There is more confusion about Social Security today than ever before. We are hearing contradictory claims from individuals, organizations, and government, and nobody knows who to believe.
There is no official watchdog agency to monitor the Social Security system and provide objective information to the public. Many people think that the Social Security trustees are a nonpartisan group of fair-minded public servants who can be trusted to tell the truth, the whole truth and nothing but the truth; But the trustees are political appointees, subject to dismissal, and they don’t always tell the whole truth. A good example of this is found in the Summary of the 2009 Social Security Trustees Report.
As I read through the 2009 report, shortly before the 2010 report was scheduled to be released, I stumbled upon an extra sentence of text, seemingly hidden in a remote section of the report. Apparently, someone had managed to insert the sentence at the last minute before the report went to press.
I contacted Allan Sloan, Senior Editor at large, at Fortune. Sloan had carefully read the entire 2009 Trustees report, but he had not picked up on the extra sentence which I had found. He agreed that the new text was significant, and wrote about it in his Washington Post column on August 10, 2010.
Allen Smith, economics professor emeritus at Eastern Illinois University and author of “The Big Lie: How Our Government Hoodwinked the Public, Emptied the S.S. Trust Fund, and caused The Great Economic Collapse,” spotted the 2009 quote, and it is telling.
It says: [] “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, reductions in other government spending, or additional borrowing from the public.”
In other words, the trust fund is of no economic value.
This sentence wasn’t in the 2010 introduction, released last week. Treasury says that it stands by the statement but that the Social Security trustees decided not to include it this year because it reiterates the obvious.
Why wasn’t this information available to the public before 2009? Why isn’t it available today? The information managed to see the light of day briefly in 2009 But, why did it have to be hidden again and kept from the public?
The statement, which got little media attention at the time, should have been engraved in marble. This is the essence of why Social Security has so many problems, and why the people are so confused. It represents the truth about the so-called bonds. The money was spent and replaced with nonmarketable government IOUs. These IOUs, and any interest paid on them, don’t yield any new income to the Treasury. They serve as an accounting record of how much the federal government owes to the Social Security trust fund, but they are not real money, or bonds that could be used to repay the debt.
This important information should appear in every publication that goes out from the Trustees. But it had never appeared before 2009, and it has never appeared again since 2009. This important factual statement should be distributed as widely as possible, but almost nobody knows that it was ever written. It is the president and his appointees who determine how much the public will be allowed to know, and their choice has been to keep the public in the dark.
These important words, which the government continues to keep secret from the public, make it absolutely clear that there are no marketable bonds or assets of any other kind in the trust fund. The only income flow that Social Security has is its annual tax revenue. Since 2010, the cost of paying full benefits has exceeded Social Security revenue, so the government has had to borrow money to close the gap. It is necessary for the government to borrow money from China, or one of our other creditors, so full benefits can be paid.
This is not the first effort that had been made to officially inform the public that the trust fund held no bonds or other real assets. On January 21, 2005, David Walker, Comptroller General of the Government Accounting Office (GAO) made the following public announcement,
There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.
Once again, a top government official tells the public that there are no bonds, or other assets, in the trust fund. That should have been the end of the story. The GAO had reported that the trust fund held no bonds. The people were entitled to know this important information. But these important words from the GAO never reached most members of the public.
I found reference to the story in the San Francisco Chronicle, but I was unable to find it anywhere else. It was as if the entire news media knew not to touch that story. The government’s top accountant had stated that the trust fund held no bonds or other assets, but the people were not allowed to know this. Almost none of the mainstream media covered the story.
The reason for all of the confusion over whether or not the trust fund holds any real marketable bonds is the difference between what Congress was supposed to do with the Social Security surplus, and what it actually did with the money. The intent of the Social Security Amendments of 1983 was to raise tax rates high enough to generate large surpluses over the next 30 years to build up a large revenue reserve with which to fund the retirement benefits of the baby boomers. If this had been done, the trust fund would today hold $2.8 trillion of “good-as-gold” marketable U.S. Treasury bonds. But the government did not follow the guidelines of the 1983 legislation.
Instead, as soon as the surplus, generated by the 1983 payroll tax hike, began to flow into the Treasury, the money was diverted from Social Security to the general fund where it was spent as general revenue, just like income tax revenue. Much of the money was used to replace the lost revenue from President Reagan’s unaffordable income tax cuts. The money was also used to help pay for wars and other government programs. The one program that did not get a single dollar of the $2.8 trillion in surplus payroll tax revenue was Social Security. All Social Security got out of the deal was $2.8 trillion in worthless, nonmarketable government IOUs, which cannot be sold, or in any other way converted to cash. These paper IOUs are stored in a fireproof filing cabinet, in a federal office building, located in Parkersburg, West Virginia.