Abuse of the Social Security Trust Fund Began in the 1980s

The mishandling of Social Security funds has been going on since the mid-1980s. As soon as the surpluses, resulting from the 1983 payroll tax hike, first began to flow into the Treasury, politicians from both political parties began using the money like a giant slush fund. At that time, it would be at least 30 years before the funds would actually be needed for Social Security, so politicians developed the bad habit of “temporarily borrowing” the money and using it for non-Social Security purposes. That bad habit never was broken, and every dollar of the $2.5 trillion in surplus Social Security revenue, generated by the tax hike, has been spent, leaving no real assets in the trust fund.

Some members of Congress were outraged by the practice and tried to nip this misuse of Social Security revenue in the bud. On October 13, 1989, Senator Ernest Hollings of SC expressed his outrage during a speech on the Senate floor. Excerpts from that speech, taken from the Congressional Record, follow. “…the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund…The public fully supported enactment of hefty new Social Security taxes in 1983 to ensure the retirement program’s long-term solvency and credibility. The promise was that today’s huge surpluses would be set safely aside in a trust fund to provide for baby-boomer retirees in the next century. Well, look again. The Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the government…The hard fact is that in the next century…the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate banknotes.”

A year later, on October 9, 1990, Senator Harry Reid of NV expressed similar outrage. Excerpts from his Senate speech, taken from the Congressional Record, include, “…Are we as a country violating a trust by spending Social Security trust fund moneys for some purpose other than for which they were intended. The obvious answer is yes…During the period of growth we have had during the past 10 years, the growth has been from two sources. One, a large credit card with no limits on it, and, two, we have been stealing money from the Social Security recipients of this country.”

Senator Daniel Patrick Moynihan of NY even introduced legislation in early 1990 to repeal the 1983 payroll tax increase. In an effort to keep politicians from spending the Social Security surplus money on other things, Moynihan wanted to eliminate the surplus revenue and return Social Security to a “pay-as-you-go” system. President George H.W. Bush was furious about Moynihan’s proposed legislation. Bush said, “It is an effort to get me to raise taxes on the American people by the charade of cutting them, or cut benefits. And I am not going to do it to the older people of this country.”

Bush, the “read-my-lips-no-new-taxes” president, did not need to raise taxes as long as he had access to the surplus Social Security revenue. During his four years in office, $211.7 billion in Social Security surplus revenue flowed into the U.S. Treasury. Every penny of it was spent for general government expenditures, and none of it was saved and invested for the payment of future Social Security benefits, as is commonly believed. This practice has continued until this day. The plan was that when benefit costs start to exceed payroll tax revenue, in about seven years, the Social Security trustees would begin dipping into the huge reserve that was supposed to be built up in the trust fund to make up the revenue shortfall in order to continue to pay full benefits. Unfortunately, there are no assets in the trust fund that can be dipped into.

Dr. Allen W. Smith is a Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books and has been researching and writing about Social Security financing for the past ten years. His latest book is The Impending Social Security Crisis: The Government’s Big Dirty Secret. Read other articles by Allen, or visit Allen's website.

7 comments on this article so far ...

Comments RSS feed

  1. kalidas said on November 28th, 2009 at 10:04am #

    “Ill gladly pay you Tuesday for a hamburger today.”

  2. Mike said on November 28th, 2009 at 9:19pm #

    So nice of you to not mention any Democrat presidents and Democrat controlled Congresses dipping into the Social Security trust.

    Typical leftist partisan mentality motivated by a desire to “tax the rich”.

  3. Pw said on November 28th, 2009 at 9:38pm #

    Hey Mike,
    First, Allen said “politicians from both political parties began using the money like a giant slush fund” in the first sentence.
    Second, Republicans hate social security. They’ve been trying to abolish it or privatize it since its inception. Look at the record.
    Third, go find a Republican who is just as outraged about this issue.
    We’ll wait…

  4. Dennis Davis said on November 28th, 2009 at 11:01pm #

    1st place ABUSE of the SS trust fund started in the 1950′s when the Democrats seen this big pot of money and decided to start taking from it for their pet projects and eventually started putting it into the general funds. These were to be paid back but as usual politicians never hold to their words. Also SS was set up that no one was to touch them.
    If our SS would of been left alone we would not have this problem today now would we. Republicans should of back this down when in power but they are just as bad. Who started taxing SS??? Bill Clinton.
    So we are really the fault for not getting rid of these nuts but of coarse much of these takings from SS were hid just as they are doing in the great Healthcare bill. Might want to go back into history and get all the updates on SS spending by our great politicians. (O;

  5. Mike 2 said on November 29th, 2009 at 4:21am #

    I find it curious that the great Alan Greenspan and the commission he headed did not realize that the surplus would be spent. It is and has been the “law” since 1935. Gee, maybe they didn’t read it.

    Mr. Hollings seems to blame the Treasury for the “siphoning”, when it is CONgress that spends the money.
    Of course Mr. Hollings also claimed the last budget surplus was the one given to Nixon by Johnson. There was no surplus, it was the unified budget that made it look that way.

    Mr Reed apparently is unaware of the “law” also. How can CONgress steal the surplus when it is invested according to law?

    Gee, I wonder what’s going to happen to all those taxes CONgress want to collect for several years prior to implementing the new health care scheme. Can you say “trust fund”?

    Barney Frank said it best: “I stipulate that legally we don’t have to. We are the government. We can do whatever we want, and nobody could sue us.” This in a hearing on Financial literacy and in discussing the social security trust fund.

    Why not hit the big delete key on all of the so-called trust funds and let’s start over. It dosen’t make any difference if they are there or not and at least the taxpayers won’t have to pay the interest. I guess that would require some honesty and is too much to expect from any CONgress.

  6. Deadbeat said on November 29th, 2009 at 2:37pm #

    Mike 2 is absolutely correct …
    Mr. Hollings seems to blame the Treasury for the “siphoning”, when it is CONgress that spends the money. Of course Mr. Hollings also claimed the last budget surplus was the one given to Nixon by Johnson. There was no surplus, it was the unified budget that made it look that way.

    The “unified” budget (putting Social Security “on budget” happened in 1969 to understate the spending on the Vietnam War — to make it appear that social spending was greater than military spending.

  7. Patrick Bell said on November 30th, 2009 at 7:59am #

    If ABUSE of the SS fund started in the 1950′s with CONgress taking it for pet projects and eventually placing it in general funds, it seems the amount of $2.5 trillion in surplus taken by the CONgress and the Treasury in an understatement.

    How much has be taken since the start of the SS fund?