Tax the Rich to Repay Looted Social Security Money

Most Americans have come to expect politicians to bend the truth, exaggerate the truth, and withhold part of the truth.  But what about a high profile political leader who tells a whopper, that he knows to be untrue, especially when this whopper is designed to fool all Americans, not just his own constituents?  That is exactly what Senate Majority Leader, Harry Reid, did in an interview with NBC’s David Gregory on “Meet the Press,” on Sunday January 9.

In response to a question about Social Security, Senator Reid said, “it’s fully funded for the next forty years.” Now, I have been a long-time admirer and supporter of Harry Reid ever since he took a strong stand to end the looting of the Social Security trust fund 20 years ago, but I cannot condone such a big lie, which adds to the confusion about the true status of Social Security.

In 1990, Reid, along with a few other senators, was trying to protect the future of Social Security by telling the truth about it.  In a speech on the Senate floor, on October 9, 1990, Senator Reid made the following statement:

The discussion is are we as a country violating a trust by spending Social Security trust fund money’s for some purpose other than for which they were intended.  The obvious answer is yes…On that chart in emblazoned red letters is what has been taking place here, embezzlement.  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 Reid was right in denouncing the raiding of the trust fund in 1990, but he didn’t follow through with his battle.  Once he got into a leadership position, he abandoned his fight to end the looting and just ignored the illegal practice after that.  The practice, which Reid described as “embezzlement” in 1990, has continued, unchanged, to this very day.  Every dollar of the $2.5 trillion in surplus Social Security revenue, generated by the 1983 payroll tax hike, has been looted and spent on such things as tax cuts for the rich, two wars and other government programs.

Enough surplus Social Security revenue has been generated, by the 1983 payroll tax hike, to fund the payment of full Social Security benefits until 2037.  But none of the surplus revenue was saved or invested in anything. It was all spent and replaced with IOUs that are nothing more than claims against future tax collections.  Since the government has made no provisions to repay any of the $2.5 trillion, there is no way that Senator Reid can accurately say that Social Security “is fully funded for the next forty years.”

Beginning in 2015, the cost of Social Security benefit payments will be greater than the payroll tax revenue, and the gap between revenue and benefit costs will get bigger and bigger with each passing year.    ]

The government’s $2.5 trillion debt to Social Security is the real reason that so many politicians want to cut benefits.  They are trying to find a way to avoid having to repay the looted money.  I agree with Senator Reid’s contention that Social Security benefits should not be cut, but, instead of lying, he should be telling the truth about the looting, and demanding that the money be repaid.

It is time for Senator Reid, President Obama, and all others who are participating in the Social Security debate, to lay the truth on the line before continuing with the debate.  The basic, indisputable truth is that, although the 1983 payroll tax hike has generated enough surplus revenue to fund full Social Security benefits until 2037, that money has already been spent and is not now available for paying benefits.  The $2.5 trillion in surplus revenue is a legitimate debt that the government should repay, but no provisions have been made for the repayment of any of the money.  This means that the government will have to  1) raise taxes, 2) reduce spending on other government programs, or 3) borrow the money from someone else  in order to replace the looted Social Security money.

Given the fact that the national debt has skyrocketed from $1 trillion in 1981 to almost $14 trillion today, I think borrowing should be ruled out as an option for repaying the money.  Also, I don’t believe that it would be possible for members of Congress to agree to cut enough spending from other programs to replace the Social Security money.  If I am correct on these two points, that leaves raising taxes as the only viable option for repaying the money.

Given the fact that much of the surplus revenue from the 1983 payroll tax hike ended up in the pockets of the super rich in the form of income tax cuts, I propose a special tax on this group of taxpayers to recoup the missing Social Security money. The government used revenue from the Social Security payroll tax hike to fund tax cuts for the rich because that was where the money was.  I think the government should recover the “embezzled” money by taxing the rich.

