Sidebar to Spinning the Social Security Surplus
By Bryan Keefer (email@example.com)
How the Social Security surplus works
With Social Security facing a short-term funding crisis in 1983, Congress passed a series of changes intended to shore up the program for the foreseeable future. Legislators knew that the program would face a financial crunch when the Baby Boomers began retiring, and redesigned the program to accumulate surpluses as a hedge against future burdens.
Social Security began running a surplus in the mid-1980s. The surplus in Social Security revenues was invested in special government bonds, and the money was spent by the government on general operating expenses, retiring the federal debt, or both, depending on the state of the federal budget. In recent years, the emphasis shifted from spending the surplus to paying down federal debt, the reasoning being that paying down the debt saved interest costs and made future borrowing less burdensome, helping to position the government to meet its obligations to future retirees.
Last year, with the economy booming, enough revenue came in that the entire Social Security surplus was devoted to paying off debt. With Social Security becoming a major campaign issue, both parties wanted to appear as though they were protecting Social Security. Thus, both sides made political promises to create a "lockbox" by spending the Social Security surplus entirely on debt retirement. Despite the fact that the "lockbox" is a political gimmick, rather than law, both parties now find themselves in a political quandary of their own creation.