Was the Misuse of Social Security Money Pre-planned?

The Social Security Trust Fund is empty. It holds no marketable assets with which to pay benefits to the baby boomers. The only thing in the Trust Fund is government IOUs, which can neither be converted to cash nor used to pay Social Security benefits. As Senator Tom Coburn (R-OK) said in a Senate speech on March 16, 2011, “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.”

looting_DVAfter researching and writing about the Social Security fraud for the past twelve years, I thought I knew almost everything there was to know about the looting. But I recently discovered two letters written by President Reagan to Congressional leaders in 1981, which add a whole new dimension to the Social Security fraud. It now appears that Reagan pushed the 1983 payroll tax hike through Congress in order to use the forthcoming surplus Social Security revenue to replace the lost revenue from his large income tax cuts. At the time of the payroll tax hike, Social Security finances were fundamentally solid until the baby boomers began to retire 30 years down the road.

President Reagan had gotten himself and the government into big trouble with his huge, unaffordable income tax cuts, and the federal budget was out of control. Exploding deficits caused the national debt to double from $1 trillion in 1981 to $2 trillion five years later. Supply-side economics and his huge tax cuts were not working out the way Reagan had promised they would. Reagan needed a new source of revenue.

Reagan appointed Alan Greenspan to head up the Commission for Social Security Reform. Greenspan, Reagan, and members of the Reagan administration came up with the perfect solution to their problem. All they had to do was to scare the public into believing that Social Security was in deep trouble in 1981, and then trick them into supporting a big increase in Social Security payroll taxes which would generate large surpluses for the next 30 years.

So a plan to deliberately fool the public into believing that a Social Security payroll tax increase was needed, at a time when Social Security would not face major financial problems until the baby boomers retired 30 years down the road, was set into motion. And, once the Commission released it report and recommendations, the legislation, including the big hike in payroll taxes was rushed through Congress in a record time of three months.

How do we know that Reagan intentionally did this? Two letters about Social Security that Reagan sent to Congressional leaders in 1981, I believe, provide the “smoking gun” needed to prove the above allegations.

In his letter dated May 21, 1981, Reagan wrote: “As you know, the Social Security System is teetering on the edge of bankruptcy.”
Reagan’s portrayal of Social Security as being on the “edge of bankruptcy” was blatantly untrue. The program could have used some tiny, short-term tweaks, but Social Security was fundamentally sound for the next 30 years.

Two months later, on July 18, 2001, President Reagan sent a second letter to Congress, emphasizing the urgency of the problem. Reagan wrote:

The highest priority of my administration is restoring the integrity of the Social Security system… In order to tell the American people the facts, and to let them know that I shall fight to preserve the Social Security system and protect their benefits, I will ask for time on television to address the nation as soon as possible… I will call on the Congress to lay aside partisan politics, and join me in a constructive effort to put Social Security on a permanently sound financial basis…

President Reagan instilled fear into the American people, especially those who were retired or nearing retirement. When the President went on national TV to explain the “crisis,” many Americans undoubtedly began to fear that those Social Security checks, which they depended on so much for their livelihood, might be in jeopardy.

Why would Reagan create mass fear among the American people? He needed the surplus money that the Social Security tax increase would put within his reach. He needed the money to replace the revenue lost from his big tax cuts for the rich. The rich would get to keep their big tax cuts. But every worker in the country would have to pay higher Social Security payroll taxes.

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.