By Grace Kinum and Katie Ng

As the United States faces a looming national debt crisis, we must ask, is our social security system the most efficient? We researched how different Social Security structures may influence national debt. We focused our comparison on the United States and Sweden, two countries with similar demographic challenges but completely different structures and policies. We specifically looked at the World Bank’s data, through St.Louis FRED, to examine how these structures influenced their national debt levels using debt-to-GDP graphs. 

 In the United States, President Roosevelt implemented the Social Security Act in 1935 during the Great Depression. Social Security is a mandatory government spending program that has grown over the years and continues to expand. The system uses a pay as you go structure. Payments collected from paychecks pay for benefits immediately. 

Until recently, the collected payments exceeded the amount the government was paying out. The surplus created a Social Security trust. However, the government used it for other expenses (Glenn). According to the journal issue “The Great Social Security Debate” by Beland Daniel, this poses an issue to the United States because the fertility rate is decreasing along with the working age population. However, the population over 65, when a person is eligible to receive benefits, is increasing. The amount of people paying into the system is increasing while the number of people receiving benefits is increasing, broadening the deficit. 

The trust fund created in response to the baby boom is projected to run out in 2042. It has become increasingly clear that the debt crisis in the United States is becoming an issue as spending on programs like Social Security continues to grow. Without increasing government revenue, the large projected deficit for the upcoming fiscal year poses risks of eventual dependency on other countries to finance the United State’s debt. This dependency could lower other nations’ confidence in the United State’s fiscal stability and cause eventual economic decline. 

The Swedish Social Security system also includes a pay as you go component and a defined contribution system. In a defined contribution system money is held and invested in individual accounts meaning that the benefit amount is dependent on the success of those investments. The Swedish population faces challenges similar to those in the United States, such as declining fertility rates and an aging population. However, the defined contribution system places less financial strain on the Swedish government than the defined benefit model in the United States which impacts national debt differently. 

Data Analysis

Figure 1

World Bank. Central Government Debt, Total (% of GDP) for the United States [DEBTTLUSA188A]. FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/DEBTTLUSA188A. 

We looked at data from the World Bank obtained from the St. Louis FRED, showing the central government debt as a percent of GDP for both countries. The graph shows an increasing trend in government debt as a percentage of GDP until 1998. After that, there is an overall decline with some fluctuations throughout (Sweden’s central government debt as a percent of GDP from World Bank). The United States has fluctuations in government debt as a percentage of GDP from 1989 to 2020, but there is a generally steep increase (United States Central government debt as percent of GDP from World Bank). National debt is made up of a lot of things including military, healthcare, education, and other kinds of spending. However, in the United States, Social Security is consistently ranked as one of the most prominent aspects of mandatory spending(Chart Pack: The U.S. Budget), meaning it largely influences debt. In Sweden, the pension system is also one of the most significant government spending programs(Brass). 

The United States fiscal policy does not tax paychecks enough to cover the benefits they are paying off. They have to borrow money, either from the trust or other sources(McBride et al). The defined benefit system used in the United States places stress on the government. This combined with how much of the budget is used for Social Security leads to it being a large contributor to the growing debt levels. 

Figure 2

World Bank, Central government debt, total (% of GDP) for Sweden [DEBTTLSEA188A], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DEBTTLSEA188A

The defined contribution system in Sweden subjects the investments to market volatility and shifts the investment risk to the employees, not the government. While this places more pressure on the employee to make smart investment decisions they are not making these decisions directly. Instead, they chose from an approved list of funds, and regardless of the success of those investments they still receive a minimum pension indexed to the cost of living. The decline in Sweden’s debt as a percent of GDP observed in 1998 is due to the Social Security reforms passed in Sweden in 1994. The delayed decline in debt may be accounted for by the other expenditures that contribute to national debt. These reforms to a defined contribution system helped contribute to a steady decline in government debt. 

