June 17, 2011
The Honorable Sam Johnson
1211 Longworth House Office Building
United States House of Representatives
Washington, DC 20515
Dear Mr. Johnson:
The Congressional Quarterly recently reported that at a hearing earlier month you stated about Social Security, “The system is broke and you know it.” In reference to the Treasury bonds held by the Social Security trust fund, it was reported that you said, “Sure they’ve got pieces of paper over there, but that’s not real.”
With all due respect, these assertions are mistaken. The recommendations of the National Commission on Social Security Reform in 1983 led to the growth of a large surplus in Social Security. The surplus has always been used to buy bonds. Currently, Social Security will be able to pay full benefits through the year 2036, and close to 80 percent thereafter. This is a far cry from broke.
The Social Security trust fund now holds more than $2.6 trillion in government bonds that are honored by the “full faith and credit” of the U.S. government, the same credit that gives the dollar bills in our wallets their value. These bonds a part of the $14.3 trillion federal debt covered by the debt ceiling. About two-thirds of this debt is held by the public, made up of both American and foreign investors. The remaining one-third is held by government entities, including Social Security, the U.S. Military Retirement Fund, and the U.S. Civil Service Retirement Fund.
Under the law, the bonds held by Social Security are to be treated like any other debt. In assessing the prospects for Social Security it seems that we have to work from current law, since none of us can really know how the program will be changed in the future. And under current law, the program is projected to be fully solvent for more than a quarter century with no changes whatsoever.
As the discussion over Social Security continues, I hope you and your staff will have the opportunity to further review the design and finances of Social Security. This week I published a primer that you may find useful: “7 Things You Need to Know About the National Debt, Deficits, and the Dollar.” If you would like any additional background on the program, I would be happy to assist you.
