Read More »"/> Read More »"/> Four Federal Trust Funds Running Out of Time | MyGovCost | Government Cost Calculator

Four Federal Trust Funds Running Out of Time

Thursday August 4th, 2016   •   Posted by Craig Eyermann at 6:43am PDT   •  

Years ago, when the U.S. government spent far less money than it does today and currently plans to spend in the future, elected officials created several trust funds as a way to set aside the “extra” money collected for dedicated purposes, so that it could spend the money later when it would actually be needed.

A great example of such planning is Social Security’s Old Age and Survivors Insurance (OASI) trust fund, where back in 1982, the U.S. Congress increased Social Security’s payroll taxes to set aside extra money for the purpose of paying retirement benefits for the Baby Boom generation. Today, as they increasingly entering into retirement, Baby Boomers are benefiting from that long-ago action with larger monthly checks than they would otherwise receive from the program.

But at the same time, those generous retirement benefits are draining Social Security’s OASI trust fund. When that trust fund runs out of money, the amount of benefits that are paid out will, under current law, be automatically slashed to match the amount of money that Social Security collects through its payroll taxes.

Social Security’s OASI trust fund is just one of four major trust funds operated by the federal government to supplement spending on highways, Medicare, and also Social Security’s disability and retirement benefits. Each of these trust funds is projected by the Congressional Budget Office (CBO) to run out of money within the next 15 years. The Committee for a Responsible Federal Budget (CRFB) has created the following table to keep track of the latest projected dates for each.


The table lists: the year in which the CBO projects that each indicated trust fund will run out of money, the amount by which federal annual budget deficits would increase if the U.S. government tried to maintain its planned levels, and also the amount by which each program’s spending and benefits will have to be cut in order to match the amount of money that the government actually collects through taxes to directly support them.

The CFRB suggests that letting the trust funds run out of money and — then limiting spending on highways, Medicare’s hospital insurance, and Social Security’s disability and retirement benefits to just the money that the U.S. government collects — would provide some very surprising economic benefits:

… we estimate that limiting spending from all four trust funds to revenue at their exhaustion dates would increase real GNP per person by over 4 percent, or $3,000, in that year. These estimates don’t account for the particular policies chosen. For example, if Social Security’s and Medicare’s finances were improved in part by raising their various ages, CBO has estimated in the past that it would increase the size of the economy by another 3 percent after 50 years.

Clearly, making trust funds solvent would much improve the debt situation and halt its long-term upward path. Of course, actually doing so would require making choices that lawmakers have been unwilling to make so far (or have actively put off in the case of the Highway and Disability Insurance trust funds). It would mean reducing spending or increasing revenue for highways, SSDI, Medicare, and old-age Social Security. Lawmakers can greatly improve the long-term budget outlook by making trust funds whole, but they must consider the policies that must be undertaken to ensure that.

That lawmakers have instead repeatedly chosen to kick the can down the road, especially with the recent rescues of the highway trust fund in 2015 and Social Security’s disability insurance trust fund earlier this year (which both fail to permanently resolve their fiscal deterioration), indicates that they are far more concerned with doing what it takes to stay in power than they are with pursuing solutions that would avoid a fiscal crisis.

What kind of perverse incentives must be at work for politicians to take paths that will most certainly lead to a greater crisis in the future? The best thing that can be said about their current approach is that the federal trust funds run out of money would happen one at a time, instead of all at once.

Facebook Twitter Youtube

Support the Independent Institute when you shop on Amazon with the AmazonSmile program. Every time you make a purchase, 0.5% will be donated to Independent on your behalf, at no extra cost to you. Just visit, log in using your usual Amazon account details, and select the Independent Institute as your charity.


August 2016