Conclusion

We examined the role of Social Security policy in Sweden and the United States’ government debt. As debt continues to rise, policymakers must consider what changes need to be made in the Social Security system to have a more sustainable path of national debt. For example, raising government revenue by raising taxes, enforcing a later retirement age, introducing progressive price indexing, or longevity indexing could help lower spending on Social Security and increase their ability to finance the Social Security system without plunging the United States into greater debt (Daniel). Policymakers could evaluate if introducing elements of the defined contribution system in the United States could reduce the financial burden on the government.

References

1. Andrews, Doug, and Robert L. Brown. “Is Defined Contribution a Panacea for Defined Benefit Social Security Funding Problems? Lessons from Two Countries.” North American Actuarial Journal, vol. 13, no. 2, 2009, pp. 186–201. ProQuest, https://login.ezproxy.bowdoin.edu/login?url=https://www.proquest.com/scholarly-journals/is-defined-contribution-panacea-benefit-social/docview/199172423/se-2. 
2. Béland, Daniel. “The Great Social Security Debate.” International Journal, vol. 64, no. 1, 2009, pp. 115–123. ProQuest, https://login.ezproxy.bowdoin.edu/login?url=https://www.proquest.com/scholarly-journals/great-social-security-debate/docview/220861426/se-2. 
3. Brass, Clinton T. “Background to Reform: The Social Security Payroll Tax Debate of 1983.” Social Security Bulletin, vol. 65, no. 4, 2003, pp. 38–47. U.S. Social Security Administration, https://www.ssa.gov/policy/docs/ssb/v65n4/v65n4p38.html. 
4. Galston, William A. “The National Debt Crisis Is Coming; Politicians Need to Recognize the Urgency of Cutting Benefits or Raising Revenue.” Dow Jones & Company Inc., 2024. ProQuest, https://login.ezproxy.bowdoin.edu/login?url=https://www.proquest.com/blogs-podcasts-websites/national-debt-crisis-is-coming-politicians-need/docview/3071990833/se-2. 
5. Kessler, Glenn. “Updating a Ruling: Social Security and Its Role in the Nation’s Debt.” The Washington Post, 30 Nov. 2012. ProQuest, https://login.ezproxy.bowdoin.edu/login?url=https://www.proquest.com/blogs-podcasts-websites/updating-ruling-social-security-role-nations-debt/docview/1283054004/se-2. 
6. McBride, William, et al. “Unsustainable US Debt and Impacts of Potential Tax Changes.” Tax Foundation, 14 Jan. 2025, https://taxfoundation.org/research/all/federal/us-debt-budget-taxes-spending-social-security-medicare/. 
7. Palme, Marten, and Ingemar Svensson. Social Security, Occupational Pensions, and Retirement in Sweden. 1997. ProQuest, https://login.ezproxy.bowdoin.edu/login?url=https://www.proquest.com/working-papers/social-security-occupational-pensions-retirement/docview/56342573/se-2. 
8. Peter G. Peterson Foundation. Chart Pack: The U.S. Budget. 7 May 2024, www.pgpf.org/article/chart-pack-the-us-budget/. 
9. Reznik, Gayle, Dave Shoffner, and David Weaver. “Coping with the Demographic Challenge: Fewer Children and Living Longer.” Social Security Bulletin, vol. 66, no. 4, Apr. 2007, https://www.ssa.gov/policy/docs/ssb/v66n4/v66n4p37.html. 
10. Tergesen, Anne. “What Happens to Social Security Benefits if the U.S. Hits the Debt Limit?” Dow Jones & Company Inc., 2023. ProQuest, https://login.ezproxy.bowdoin.edu/login?url=https://www.proquest.com/blogs-podcasts-websites/what-happens-social-security-benefits-if-u-s-hits/docview/2814970610/se-2. 
11. World Bank. Central Government Debt, Total (% of GDP) for Sweden (DEBTTLSEA188A). FRED, Federal Reserve Bank of St. Louis, 9 Mar. 2025, https://fred.stlouisfed.org/series/DEBTTLSEA188A. 
12. World Bank. Central Government Debt, Total (% of GDP) for the United States (DEBTTLUSA188A). FRED, Federal Reserve Bank of St. Louis, 9 Mar. 2025, https://fred.stlouisfed.org/series/DEBTTLUSA188A.