There's been a lot of discussion lately about whether or not there really is a federal budget surplus. Much of the answer lies in the question of whether or not there is a Social Security surplus and if that surplus can be protected by a so called "lockbox". The simple answers are: no, there isn't a lockbox; yes, there is presently a Social Security surplus, and no, the surplus can't be put in any lockbox.
Both sides of the political spectrum have been telling the truth, sort of, and both sides have been lying, sort of. Let me see if I can clarify the situation.
First and foremost, the Social Security tax (FICA) paid by the employee and the employer is NOT put away to pay any specific employee's future benefits. The FICA which is collected weekly or monthly, is used to pay current Social Security recipients their monthly pension or benefits. It's not put away anywhere.
However, if there is money left over after paying these benefits, that surplus must, by law, be invested in U.S. Treasury bonds. The money isn't simply put in a giant mattress in Washington DC. The purchase of these bonds insures the surplus is protected, earns some interest and is available to pay future retirees when there is no surplus. That's the good news. The bad news is that, meanwhile, the government can spend the money any way it wants to. And, there's the problem.
Let me go off into an analogy to illustrate the government's options.
The government is like a family with a mortgage on their home that is also putting away a monthly amount for Jr's college fund. The government's mortgage is its long term debt, about 5 trillion dollars. The monthly college fund money is any surplus Social Security funds.
The family can do three things with the monthly college savings. It can put it in a savings account to draw interest, (invest it), it can use it to pay off the mortgage and then later use the home's equity to take out a new mortgage when Jr needs money for college, or it could buy a new car, take vacations, and just generally spend it for things it wants now. This latter option risks Jr's not having money for college.
The government can do the same. Presently, it puts the surplus in interest bearing treasury bonds. By changing the requirement of buying only treasury bonds, it could bank or invest the surplus money in the private sector and maybe earn higher interest or a return on investment. While the administration doesn't want to take that risk itself, it's willing to let individuals do so through some sort of privatization of Social Security. This is a big political deal.
The government could, like the family, use the money to pay off its debt now and use its credit later to borrow money to help pay Social Security benefits when the fund is no longer running a surplus. Paying off today's debts saves the amount of interest that debt is costing the government. Most fiscally conservative lawmakers prefer this approach. Note: fiscally NOT politically conservative.
Lastly, the government can just take this surplus money and pay for anything from farm subsidies to missile defense. This approach spends the money but still leaves the government with the obligation to someday sell more Treasury bonds to pay back the Social Security surplus that was invested in treasury bonds.
There are some nuances involved here, but the analogy is pretty close.
When the pundits are discussing this topic, remember that some day the Social Security surplus money will have to be paid back. When that happens, any surplus used now will become an expenditure in that year's federal budget.
The "lockbox" concept can only exist in legislators' minds as a prohibition against spending any of the surplus for ongoing government programs. Paying off the national debt is a rational middle ground position.