The tax increase could be phased in gradually as the money was needed to pay benefits.  Just as it has taken 25 years for the government to “embezzle” the $2.5 trillion, the money could be repaid in installments over the next 25 years.  This would be a fair and economically sound way to undo the terrible wrong that has been done to the baby boomers, who have contributed more to Social Security than any other generation.  All previous generations had been required to pay only the cost of the previous generation’s benefits.  However,  the 1983 Social Security legislation required the baby boomers to prepay the cost of their own benefits, in addition to paying for the benefits of their parents’ generation.  The extra Social Security tax that the boomers were required to pay, by the 1983 legislation, has been taken from the boomers and given to the rich.  It is time to rectify that wrong.

We can be sure that the rich, who would have to pay the higher tax to fund the repayment of the Social Security money, will fight any such legislation with every weapon at their disposal.  But they are a small percentage of the voting public.  By contrast, Social Security directly or indirectly affects most Americans.  If those who truly care about the future of Social Security would organize and exert their full political powers, such legislation could be enacted, and Social Security could be made whole again.

One of the primary reasons that the Social Security trust fund today holds no real economic assets with which to pay benefits to the baby boomers is the fact that much of the money was used to fund tax cuts for the rich.  Since the rich got money that rightly belongs to Social Security taxpayers, why not use the political system to transfer that money from the rich back into the coffers of the Social Security trust fund?  Think about it.

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.

12 comments on this article so far ...

Comments RSS feed

  1. kanomi said on January 13th, 2011 at 1:16pm #

    “Why not use the political system to transfer that money from the rich back into the coffers of the Social Security trust fund?”

    Sure why not? And while we’re at it, let’s also use the political system to create beautiful purple unicorns.

    That’s not sarcasm, by the way, since both propositions are equally as absurd. Actually, it’s probably more likely that some private military contractor’s unacknowledged, unsupervised black budget program into genetic research will create a purple unicorn long before the criminal elite and their political lackeys give back one iota of loot they have stolen through a political-economic system so thoroughly corrupted and rife with killing and despoilment and destruction as to render all forms of petitioning and hand-wringing essentially meaningless.

    But what do I know? Let’s ask George Carlin. George Carlin, is it possible to use the political system to transfer the money from the rich back to the people?

    “You have owners. They own you. They own everything. They own all the important land. They own and control the corporations. They’ve long since bought and paid for the Senate, the Congress, the state houses, the city halls. They got the judges in their back pockets and they own all the big media companies, so they control just about all of the news and information you get to hear. They got you by the balls.

    “They spend billions of dollars every year lobbying. Lobbying to get what they want. Well, we know what they want. They want more for themselves and less for everybody else…

    “And now they’re coming for your Social Security money. They want your —- retirement money. They want it back so they can give it to their criminal friends on Wall Street. And you know something? They’ll get it. They’ll get it all from you sooner or later, ’cause they own this —- place.”

    They own the purple unicorns, too.

  2. Deadbeat said on January 13th, 2011 at 2:02pm #

    This is getting tiresome and repetitive. Dr. Allen Smith continues to regurgitate misleading rhetoric. This time in 1990 Reid comments were bogus and in 2011 on Meet the Press Reid’s comments were accurate. The SS trust fund EXISTS and the bonds exists and are redeemable so long at the USA exists. The plan is to trick the American people to accept lower benefits so that the rich and politicians can pocket the difference. Use of words like “embezzle” is hyperbole and doesn’t accurately convey the what is going on.

    One way the government is attacking Social Security that Dr. Smith totally misses is via student loans on young people. Student loans debt exceed credit card debt and default rates are quite high. As many of these student loans are backed by the federal government, young people cannot DISCHARGE these debts via bankruptcy. They’ll continue to accrue charges for the student’s entire life. What this means is that when students become eligible for Social Security the federal government will GARNISH their benefits using the excuse of interest, penalties, fees, and principle accrued on these bogus and immoral loans.

    Student loans is the long term attack on Social Security and totally missed by Dr. Smith while he continues to scrawl misleading rhetoric.

  3. Max Shields said on January 13th, 2011 at 3:04pm #

    Deadbeat if you “believe” that student loans are “attacking social security” then why do you “believe” that the SS fund is viable?

    If you can answer this in a straightforward, minus name calling way, it would be appreciated.

  4. Deadbeat said on January 13th, 2011 at 3:42pm #

    Deadbeat if you “believe” that student loans are “attacking social security” then why do you “believe” that the SS fund is viable?

