Social Security's I.O.U.s are not “worthless"

The assertion that the money owed to Social Security will never be repaid is not true -- this is one more cynical lie.

Contributor: Buddy Robinson

Right-wingers claim that all the borrowing that Congress has taken from the Social Security Trust Funds is just a pile of worthless IOUs, which will never be redeemed. However, this is yet one more false scare tactic designed to fool people into thinking that Social Security will run out of money, when that's not the case.

It is true that Congress, over many decades, has borrowed a lot of money from the Social Security Trust Fund. This started going big time during the Vietnam war. By the end of 2019, the cumulative amount borrowed was almost $2.9 trillion.

It is fair to argue whether Congress should have borrowed this huge amount in the first place. The alternative would have been to raise taxes, which most elected officials are loath to do – even though it would have been more honest.

For example, to help finance the US military effort in World War Two, the government sold War Bonds to the public.

All of the borrowing for the Social Security Trust Funds is in form of US Treasury securities. Like any bonds, they pay out interest every year, until they are finally redeemed. In 2019, the interest rate averaged 2.2 per cent. The overall inflation rate for 2019 was 1.7 per cent, so you see that Social Security came out ahead by taking out those bonds.

This means that while the Social Security Funds loan money to the federal government, at the same time those Funds are getting interest income off of those bonds. In 2020, the expected amount of bond interest the Social Security will receive is $78 billion – nothing to sneeze at.

The bigger question, though, is: Will the loans every get fully repaid? Will those Treasury bonds be redeemed, so that Social Security gets back all the money it loaned? This is the idea that the conservative opponents harp on – they claim that the loans will not be repaid. Or, even more falsely, they claim these were not loans at all, but some type of stealing.

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To answer this question, just look at what form the loans are in. These are US Treasury bonds. They have the reputation of being the most stable and reliable kind of investment anyone can make, anywhere in the world. Even China holds a large amount of US Treasury bonds.

That stellar reputation exists because Treasury Bonds are legally backed by the full faith and promise of the US Government, from the richest country on the planet. The only way there could ever be a default would be if the US economy was totally, irrevocably devastated.

A very relevant point is that in order to pay off the Treasury Bonds held by the Social Security Trust Fund, Congress might at some time in the future have to raise taxes in order to do so. In a way, this would be like raising the taxes they should have done years earlier, so that they wouldn't have needed to borrow more from Social Security.

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But as for the idea that Social Security is holding “worthless bonds, that will never get repaid?” That's a load of bunk. It's a lie created specifically to get people to lose faith in Social Security, and acquiesce to having benefits cut.

Remember, there are powerful people in the top 1 per cent who would like to do away with, or at least cripple, Social Security.

If you hear any candidate repeating the “worthless IOUs” fairy tale, be clear that is someone you do not want to vote for.

*Threats to the Safety Net
*What we need to do about it

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