	Introduction

The Social Security program pays benefits to retired or disabled workers and their family members and to the family members of deceased workers. Social Security is financed primarily by payroll taxes paid by covered workers and their employers. The program is also credited with federal income taxes paid by some beneficiaries on a portion of their benefits, reimbursements from the General Fund of the Treasury for various purposes, and interest income from investments held by the Social Security trust funds. Social Security tax revenues are invested in U.S. government securities (special issues) held by the trust funds, and these securities earn interest. The tax revenues exchanged for the U.S. government securities are deposited into the General Fund of the Treasury and are indistinguishable from revenues in the General Fund that come from other sources. Because the assets held by the trust funds are U.S. government securities, the trust fund balance represents the amount of money owed to the Social Security trust funds by the General Fund of the Treasury. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of U.S. government securities held by the trust funds. The Social Security trust funds are both designated accounts within the U.S. Tr easury and the accumulated holdings of special U.S. government obligations. Social Security program income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: (1) the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and (2) the Federal Disability Insurance (DI) Trust Fund. Under current law, the two trust funds are legally distinct and do not have authority to borrow from each other. This is important given projections showing that the asset reserves held by the OASI fund will be depleted in 2034, whereas the asset reserves held by the DI fund will be depleted in 2052. Following the depletion of trust fund reserves (2052 for DI and 2034 for OASI), continuing income is projected to cover 91% of DI scheduled benefits and 77% of OASI scheduled benefits. In the past, Congress has authorized temporary interfund borrowing and payroll tax reallocations between OASI and DI to address funding imbalances. This CRS report discusses the operations of the OASI and DI trust funds on a combined basis, referring to them collectively as the Social Security trust funds . On a combined basis, the trust funds are projected to remain solvent until 2035, at which point continuing income is projected to cover 80% of program costs. The Social Security Trust Funds as Accumulated Holdings

The Social Security trust funds can be viewed as trust funds, similar to any private trust funds, that are to be used for paying current and future benefits (and administrative expenses). The requirement that the Social Security trust funds purchase U.S. government obligations serves several purposes, such as
offering a mechanism for the Social Security program to recoup the surplus revenues loaned to the rest of the government; paying interest so that the loan of the surplus revenues does not lose value over time; ensuring that the Social Security trust funds (and not other government accounts) receives credit for the interest earnings; ensuring a level of return (interest) to the Social Security trust funds; and providing a means outside of the securities market for the U.S. government to borrow funds.
The Social Security program pays monthly cash benefits to retired or disabled workers and their family members and to the family members of deceased workers. Program income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund. Projections show that the OASI fund will remain solvent until 2034, whereas the DI fund will remain solvent until 2052, meaning that each trust fund is projected to be able to pay benefits scheduled under current law in full and on time up to that point. Following the depletion of trust fund reserves (2052 for DI and 2034 for OASI), continuing income to each fund is projected to cover 91% of DI scheduled benefits and 77% of OASI scheduled benefits. The two trust funds are legally distinct and do not have authority to borrow from each other. However, Congress has authorized the shifting of funds between OASI and DI in the past to address shortfalls in a particular fund. Therefore, this CRS report discusses the operations of the OASI and DI trust funds on a combined basis, referring to them collectively as the Social Security trust funds. On a combined basis, the trust funds are projected to remain solvent until 2035. Following depletion of combined trust fund reserves at that point, continuing income is projected to cover 80% of scheduled benefits.
Social Security is financed by payroll taxes paid by covered workers and their employers, federal income taxes paid by some beneficiaries on a portion of their benefits, and interest income from the Social Security trust fund investments. Social Security tax revenues are invested in U.S. government securities (special issues) held by the trust funds, and these securities earn interest. The tax revenues exchanged for the U.S. government securities are deposited into the General Fund of the Treasury and are indistinguishable from revenues in the General Fund that come from other sources. Because the assets held by the trust funds are U.S. government securities, the trust fund balance represents the amount of money owed to the Social Security trust funds by the General Fund of the Treasury. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of U.S. government securities held by the trust funds.
The Social Security trust funds represent funds dedicated to pay current and future Social Security benefits. However, it is useful to view the trust funds in two ways: (1) as an internal federal accounting concept and (2) as the accumulated holdings of the Social Security program.
By law, Social Security tax revenues must be invested in U.S. government obligations (debt instruments of the U.S. government). The accumulated holdings of U.S. government obligations are often viewed as being similar to assets held by any other trust on behalf of the beneficiaries. However, the holdings of the Social Security trust funds differ from those of private trusts because (1) the types of investments the trust funds may hold are limited and (2) the U.S. government is both the buyer and seller of the investments.
This report covers how the Social Security program is financed and how the Social Security trust funds work.