raising Medicare payroll taxes to pay for some other health care spending under the ACA, while simultaneously extending the life of the Medicare Hospital Insurance (HI) trust fund.

“In both cases,” Bixby explains, “the trust funds receive new ‘assets’ (claims on general revenues) from which to pay future benefits. Yet in neither case has anything been done to improve the government’s overall ability to pay the future benefits to be covered by these assets. The transactions are a bookkeeping sleight of hand designed to accomplish policy goals without acknowledging the budgetary trade-offs.”

Read more with Bookkeeping Sleights of Hand Conceal Budgetary Reality