Debt Deal is No Cause for Celebration

Every American is entitled to breath a sigh of relief that an attempt by a small minority to hold the nation and the entire world economy hostage, in an attempt to circumvent the democratic process, did not succeed. But it is certainly not a time to celebrate. What has just happened was an attempt to scare the American public into accepting actions that they would never accept through the normal democratic process. The minority threatened to do great damage to the world economy if they didn’t get their way. It is a sad commentary on just how far our nation has strayed from true democracy.

Only a tiny dent was made in the massive problems facing the nation. The missing $2.6 trillion from the Social Security trust fund, which played a major role in creating the economic crisis, is still gone. Except for Senator Tom Coburn (R-OK), nobody explained to the American people that the only reason that Social Security is in any trouble is because the government has stolen all of the surplus Social Security revenue and spent it on other programs.

On March 16, 2011, Senator Coburn said, during a Senate speech:

Congresses under both Republican and Democrat control, both Republican and Democrat presidents, have stolen money from social security and spent it. The money’s gone. It’s been used for another purpose.

The following morning, Senator Coburn said on MSNBC:

We have stolen $2.6 trillion from it. We put paper money in there. But the problem is we spent the money. We didn’t just take it. We took it and spent it.

To the best of my knowledge, no member of Congress, or other high government official, has attempted to rebut Coburn. How could they? Every member of Congress knows that what Senator Coburn said was absolutely true. They also know that there will not be enough revenue, from the payroll tax alone, to pay full Social Security benefits this year, or in future years. The government will have to take revenue from the general fund, to replace some of the stolen Social Security money, if full benefits are to be paid. This basic fact, which only a few members of the public know about, is the primary reason that so many politicians are calling for cuts in Social Security benefits. They do not want the government to have to repay the looted money.

What about the numerous articles that say Social Security has enough money to pay full benefits until 2036? They are based on the assumption that the $2.6 trillion in surplus revenue, generated by the 1983 payroll tax hike, was actually saved and invested in marketable U.S. Treasury bonds. But that was not done. As Senator Coburn has said, all of the $2.6 trillion in surplus Social Security revenue has already been spent. The money is gone.

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.