March 23, 2011
The Honorable W. Todd Akin
117 Cannon Office Building
Washington, DC 20515
Dear Rep. Akin,
During a recent episode of C-SPAN’s Washington Journal, you stated that one of the reasons you do not like the Social Security program is that the government spends the money that is paid into the system and that this is wrong. However, this program is structured this way by design.
The recommendations of the National Commission on Social Security Reform in 1983, led to the growth of a large surplus. The surplus has always been used to buy bonds. Currently, the bonds held by the trust fund, together with annual tax collections and interest, are projected to be sufficient to finance full benefits through the year 2037, and more than 75 percent in later years.
Just as with any funds used to purchase bonds, the money is borrowed by the government but repaid at the end of the term of the bond. By design, the sale of government bonds is used for federal spending. These bonds are backed by the full faith and credit of the United States government and will be repaid unless Congress were to vote to default on these bonds.
In this same segment, you offer another reason that you dislike Social Security — that if a person in their 30s or 40s had instead invested the same amount in the stock market or T-Bills, they would be a millionaire by the time they retire. It is interesting that you suggested investing in T-bills. As is the case with the bonds held by Social Security, money invested in T-bills is also used to pay for government spending.
Returns on stock market investments can be a mixed bag. A person in their late 40s who invested in the stock market in the late 90s would have seen a negative real return on investment. This is not the route to becoming a millionaire.
As the public discussion of Social Security continues, I hope you and your staff will have the opportunity to further review the design and finances of the program. If you would like any additional background on Social Security, I would be happy to assist you.
