During the 2000 presidential campaign, candidate Al Gore referred to the lockbox in which he would keep the Social Security surplus.
Still today, we can imagine a box filled with the dollars that have been accumulating since President Ronald Reagan sought to guarantee the health of Social Security with the 1983 Amendments to the Social Security Act. Raising Social Security taxes, one goal of the Amendments was to replenish the system’s surpluses.
Now, almost exactly 30 years later, is the box full?
Yes. But not with cash.
Social Security is a pay-as-you-go system. The money from your paycheck tax will go to my grandma and your grandpa and all who currently receive benefits. All leftover money is used to purchase US Treasury securities. Because Treasuries represent loans to the US government, the Social Security surplus might be used to diminish the US debt or to pay for government spending. According to the Social Security website, it goes into the federal government’s general fund.
So, if you open the lid of that imaginary lockbox, you would see an imaginary pile of Treasury Securities that represent loans to the US government. Those securities are IOUs. Or, quoting Nobel laureate Milton Friedman, one Barron’s columnist said that they are really “I-Owe-Me’s.”
April 20 1983, President Ronald Reagan, signing ceremony for Social Security Amendments
Sources and Resources: This 2001 PBS report tells the lockbox story while Barron’s, here, discusses the Treasuries in the lockbox. Meanwhile, at Social Security websites, you can find a wealth of information:
- Trust Fund Treasuries details
- Social Security History
- Description of the 1983 Amendments
- History of Payroll Tax Rates