    The trust fund exists Max. The bonds are fully redeemable. They work like any debt instrument of the United States. The main premise of Dr. Allen Smith argument is that the bond that are held by Social Security are “worthless”. That is untrue and if the U.S. defaults on Social Security that would severe ramification on all U.S. debt that are held primarily by rich & foreign investors.

    What Dr. Smith confuses in his arguments is that the workers have been OVERCHARGED for Social Security. The government collects MORE than they need to run the system and to pay benefits. What the politicians plan is to redeem the bonds and to POCKET the Social Security money. What they are doing is devising rhetorical arguments in order to convince the public to accept less benefits or find ways — such as the student loan scam – to justify WITHHOLDING payments.

    It’s not that complicated Max when the correct information is provided.

    If you can answer this in a straightforward, minus name calling way, it would be appreciated.

    I never “name call” Max. That is not my style because I don’t have to. I argue the facts and left-wing principles with links to support my arguments.

  5. commoner3 said on January 13th, 2011 at 4:17pm #

    Allen Smith is at it again. He prtends desiring to rescue SS Trust Fund, while in actuality he is working real hard to shake the people faith and trust in SS to make it easy for the vultures of Wall St.to swoop down and snatch the system without anyone caring or raising a finger. Who will defend a “failing bankrupt” system??!!
    We talked and discussed that, gazillions of times before, there is nothing absolutely wrong with the SS Trust Fund until another, roughly, thirty years, and at that time simple tax increases will solve the problem, for example, taxing all the earned income for SS tax instead of just the first 106 thousands.

  6. Max Shields said on January 13th, 2011 at 4:41pm #

    Deadbeat,

    Thank you for the civility. Now could you please provide the link to the information you are referencing. That is what informs your understanding of the solidness of the SS system and the extent to which workers are overcharged?

  7. Deadbeat said on January 13th, 2011 at 7:26pm #

    Max I’m surprised. You are not new to this conversation. I provided a boat load of links last September when this was debated in detail. You even chimed in. This is EXACTLY what I mean when I say that I’m constantly demanded for links and evidence for my arguments.

    Max, look, the attack on Social Security by the ruling class has been ongoing since 1983! There are TONS of information out there and books that have addressed this issue that may even be out of print because this issue is so old and ongoing. I could spend the next several hours providing you with links. This is something that I believe you should do yourself.

    The very last time Dr. Smith submitted an article here I posted the link to the September debate. So if you need links and reference use the archive and search for “Allen Smith” and select the link where “Obama” is referenced in the title by Smith. There you will find the debate and links to several articles by Dean Baker and even to the Social Security Administration.

    If you want to read some other older references I’d recommend:
    “Who Will Tell The People” by William Grieder. This books dates back to the early 1990′s.

    “The Politics of Rich and Poor” by Kevin P. Phillips (a Republican no less).

    Try Doug Henwood. He exposed Robert Reich plan to attack the system via understanding growth rates in 1994.

    Dr. Smith’s claim to fame is that he uncovered that the treasury bonds were “non-tradable” security. From this Dr. Smith infers that the bonds are worthless because they cannot be traded on the open market. But this issue is a red-herring. The Republican Bill Archer who was a member of the Greenspan Commission address this and states the reason why the bonds are not “tradable” is to prevent any bubbles being created by the trading of these bonds on the public’s retirement money. It proved to be a wise decision but fundamentally the decision to overcharge working people on SS taxes in order to create this “fund” was unnecessary and was used to cover the tax cut for the rich via the 1981 Kemp/Roth legislation.

    As I wrote back in September 2010, I was a SS survivor recipient and SS is very dear to me and thus I have been following this issue for the past 30 years. I believe I know as much or even more than Dr. Smith who IMO is doing a disservice by not accurately outlining this issue.

  8. Deadbeat said on January 13th, 2011 at 7:31pm #

    Thanks commoner3. It looks like we have to maintain an Allan W. Smith watch. :-)

  9. Franklin said on January 13th, 2011 at 7:37pm #

    As recently as 2006, the FICA taxes paid into the trust fund were generating a surplus of 150 billion dollars per year. – The government will not default or repudiate the bonds in the trust fund, but every trick in the book will be used to avoid paying them back when the money is needed to pay benefits.- Ideally, the rich would prefer that the trust fund continue to generate a big surplus from the FICA taxes on workers’ wages so that it can be borrowed and their income taxes can stay low.

