Question

When the government collects payroll taxes, they accumulate in the social security _____, out of which social security benefits are paid?

Answer 1

Answer: Trust Fund.

The Social Security Trust Fund is the collective name of the Federal Old Age and Survivors Insurance Trust Fund (OASI) and the Federal Disability Insurance Trust Fund (DI). The FICA statute established the payroll taxation system by which the Social Security Trust System is financed. The account is ideally in excess of the amount needed to fund the social security system for the fiscal year for good reason. The employee and employer will pay identical rates into the fund, and then the excess monies are invested in interest bearing federal securities to increase such monies held in trust.

The trust fund was originally created to account for projected future shortfall in benefits needed to pay out to the legitimate claimants. The policy changed in the 1980s where FICA payroll increased. These would be excess contributions from the said tax increases were deposited into the Social Security Trust Fund to be be used at a future time when the current assets of the Social Security System are not sufficient to honor their obligation. This policy is pay as you go or PAYGO.

As Congress has the duty of determining the taxation rates and policies (and consequently the amount of debt securities such as bonds, notes, etc.), which the executive branch must then execute such policies and the collection of the FICA payroll tax flows into the Social Security Trust Fund whereby the Social Security Administration carries out its responsibility to invest in the securities according to the FICA statute and present amendments to the statute.