Every year since Franklin Delano Roosevelt signed Social Security into law in 1935, it had taken in more money through payroll taxes than it paid out. That is, until last year.
Social Security has now officially gone cash negative — and that means a nation that borrowed surplus Social Security revenues for decades will have to start paying that money back.
Over the years, Social Security has collected about $2.5 trillion more than it has paid out. Those extra funds have been used to buy special bonds from the U.S. Treasury, building up what's come to be known as the Social Security Trust Fund.
What About That Lockbox?
When George W. Bush first ran for president a little more than a decade ago, he proposed taking a trillion dollars' worth of bonds out of that fund to put into private investments. At a debate with Democrat Al Gore in St. Louis, Bush dismissed concerns that his plan might weaken Social Security.
"Now remember, Social Security revenue exceeds expenses up until 2015," Bush said. "People are going to get paid."
But Gore had a very different proposal: "putting both Social Security and Medicare in an ironclad lockbox, where the politicians can't touch them.
"To me," he said, "that kind of common sense is a family value. Hands off!"
Neither the lockbox nor the private investments ever came to pass. Nor did Bush's prediction that Social Security revenues would outstrip expenses until 2015. At a recent Senate Budget Committee hearing on the nation's economic outlook, Chairman Kent Conrad (D-ND) noted there's been a sea change in Social Security's finances.
"My staff informs me under the new report, Social Security has gone permanently cash negative now. Is that the case?" he asked.
"Yes, that's right," came the response from Congressional Budget Office Director Doug Elmendorf, whose agency prepared the report.
Conrad added that the time had finally come for the money Social Security has lent the federal government to be paid back.
"How's it going to be paid back? It's going to be paid back by the other general expenditure of the federal government having to be reduced to make way for the payments that we're going to have to make on those bonds," he said.
Time To Revise?
Lawrence Lindsey, who was Bush's chief economic adviser, says the purchase of the bonds came from Social Security revenue, "so you're just paying back something you owe."
But Lindsey readily acknowledges the money that must now be paid back to Social Security has all been spent.
"That's a flaw in the design of the ... fiscal system. I think it points up one of the reasons why you do not want to have the nation's retirement based simply on Social Security," he says.
Republicans say the time has come to revise the Social Security program.
"It's very significant that this year, Social Security has more money going out than coming in," says Lamar Alexander, a member of the Senate GOP leadership team. "And it's very significant that in the next 10 years, Social Security will add a half-trillion dollars to the deficit. Social Security would be a good place to start when dealing with these mandatory entitlement programs that are 57 percent of our budget."
But some prominent Democrats are pushing back:
"Social Security has not contributed one penny to the debt, and as I've said before, people should leave Social Security alone," Senate Majority Leader Harry Reid said earlier this month. "I will do everything that I can in throwing my legislative body in front of any efforts to weaken Social Security."
Politics' Third Rail
Republicans, for their part, say Democrats should make the first move on Social Security. Senate Minority Leader Mitch McConnell is waiting for President Obama to make that move.
"There will be no entitlement reform without presidential leadership, and to the extent that the president is willing to join with us, and discuss how we deal with these long-term unfunded liabilities, I think virtually every Republican is ready to have that discussion," McConnell said.
McConnell's deference to the president is hardly surprising. It's not for nothing that Social Security is known as politics' third rail — touching it can prove politically perilous.
But with the program now operationally in the red, with a new wave of baby boomers retiring and living longer, and with revenues reduced even further by high unemployment and a payroll tax cut, there are few who think Social Security is not more vulnerable today than it's ever been.