re: #20 mikiesmoky2

ssa.gov

Agency HistoryResearch Notes & Special Studies by the Historian’s Office

Since the assets in the Social Security trust funds consists of Treasury securities, this means that the taxes collected under the Social Security payroll tax are in effect being lent to the federal government to be expended for whatever present purposes the government requires. In this indirect sense, one could say that the Social Security trust funds are being spent for non-Social Security purposes. However, all this really means is that the trust funds hold their assets in the form of Treasury securities.

What has changed, however, is the accounting procedures used in federal budgeting when it comes to the Social Security Trust Funds.THE ACCOUNTING PROCEDURES”Off-Budget”-Trust funds are not exclusive to the Social Security program, nor were they new with its passage. At the present time, there are somewhere in excess of 150 different trust funds managed by the federal government. At the time of the passage of the Social Security Act in 1935 there were already in existence two major trust funds—those involved in the Civil Service Retirement System and the Government Life Insurance Fund established to insure World War I soldiers and their families.

Trust funds have often been displayed separately in the federal budget, although their precise treatment has varied over time.

From the beginning of the Social Security program its transactions were reported by the administration as a separate function in the budget.

This is sometimes described in present usage by saying that the Social Security program was “off-budget.” This was the budget representation of the Social Security program from its creation in 1935 until 1968. “On-Budget”

In early 1968 President Lyndon Johnson made a change in the budget presentation by including Social Security and all other trust funds in a “unified budget” This is likewise sometimes described by saying that Social Security was placed “on-budget.”

One way to estimate the immediate impact of this accounting change is to look at the government’s actual expenditures for FY 1969. Under the current unified budget rules, the government reported a surplus of $3.2 billion for FY 1969. Removing the “off-budget” items from the calculation would result in a net deficit of $507 million.Source: Historical Tables: Budget of the U.S. Government, Fiscal Year 2006, Table 1.1, pg. 22.

When the Congress began its own independent budgeting activities in 1974 it adopted the existing convention of treating Social Security as part of the unified budget.”Off-Budget” Again-In the 1983 Social Security Amendments a provision was included mandating that Social Security be taken “off-budget” starting in FY 1993.

This was a recommendation from the National Commission on Social Security Reform (aka the Greenspan Commission). The Commission’s report argued: “The National Commission believes that changes in the Social Security program should be made only for programmatic reasons, and not for purposes of balancing the budget. Those who support the removal of the operations of the trust funds from the budget believe that this policy of making changes only for programmatic reasons would be more likely to be carried out if the Social Security program were not in the unified budget.” (Note that this was a majority recommendation of the Commission, not the unanimous view of all members.) This change was in fact enacted into statute in the Social Security Amendments of 1983, signed into law by President Reagan on April 20, 1983.

(continued)