Senator Reid and the Social Security Trust Fund

Senator Harry Reid was one of the most vocal critics of the government’s mishandling of Social Security funds twenty years ago, and the policies that he so condemned in 1990 have continued to this day.  However, Senator Reid long ago abandoned his efforts to stop the government practice of spending every dollar of surplus Social Security revenue on other government programs. As a Social Security scholar who has been researching and writing about Social Security for more than a decade, I have been appalled at Reid’s failure to point out that what he condemned so harshly in 1990 is still going on today.  I have also been disappointed by Reid’s refusal to respond to any of my correspondence.

I placed the following quotation from Senator Reid prominently on the back cover of my latest book, The Big Lie: How Our Government Hoodwinked the Public, Emptied the Social Security Trust Fund, and caused The Great Economic Collapse.

…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 Harry Reid (D-NV) Speech on Senate Floor, October 9, 1990

I have sent Senator Reid multiple copies of the book multiple times, and I have called his office multiple times, but the senator refuses to respond to me in any way.  Twenty years ago, Senator Reid, Senator Ernest Hollings of South Carolina, and Senator Daniel Moynihan of New York were vocal champions of Social Security.  They vocally opposed President George H.W. Bush’s ongoing practice of using the surplus revenue, generated by the 1983 payroll tax hike, as a giant slush fund.  In fact, in the very same speech quoted above, Senator Reid said, “Maybe what we should do in conjunction with the president, to really carry this conspiracy to its appropriate end, is rather than having it called the Social Security trust fund, why do we not change it and call it the ‘Social Security slush fund?”

For the past decade I have been trying to expose the great Social Security scam that Senator Reid and others recognized and opposed 20 years ago, but it has been like beating my head against a brick wall.  Every dollar of the $2.5 trillion in surplus Social Security revenue that resulted from the 1983 payroll tax hike has been embezzled by the government and spent on tax cuts, wars, and other government programs.  As a result, beginning in 2016, the government will be unable to pay full Social Security benefits without a large tax increase and/or additional borrowing from the public.  That is why members of the deficit commission are so eager to cut future Social Security benefits.

The baby boomers have paid more Social Security taxes than any previous generation.  They were required by the 1983 Social Security legislation to pay enough taxes to cover the cost of the retirement benefits of the previous generation, which was customary.  In addition, they were required to prepay most of the cost of their own benefits, which was not customary.  How can anyone justify cutting benefits to the baby boomers when they have paid more into the fund than any other generation? 

It is an indisputable fact that, over the past 25 years, Social Security payroll tax revenue exceeded Social Security benefit payments by $2.5 trillion.  If that money had been saved and invested as it was supposed to be, full Social Security benefits could be paid until at least 2037 with no changes whatsoever.  However, when the first surplus revenue from the 1983 tax increase began to flow in during the second Reagan term, politicians developed a bad case of sticky-finger syndrome.    Since it would be 30 years before any of the money would be needed to pay Social Security benefits, they just sort of “borrowed” the surplus money and put it into the general fund.  As the surplus became larger and larger in subsequent years, Congress continued to spend it as if it were general revenue, and that practice continues today.  

We might use the word “borrowed” to refer to the very early raiding of Social Security, but the Budget Enforcement Act of 1990 made it illegal to use Social Security money for non-Social Security purposes.  Money taken from Social Security after enactment of that law was clearly “embezzled’ or “stolen.”  Senator Reid played a key role in getting the 1990 legislation enacted.  In the same October 9, 1990 speech, Reid said,   “The discussion is are we as a country violating a trust by spending Social Security trust fund moneys for some purpose other than for which they were intended.  The obvious answer is yes.”  I commend Senator Reid for recognizing this basic truth.  I also applaud his willingness to say, “We have been stealing money from the Social Security recipients of this country,” because what he said was absolutely true.  What I cannot understand is how Senator Reid could abandon his principles and serve 20 more years in the Senate without continuing to openly oppose the “embezzlement” and “stealing.” 

Senator Reid will not communicate with me, so I urge journalists on the campaign trail to ask Reid about his words from the October 9, 1990 speech that I have quoted on the back cover of my book. He cannot deny he spoke those words because I took them from the Congressional Record.  I want reporters to ask Senator Reid if he believes the government is still “stealing money from the Social Security recipients of this country.”  Senator Reid cannot have it both ways.  If the statements he made 20 years ago were true, and they were, how can he say that Social Security is solvent today when all the surplus Social Security revenue that is supposed to be in the trust fund has been embezzled?

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 Raiding the Trust Fund: Using Social Security Money to Fund Tax Cuts for the Rich. Read other articles by Allen, or visit Allen's website.

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  1. Deadbeat said on June 17th, 2010 at 4:10am #

    My belated apologies to Dr. Allen W. Smith. I had conferred with Doug Henwood about the “trust fund”. You are correct tha the “IOUs” are virtually meaningless and do not function as T-Bills which I had mistakenly believed.

    Please keep up the great work you are doing information the public about this very important issue.