Yes, Social Security can run budget deficits

Myth: Social Security is fully funded by payroll taxes and therefore cannot contribute to federal budget deficits. 

Reality: Social Security has contributed to annual budget deficits since 2010, and this year alone will contribute $250 billion—0.8% of GDP—to a projected $1.8 trillion federal deficit (see chart 71). 

In 2026, Social Security will collect $1,442 billion in payroll and related taxes and spend $1,672 billion on benefits and administration. That cash shortfall of $230 billion, plus $20 billion in interest costs on Social Security’s accumulated past shortfalls, increases this year’s federal deficit by $250 billion.

Past payroll taxes do not cover current Social Security cash shortfalls

A common myth holds that this year’s shortfall is covered by past payroll taxes sitting in the Social Security Trust Fund. But the Trust Fund is not a cash account that can be tapped to pay benefits. Instead, the Trust Fund is an internal accounting mechanism that tracks past Social Security surpluses that the federal government already spent— which in turn gave the Social Security Administration the legal right to run corresponding budget deficits until it is made whole. Those current Social Security deficits are financed by new Treasury borrowing and therefore contribute to current year federal budget deficits.

More broadly, the last major Social Security reforms to avert insolvency were enacted in 1983. From 1983 through 2009, Social Security ran a cumulative surplus that, with Trust Fund interest, later approached $3 trillion. Those surpluses were not saved in a traditional sense. They were lent to the Treasury and spent. But they gave Social Security a legal claim that allowed the program to run an equivalent deficit beginning in 2010, until the Trust Fund balance reaches zero around 2032. At that point, the Trust Fund will no longer be able to cover annual shortfalls, and Social Security will have to reduce benefits—unless Congress intervenes.

Social Security can add to the long-term national debt in three distinct ways

First, when the trust fund is exhausted around 2032, Congress and the president will face overwhelming pressure to allow general federal revenues—that is, additional deficit spending—to continue financing at least some portion of Social Security’s shortfalls rather than impose politically unacceptable benefit cuts.

Second, when Social Security lent those earlier surpluses to the Treasury, it earned not only the right to run equivalent future deficits—it also earned $3 trillion in interest payments to be paid out over the 1983-2032 period. That interest is owed by the Treasury, or the rest of the federal government, and adds to the national debt.

Third, Social Security has received approximately $250 billion in other general fund bailouts since 1983, much of it to replenish revenues lost to the payroll tax holidays enacted during and after the Great Recession. This amount should not be confused with the 2026 total shortfall of $250 billion referenced above.

Taken together, as chart 72 shows, after 1983 Social Security ran a cumulative surplus that peaked in 2009 at roughly 12% of that year’s gross domestic product (GDP). Subsequent annual shortfalls have steadily eroded that surplus down to approximately zero in 2026. Growing Social Security shortfalls—and the interest costs on the resulting federal borrowing—are projected to raise the national debt by an amount equal to 39% of GDP by 2056.

By 2056, Social Security is projected to add 2.65% of GDP to annual deficits (the equivalent of $830 billion per year in today’s GDP) given the Congressional Budget Office’s assumption that general revenue transfers will maintain scheduled benefits regardless of Trust Fund balances.

These large deficits will put significant pressure on lawmakers to reform Social Security.