There is a new column up at MSN Money entitled “5 myths about Social Security”.
It caught my eye because it includes the best plain-English explanation for the status of the OASDI Trust Fund I’ve seen, in an effort to balance the wild statements made last year about “there is no trust fund” or “the bonds in the trust fund are worthless”.
You may have heard this assertion so often that you’ll be surprised to learn that there really IS a Social Security trust fund that collects our payroll taxes and invests the surplus. It’s called the Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
What isn’t in the trust fund is a big hoard of cash.
Three-quarters of the money that’s collected in Social Security taxes goes right out the door again in the form of benefits to Social Security recipients. The surplus that isn’t needed to pay benefits is loaned to the federal government to pay for other programs.
In return for this loan, the trust fund gets IOUs in the form of special-issue, interest-paying Treasury bonds. The interest isn’t paid in cash, however; the Treasury issues the fund additional bonds for the interest amount. Last year, the fund was credited with $80 billion in interest; the total value of the securities is about $1.5 trillion.[...]
The problem, of course, is that the government now owes the trust fund so much money — and relies on its surplus so heavily — that real problems will be created when it comes time to cash in those IOUs. Uncle Sam is going to need to find another source of income to replace the surplus (or cut spending, or borrow money from somewhere else), plus come up with cash to pay the bonds it’s already issued.
And that, in a nutshell is why Social Security’s problems need to be addressed well in advance of its effective bankruptcy in 35-50 years…and why Medicare will stealthily become a huge problem in the next couple of years. (Medicare’s trust fund is being tapped, as Medicare claims now exceed revenues.)