ROBERT SIEGEL, host:
One item the lame-duck Congress is guaranteed to leave for another day is the country's exploding deficit. Still, proposals to fix it and slash the national debt have been coming fast and furious, and one target is Social Security. Talk of cutting Social Security typically gets around to the Social Security trust funds. They currently contain $2.5 trillion for retirement benefits - $2.5 trillion that some say doesn't actually exist.
So our Planet Money team has been trying to sort through this peculiar question: Is this money there, or not? Here's Alex Blumberg and Chana Joffe-Walt.
ALEX BLUMBERG: If you look at your paycheck, in the spot where it lists deductions, there's a line: FICA SS. That is the money that gets taken out of your check to pay for Social Security.
CHANA JOFFE-WALT: For most of the program's history, the total amount of money coming into the program from all those payroll taxes was roughly equal to the amount going out to pay benefits for people when they reached retirement age -roughly equal, until the baby boomers joined the workforce.
BLUMBERG: All of a sudden, way more people were working than were collecting benefits. And so more money was coming into the program than was going out. For the first time in history, the program was running big surpluses.
JOFFE-WALT: But of course, the baby boomers are eventually going to need that money back when they retire, which raises a deceptively tricky question.
Ms. MAYA MACGUINEAS (President, Committee for a Responsible Federal Budget): How is it that that money is going to get set aside and saved for Social Security benefits when we need them? And that's where the story of the trust funds comes in.
BLUMBERG: Maya MacGuineas is the president of the Committee for a Responsible Federal Budget. And that question - what do we do with that surplus? - it is not a trivial question at all. It's actually a little hard for the federal government to save money.
JOFFE-WALT: Do they just take the $2-plus trillion and put it under an enormous mattress?
BLUMBERG: That one in the Lincoln bedroom?
JOFFE-WALT: That bed is not large enough. Could the government just open a $2.5 trillion savings account at some bank?
Ms. MACGUINEAS: Those dollars are all invested in government treasuries. The reasoning is that that's the safest investment strategy. You want to be cautious. You don't want to put your money in the stock market. You want it to be safe.
JOFFE-WALT: A Treasury bond. A Treasury bond, remember, is the way the government borrows money. It's literally an IOU from the government. So for the government to take that money and invest it in treasuries is kind of weird.
BLUMBERG: And let's just walk through this, Chana. I'll be the government of the United States of America, and you be who you actually are: a taxpayer.
JOFFE-WALT: So I've been sending you, the government, money from my paycheck every month to save for Social Security when I get old.
BLUMBERG: Yup. And I've been taking that money and using it to pay your parents now, and all the other people who currently receive Social Security benefits. And then the bit that's left over, I've been lending it to a very responsible borrower with fantastic credit: myself. I borrow this money now, spend it on roads and soldier salaries and Medicare payments, and then I'll pay myself back later.
This is where your head starts to hurt.
Ms. MACGUINEAS: And this is where you start saying, are we double or are we triple counting? It starts to get really, really confusing. In the end, the question is: Did you actually increase the overall level of government savings because of the extra money that went into Social Security? And the profound belief is no.
JOFFE-WALT: It's a little like I get a big bonus at work and I think to myself, okay, I want to save this money for my vacation fund. And then I lend the money to myself and add a deck to my house. I owe myself back that money for my vacation fund. But it's kind of hard to call the debt on the new deck a trust fund. Same with the Social Security trust funds.
Ms. MACGUINEAS: They are nothing like any trust fund that any one of us would think of. I mean, it conjures up an image of really holding savings, and it doesn't do that at all. And I can promise you, you'll hear about - once you start talking about the trust funds, you will hear from people who say, how dare you talk about them not being real? They're the realest thing out there. This is a very heated debate, and much of it is because the name - trust fund -conjures up an image of something that's so sacred and trusted and is savings and safe. And unfortunately, that's just not how it worked.
BLUMBERG: So what is this heated debate about? Well, there is another way to think about what I - the government - am doing here. Yes. From my point of view, the $2.5 trillion in the Social Security trust fund, that is $2.5 trillion that I - the government - owe.
JOFFE-WALT: To me. You spent my money, and you owe me.
BLUMBERG: Yes. But those that argue that the trust fund is actually a trust fund, think of me - the federal government - as a deeply divided being. I owe that money to another part of myself - another entity; the Social Security trust fund. And if I don't pay what I owe, I would be defaulting on my debt, something the U.S. has never done in its entire history.
JOFFE-WALT: So one part of you has spent my money, but the other part of you has guaranteed that that money will be there when I need it.
BLUMBERG: Exactly. And I'll be honest, this dance is getting a little stressful because this year, for the first time in decades, there are more retirement-age people who need to be paid Social Security than people who are paying in every month. By the middle of the decade, the surplus that the baby boomers generated will turn into permanent and unending deficits as they start to retire and demand benefits.
JOFFE-WALT: Hundreds of billions of dollars a year more will be going out than will be coming in; hundreds of billions of dollars that will be added to our already sizeable budget deficit; hundreds of billions of dollars that the federal government will have to come up with to cover its Social Security obligations.
BLUMBERG: So according to Maya MacGuineas, whether or not the trust fund exists is sort of a moot point.
Ms. MACGUINEAS: The policy choices that we have, to make good on Social Security obligations, are exactly the same with the trust fund or if we'd never had the trust fund. The exact, same things are going to have to be done to pay those Social Security benefits: raise taxes, cut Social Security benefits, cut other government spending, or borrow the money. That's the only way to repay the money.
BLUMBERG: Which of those things it will be - higher taxes, cutting programs, borrowing more money - that will be what the real fight is about.
I'm Alex Blumberg.
JOFFE-WALT: And I'm Chana Joffe-Walt, NPR News.