    Good predictions about the state of the economy and the solvency of the trust fund far into the future are impossible. They depend upon predictions about life expectancies, immigration patterns, birth rates, interest rates and the health of the economy. Every year, the Social Security trustees make 3 different predictions about how long the surplus will last based on various assumptions – but politicians really don’t care about anything beyond the next election or two – unless they can use an argument for their own benefit. And they can make the numbers come out any way they want by assuming that all of us will soon be living much longer than we do today.

    Members of the deficit reduction commission recently proposed a number of confusing changes and cuts to social security which were supposedly designed to keep the system solvent for 75 years. If these changes and cut were adopted, the trust fund would keep growing on paper, but there would still be no plan in place to pay the money back.

    Prior to 1983, the social security trust fund operated with almost no surplus – - it was pure pay as you go – The only proper reason for creating a big surplus was because of the existence of the baby boom generation. – When the baby boom generation is mostly dead, the system can be examined again in light of life expectancies at that time and the state of the economy, and changes can be made if necessary. There is no reason to have a paper surplus for 75 years. – The government can’t save money by borrowing from itself.

    Eventually there will be some compromises – but if the public really understood what was going on, it might affect whose ox will be gored when it times to make compromises.

  10. Don Hawkins said on January 14th, 2011 at 3:45am #

    Let’s ramble on and in the last few day’s how many times has the word crazy been used? This kid that did the shooting is he crazy well he probably is now. He seemed to be ok in high school then what happened. Started to read Karl Heinrich Marx or the Communist manifesto then the tent with the skull all while living under Capitalism whatever that is now. He is not the only one as it seems kid’s are killing kid’s in the first part of the twenty first century something seems a bit off. To watch Fox New’s or for that matter all the new’s channel’s this kid was just crazy you know there are human’s that are just crazy and has nothing to do with talking heads, messages, politics, television and on and on it’s just that some people are crazy. It does seem that this whole crazy part is very important to a few because in not to many day’s high on the hill here in the States the fight will be on to see who owns the purple unicorns, that was a good one kanomi and might we see just a little of in a mad world only the mad are sane? We will probably see more than a little but remember the kid was just crazy some people are just like that and all this done while the Earth itself is being destroyed for life now that’s crazy. Oh that’s not the truth oh yes it is and we will hear we need all of the above that Einstein would call insanity doing the same thing over and over again and expecting different results… the real crazy part is I don’t think a few expect a different result. So how many people are crazy great question but I would put my hope, faith in the people who come into my shop just regular people who know who owns the purple unicorns. Maybe I’ll watch the new’s a little and watch them ramble on and count how many time some use the word crazy somewhat like a prison for your mind.

  11. Don Hawkins said on January 14th, 2011 at 4:24am #

    Here’s a few thought’s suppose Mitch McConnell came into my shop would I act different than if an old farmer came into my shop well no. I’ll bet he would want me to act different. How about if Brad Pitt and Angelina Jolie came into my shop act different not really probably just say going fishing are we. Here’s a good one Colbert act different maybe a little and if I could ever get him to shut up might talk a little. Dr. Phil oh dear are you here to help. Love the limo is that your driver and does he always’ ware those dark glasses someone said you have a private jet and I don’t want or need any of those things am I crazy and no I don’t read the Communist manifesto well I have read part’s of it does that make me crazy. Going fishing are we will how can I help you. Ever hear of the purple unicorn theory or concept? Maybe start twitching my right eye. Oh my kid’s do I tell them stuff like this sometimes.

  12. Don Hawkins said on January 14th, 2011 at 4:44am #

    Maybe say what happens to the wide-eyed observer when the window between reality and unreality breaks and the glass begins to fly then only those who attempt the absurd will achieve the impossible. I think it’s in my basement… let me go upstairs and check and I’ll bet Dr. Phil would then give me the look you know the look. He could then say maybe I will go fishing. Hay can I tell you about the time I found these glasses many moons ago in a dumpster and when I put them on I see things. Fight back it’s an illusion and not a very good one.