The Honorable Sam Johnson
1211 Longworth House Office Building
United States House of Representatives
Washington, DC 20515

Dear Representative Johnson:

Recently, you were quoted in an article as having said, “Social Security needs cash, and I don’t know where Treasury gets the cash to redeem the bonds. In times of this deficit, Treasury has to borrow it. Today the U.S. borrows 40 cents for every dollar that it spends, much of it from the Chinese and sends the bill to our children and our grandchildren, and part of that’s to cover Social Security.”

However, this fundamentally misrepresents the problem. The government already borrowed the money when it sold the $2.6 trillion in government bonds to the trust fund. As you know, the bonds held by the trust fund are included in the $14.3 trillion of debt subject to the ceiling. What is at issue is simply turning over bonds, something that the government does all the time, not new borrowing. If you were concerned about the government borrowing money this should have been raised at the time when the money was originally borrowed from Social Security. Rolling over these bonds requires absolutely no new debt.

Assuming that the government does not default on its debt, Social Security is fundamentally sound. The trustees’ projections show that Social Security will maintain full solvency through the year 2036. Even if Congress never makes any changes to the program, Social Security will be able to pay close to 80 percent of scheduled benefits from then on. Under the law, the bonds held by Social Security are to be treated like any other debt.

While it would be unacceptable to have benefits drop by more than 20 percent, Congress has more than a quarter century to prepare for this situation. The projected shortfall is substantial, but nonetheless considerably smaller than other budgetary changes we have seen in recent years. For example, it is more than 20 percent less, measured as a share of GDP, than the increase in annual defense spending than we have seen from 2000 to 2010.

I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.