![handle is hein.tera/crstax0368 and id is 1 raw text is: 94-593 EPW
Updated April 29, 1998
Social Security Taxes: Where Do Surplus Taxes
Go and How Are They Used?
David Koitz
Specialist in Social Legislation
Education and Public Welfare Division
Summary
Congressional Research Service -+° The Library of Congress
CRS Report for Congress
Received through the CRS Web
The costs of the Social SecurIity program, bothi its beniefits and administrative
ex\penises, are financed by a taIx onl wag(_es and self-employmlenlt in1come. CommlonlyN
referred to as FICA aid SEC'A taxes (becauLse they\ are levied under the Federal
Insuran/ce anld Self-Employmentc11 Contributlions Ac/,s), these taxes flow\ eachi day into
th1ousands of depiositoryN aIccouns mainitained by the governm11en1t withl finlancial
inistituttl)is acro)sthlecounitry\. Along w\ithimany othier formis of revenLes theCse SOChIL
SecuLrity taxes become part of the governmilenit'S oplerat]ing caIsh pool, or- what I s more
commonly referred to as the U .S. treaLSUry. InI effect, onice these taxes are received,] thiey
become indc]istingu'Lishiable from othier monies the governmenit takes in. Thiey are
accounted for separately t~i1hugh thle ISSuaICe of federal secui'ties to thle Socil SecurIity
trust funds wh\ iich basically involv es a series of bookkeeping en-tries by the Treasury
Departmet- but thle tru1st funFds thiemsetv es do niot hiold moniey. Th-ey are simly
accounts. Similarly , beniefits are niot paid fromi th truLSt fun ds, butfo h rauy
As the chiecks are patid, securlities Of anJ equL1\ivaent vlute ar'e *wtn\ I' IOff' thle truLst fundICs.
Genierally speakin-ig, the federal secu-rities Issued to any\ federal truLst fun11d r-epresenlt
.permissin to spen-d. As long: aIS aI tru1st fund hias a balanice of suich Securities, the
Treasury Departmen1t has legl:1 auLthOri'ty to keep issuting, chiecks for the prog:rami. Ini a
senlse, the mechianics of a federal tru1st funId are similar to those of a banik accountt. The
bank takes inI a depositor's moIny, cr-edits thle amIIount to thle depositor-'s aIccounFt, and
thent loans it out. As long ais the aCCOuntt shIows a Lane the dep1ositor can1 wr Iite ch~ecks
thiat the bantk muLst honor01. When more1- Social Secuity- taxes are receiv ed thant spen-t, the
blan11ce Of secui'ties p)osted to thle Sociat1 Secur1ity truLst funtds rises. Simply~t put, thlese
balanices, like those of a banIk accounIt, r'epr1esent a prIomiise, a forml of IOU from the
governmen-t thiat if nieeded to payI Social Security b)enefits, the g-ov erniment w\Ill ob-tainl
r-esour1ces equl to thle va]le Of thle secui-ties. Thie surpIls taxes th~emIselves are thlen
used for any\ of thie many funjctionis of government.](ViewImageLocal?handle=hein.tera/crstax0368&div=1&collection=&method=preview&ext=.png&size=3)
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