On December 13, 2010, the highly respected Kansas City Star, winner of eight Pulitzer Prizes, published an editorial entitled, “The myth of the Social Security trust fund,” which included the following statement:
A lot of people speak of those IOUs as if they can be pulled out and exchanged for money to pay benefit checks. They can’t. As the Clinton administration budget of 2000 explained, the securities in the Trust Fund ‘do not consist of real economic assets that can be drawn down in the future to fund benefits. Those special-issue bonds can only be redeemed by raising taxes, cutting spending elsewhere, or borrowing — exactly what the government would have to do if the Trust Fund didn’t exist. The Trust Fund, said the Clinton budget message, ‘does not, by itself, have any impact on the Government’s ability to pay benefits.
On December 20, distinguished business columnist, Allan Sloan, seven-time winner of the prestigious Loeb award, business journalism’s highest honor, called the trust fund “a mirage” in his Washington Post column. In the column, titled, “New tax law reveals the mirage of the Social Security trust fund,” Sloan wrote:
My problem with the trust fund is that it’s a snare and a delusion for people who think that it makes Social Security financially sound. It doesn’t do that, because having government IOUs in a government trust fund doesn’t make it any easier for the government to cover Social Security’s cash shortfalls than it would be if there were no trust fund.
These are not new revelations. I have spent the past decade relentlessly trying to expose the Social Security fraud, and prominent government officials were screaming out the warnings two decades ago.
On October 13, 1989, Senator Ernest Hollings of SC stood on the Senate floor and warned, “…the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund…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 bank notes.”
The Kansas City Star editorial and Allan Sloan’s Washington Post column seem to have stunned the AARP and the NCPSSM into silence. These organization have repeatedly claimed that the Social Security surplus is invested in U.S. Treasury bonds just like those held by the Chinese government. They have battled my efforts to get this same message out for a decade, but they seem to have had the wind knocked out of them by the Star and Allan Sloan. So far, they have made no attempt to rebut either of the two articles. The AARP and the NCPSSM have been claiming for years that the trust fund holds enough assets to pay full Social Security benefits until at least 2037, when, in fact, in the words of the Kansas City Star, it has no “real economic assets that can be drawn down in the future to fund benefits.”
The Kansas City Star and Allan Sloan have exposed the trust fund myth so clearly that I think the national debate will now turn to how and why the United States government violated both the public trust and federal law for a quarter-century in a way that caused a major transfer of income from the lower and middle class to the richest of all Americans. By imposing a hefty increase in the regressive payroll tax in 1983, and then using a large portion of the new revenue to offset the lost revenue resulting from the unaffordable income tax cuts that went primarily to the richest Americans, the United States government engineered a major transfer of income from the lower and middle classes to the richest of all Americans.
So where does that leave Social Security? The approximately $2.5 trillion in surplus revenue, generated by the 1983 payroll tax hike, rightly belongs to the Social Security trust fund and to American workers who paid the extra taxes. But the money is all gone — “borrowed” or “stolen” by the federal government and spent for general government operations. None of the money was saved or invested in anything, so the trust fund contains no real economic assets with which to supplement the payroll tax which will become inadequate to pay full benefits after 2015.
I believe it is time for the public to demand, in a very strong way, that the government make arrangements to repay its debt to Social Security. It is futile for the AARP and the NCPSSM to continue to insist that Social Security is in fine shape and has enough assets to pay full benefits until 2037. This just isn’t true. What the organizations need to do now is put political pressure on the government to move quickly to enact legislation that would require the repayment of the looted money, as it is needed, over the next 27 years. There is no way that the government could possibly come up with the $2.5 trillion in the near future, given the budget crisis. But it can make a legal commitment to repay the money in installments. Will that happen? Not without major political pressure from the majority of Americans. The AARP and the NCPSSM have frittered away the past ten years when the problem could have been resolved. If the looting could have been stopped when I first began actively urging such action in 2000, the trust fund would today hold approximately $1.5 trillion (the amount looted during the past 10 years) in “good-as-gold” real assets. Instead, it holds no real economic assets.
The reason I don’t believe the government will honor its debt to Social Security without major political pressure is that it does not legally have to repay the money. The government certainly has a moral obligation to do so, but, because of a 1960 U.S. Supreme Court ruling, it has an out. In the case of Fleming v. Nestor, the Court ruled that nobody has a “contractual earned right” to Social Security benefits. This ruling was based on Section 1104 of the 1935 Social Security Act which specifically states, “The right to alter, amend, or repeal any provision of this ACT is hereby reserved to the Congress.” Based on this strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security.
Many people argue that the government could not default on its debt to Social Security because of the effect such action would have on financial markets and the nation’s public image. If the government held the same kind of real bonds that are traded on world markets, this would be true. Public-issue, marketable U.S. Treasury bonds are default-proof, and that is the kind of bonds that the Social Security surplus revenue was supposed to be invested in. If this had been done, Social Security would be in fine shape today. But, instead of using the surplus Social Security revenue to buy such bonds in the open market, the government chose to spend the money and issue IOUs to replace the spent money. These IOUs are non-marketable and could not be sold to anyone, even for a penny on the dollar. The government has the legal authority to declare these IOUs null and void. Since these IOUs are not traded, such action would have little effect on financial markets, and foreign governments would probably consider such action as an internal matter between the American government and its citizens.
The Social Security trust fund does not hold any real economic assets that can be drawn down to pay future benefits. That is an indisputable fact today, and it has been true ever since the 1983 payroll tax hike was enacted. Every dollar of the $2.5 trillion in surplus revenue, generated by the payroll tax hike, has been spent on programs unrelated to Social Security, leaving nothing to save or invest.
A few United States Senators tried to sound the alarm two decades ago, and I have dedicated the past ten years of my life to trying to alert the public to the awful truth about the Social Security trust fund. For more than a quarter of a century, the United States government, under five presidents, has hoodwinked the American public into believing their Social Security contributions would be used for future Social Security benefits when, in fact, all of the surplus Social Security revenue was used to fund such things as tax cuts for the rich, two wars, and other government programs.
Today, thanks to the efforts of the editorial board of the Kansas City Star, and thanks to the courage and competence of Allan Sloan and a few other journalists, the big bad secret is finally out, and I think it is too late to get this cat back in the bag.