When Social Security was founded in 1935, the intent was always for it to be self-financing. “With those taxes in there, no damn politician can ever scrap my Social Social Security program” is how FDR put it. And indeed, the system has been able to pay promised benefits from its dedicated revenue sources—payroll taxes, income taxes on benefits, and interest on the securities in the trust fund—without turning to the federal government for additional funds.
The idea of asking Congress for money in the form of general revenue transfers has always been considered a slippery slope to those who want to preserve Social Security. Do it once and it could lead to more dependence on general revenue transfers, which would subject it to the budget process and someday cause some “damn politician” to scrap FDR’s beloved program.
But Alicia Munnell, in her brief “Social Security’s Financial Outlook: The 2023 Update in Perspective” lays out some good reasons for making general revenue transfers to restore Social Security’s “missing trust fund.”
As she explains, the system started falling behind in 1939 when spousal and survivor benefits were instituted. These benefits were unfunded and broke the link between lifetime contributions and benefits. As a result, in the early stages of the program, payroll tax receipts were used to pay benefits to retirees far in excess of their contributions rather than to build up a trust fund. If these additional benefits had been fully funded from the beginning, the system would be in actuarial balance today. She makes the argument that the cost to restore balance should be borne by society as a whole via the income tax rather than the payroll tax, and therefore justifies a transfer from general revenues.
Read the full brief here.