Most Americans seem to believe that the surplus revenue generated by the 1983 payroll tax hike was actually saved and invested in marketable U.S. Treasury bonds as it was supposed to be. The truth is that none of the surplus revenue was saved or invested in anything. Every penny of the surplus was spent to finance tax cuts, wars, and other government programs. Since it is impossible to both spend and invest the same money, none of the Social Security surplus revenue has been invested.
What the trust fund holds are IOUs that are called “special issues of the Treasury.” They can be held only by the trust funds, and they are not marketable, so they could not be sold to anyone even for a penny on the dollar. They serve simply as an accounting record of how much Social Security money the government has spent.
David Walker, Comptroller General of the U.S. Government Accountability Office (GAO), said on January 21, 2005, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.” If there was any doubt remaining as to the official position of the United States Government with regard to whether the trust fund holds any real assets, it should have been removed by the 2009 Social Security Trustees Report. This report was signed by Treasury Secretary, Timothy Geithner, Secretary of Health and Human Services, Kathleen Sebelius, Secretary of Labor, Hilda L. Solis, and Michael J. Astrue, Commissioner of Social Security.
Specifically, the 2009 Trustees’ Report states, “Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reduction in other government spending, or additional borrowing from the public.”
Thus, the government must finance the redemption of the Social Security IOUs and interest payments on these IOUs by raising taxes and/or reducing other government spending. They must do so because the IOUs are nothing more than worthless accounting records of the Social Security money that the government has “borrowed” or “stolen,” and spent for non-Social Security purposes.
Why do most Americans think the Social Security surplus revenue has been invested, when it clearly has not been? Because they are told repeatedly that the money has been invested by both the Social Security Administration and the AARP.
The AARP has a huge voice and impact on the Social Security debate, and they continue to tell their members, and the public, that the Social Security trust fund contains enough bonds to pay full Social Security benefits until 2037, despite the fact that the trust fund holds no real bonds. On July 18, 2004 the St. Petersburg Times published an article by personal finance editor, Helen Huntley that was based on four questions that had been previously submitted to both AARP Chief Executive, William Novelli and to me. In response to one of the questions, Novelli said, “Currently the Social Security trust fund holds more than $1.5 trillion of Treasury bonds that earn interest. These bonds are like the ones bought by private pension funds, insurance companies and individuals because they are the safest investment in the world.”
Novelli appeared to be talking about the “good-as-gold” public-issue marketable U.S. Treasury bonds that are held by investors around the world because they probably are the “safest investment in the world.” The only problem is that none of the Social Security money is invested in such bonds, although it could have been, and should have been invested is such instruments. If the surplus Social Security revenue had been invested in public-issue marketable bonds, the program would be in great shape today. But all of the surplus Social Security revenue was spent by the government, leaving nothing left to invest in anything.
The AARP continues to reinforce the myth that the trust fund holds real marketable bonds. In a recent policy statement the AARP said, “Right now, there is more money coming in than is going out. In 2008, Social Security’s income was $805 billion. It paid out $615 billion, leaving a surplus of about $190 billion. That $190 billion went into the trust funds.”
The above statement is simply not true. Not one dollar of that $190 billion went into the trust fund. The government spent it all on wars and other programs. Does the leadership of the AARP actually believe the myth that they helped create, or are they deliberately misleading the public? I don’t know the answer to that question, but I do know that the AARP is misleading millions of Americans about the financial status of Social Security, whether it is intentional, or the result of their refusal to reexamine the myth that they helped create. In either case, future Social Security recipients will be hurt by their actions.