Due to the extreme poverty of the elderly, and lack of jobs, the original approach was discarded, and switch was to make it a pay-go system. Envisioned to be like a continually flowing pipeline. The system has been adjusted many times since first established with respect to benefits, contributions, and retirement age to name a few.
The system has been pay-go for a long time, and the extra has been invested in special issue US government non-negotiable bonds, backed by the full faith and credit of the US government. Paying of Social Security is Mandatory, so Obama could not legally prevent the checks from going out.
The trust fund owns an asset, and the government has the debt. Hence part of the National Debt figure includes the debt owed to the social security trust fund. These bonds by law can not be used for anything else.
General fund issues-Initially Social Security could be described as an off-balance sheet item. During the LBJ administration, this changed to be included in reporting the financial position of the USA. Of course while it's running a surplus, it helps to make the government financials look better with respect to the budget.
LBJ inherited Vietnam from Kennedy, but what he really wanted was to initiate his war on poverty. He was also determined that he would not be the President that would go down in history as losing a war to a lesser adversary. Kinda like Bush. A War and new government programs to pay for.
The fund went in the red earlier than expected, one factor being the large number of unemployed reducing the current receipts. Current estimates are that the fund will last till around 2037 or 2038. If nothing is done, then all retirees will take an immediate benefit cut of almost 25%.
Currently income subject to social security tax is capped at about $106 thousand. Wages above this amount are not included when calculating the benefit. I think I read that Obama favors eliminating the cap entirely.
This would increase immediate extra cash for the system, but would also include a higher benefit for these higher income people. Of course, if they had to pay on the wage, but the benefit was not increased, it would help even more.
Converting to a private system would put more strain on the system and cause more debt during any transition period, and the USA can not afford it at the present time. It could have been done during the Clinton Admin.
Social Security fix is easy compared to Health Care. Just raise the retirement age to reflect that people are living longer. Raise the cap on income. Maybe raise the payroll tax by 1% shared equally between worker and employee. Some change to reduce Cola might also figure in. Some combination of these things.
What is really hard, and what is really pointing to long-term insolvency is health care. Funds stripped from Medicare, rising health care cost, additional Obamacare costs, demographics(baby-boomers)are all converging to create a perfect storm.
Obama refuses to delay or change any of his health-care program. Pelozi and Reid won't allow anything to impact either current medicare medicaid or the new spending. Republicans won't raise taxes. The system is deadlocked until the election, unless someone gives.
The most the commission will be able to do most likely is find the additional $2 trillion cuts. No long-term solution till after the election, if the control of the senate, and the presidency flips to Republicans. Since they did not distinguish themselves last time, it is not clear that the will to implement long-term solutions exits.
Thank you for the detailed response; I am not sure how to take your paragraph 3 - it seems to me that the Treasury would need to get cash from somewhere to give to SSA when SSA redeems a security, and that the reason it couldn’t guarantee payment is that they didn’t have cash on hand and needed to sell new debt to make payments. If it is truly pay-go, then it is a double-curse - not only did the previous surpluses hide government deficits, but, now that it is going negative, it will exacerbate the deficit.