Forcing a Bad Investment on Retiring Americans
Special Report No. 55
Executive Summary The so-called Social Security trust fund is a fiction. A. Haeworth Robertson, former Chief Actuary for the Social Security Administration, has called it “really just a petty cash fund.” What is habitually called a trust fund is primarily a conduit through which payroll taxes are collected from working Americans and their employers and then immediately distributed to Social Security recipients. This fact is crucial to understanding why Social Security (to date) is so politically popular and why it poses an unprecedented fiscal policy crisis.
Social Security benefits have never been strictly tied to what a taxpayer “contributed” in payroll taxes, but to benefit formulas based on wages. As a result, Social Security provided workers retiring before the early 1980s with substantial real rates of return on their employer/employee payroll tax payments, because these people generally received benefits based on their highest lifetime wage levels but faced relatively low lifetime payroll tax rates and, in many instances, paid no payroll taxes for a large fraction of their working life. The early high rates of return on Social Security account, in large measure, for the program’s political popularity.
Was this page helpful to you?
The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?Contribute to the Tax Foundation
Let us know how we can better serve you!
We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better?Give Us Feedback