There has been a lot of talk on the right about "reforming" or "saving" social security. What this boils down to is a direct attempt to default on 2.5 Trillion in US Treasury Bonds held in the Social Security Trust Fund. To accomplish this, the Republican Party suggests Social Security cut benefits so that none of the Treasury bonds held by Social Security ever go into repayment. (See e.g. Bowles Simpson Plan, chart at page 49.) For all that the right wing goes on about the US Constitution, they haven't yet seemed to realize that such a default may very well be unconstitutional.
First of all we need to acknowledge that there are two realities in this debate. The first reality comes from political talking points, the second what the law says is actually going on. For a long time this country has held as a keynote of rule of law the idea that you can not substitute legal reality with your own, no matter how much you wish that to be the case. The question is not what understanding politicians have come to of Social Security as they tie themselves in knots, but what the law actually says about the program.
The Fourteenth Amendment to the United States Constitution says:
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
As you probably expect Section 4 was meant to reassure investors that the United States would not repudiate Union debts after the Civil War (and serve notice that no Confederate debts would be paid). Do you see any language limiting the guarantee in Section 4 to only civil war debts? Nope, because it's not there. Section 4 prohibits the United States government from defaulting on its debts. The pensions mentioned in Section 4 are very much like the social security of today. In the 1860s pensions were specially authorized by congress, and not a routine part of federal employment. In 19th century parlance Social Security, literally, is an old age pension authorized by the government and, depending on reading, protected by the 14th amendment.
Now lets looks at social security. By statute Social Security is a separate budgetary entity:
EXCLUSION OF SOCIAL SECURITY FROM ALL BUDGETS Pub. L. 101-508, title XIII, Sec. 13301(a), Nov. 5, 1990, 104Stat. 1388-623, provided that: Notwithstanding any other provision of law, the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of - (1) the budget of the United States Government as submitted by the President, (2) the congressional budget, or (3) the Balanced Budget and Emergency Deficit Control Act of 1985.
This makes Social Security a federally chartered separate taxing entity. That's not unusual at a State level but fairly unusual at the Federal level. Analogies would be the ability of home rule government in US territories and Native American tribes on federal reservations to impose their own local taxation.
The Social Security Trust Fund holds two and a half trillion dollars in US Treasury Bonds. In 2009 the Trust Fund took in $800 billion and paid out $670 billion. The difference, approximately $170 billion net gain, was invested in US Treasury Bonds. http://www.ssa.gov/... As you can see from the link 1983, the last time social security benefits were altered, the trust fund was both steeply negative and likely to run out of money within three years (that reform also raised taxes and made changes to the retirement age, it did not cut benefits).
Currently, the trust fund is running a surplus, roughly equal to the cost of Americas overseas wars. The interesting thing about the Social Security Trust Fund is that it can only buy US Treasury Bonds. So long as the trust fund stays positive, those bonds never need to be repaid. Conversely, even running a $100 billion a year deficit, the Social Security Trust Fund would take more than twenty five years to exhaust itself. The data suggesting that Social Security has solvency issues relies on thirty year projections. In other words, Social Security will have no solvency problem within the time scale (ten years) normally accepted as the limit for useful predictions in the federal budgeting process.
Social Security reform is Social Security default. If benefits are continually cut so that the program never needs to tap the trust fund, the money in the trust fund will never need to be repaid. If effect this is a backdoor method for the federal government to default on a 2.5 trillion dollar loan from the American people. There is very little case law on this subject. Simply put this is an issue that doesn't come up very often. What there is has found, unequivocally that:
Congress was without power to reduce expenditures by abrogating contractual obligations of the United States. To abrogate contracts, in the attempt to lessen government expenditure, would be not the practice of economy, but an act of repudiation.
PERRY v. UNITED STATES, 294 U.S. 330 (1935)
In short then not only is Social Security reform an attempt to default on debt, it may very well be unconstitutional.