So long as there are more "new investors" "paying in" than people collecting dividends or cashing out, it works.
The only deviation from Ponzi's plan is that if you die, you lose everything and your estate doesn't inherit your position. When created, the age when you started collecting was a year after the average life expectency. So on average, people paid taxes and didn't live to collect.
That and forcing everyone to "invest" are the only thing that have kept Social Security afloat as long as it has been.
It would seem to me if they increase the payroll tax cut for 2012 that it would cause accounting problems sooner rather than later. One way or another, the shortfall will have to be made up. It will either be a decrease in payouts or increased payroll taxes in the future. That means increasing the cap by a substantial amount or lifting it all together. Reducing benefits wouldn't seem likely.