The Awful Truth About the Social Security Trust Fund is Beginning to Emerge

For the past 25 years, under five presidents and their Congresses, the United States government has been secretly “borrowing” or “embezzling” (opinions differ as to which word is more accurate) the Social Security contributions of American workers and using the money to finance tax cuts, wars, and other government programs.  Each month, once current benefits are paid, all surplus Social Security revenue is deposited into the general revenue fund and used for general government operations.  Not a single dollar of FICA tax revenue has ever been saved and invested for the purpose of paying future benefits.    

I first discovered the Social Security scam more than a decade ago, while doing research for my first Social Security book, The Alleged Budget Surplus, Social Security, and Voodoo Economics.  At first I questioned my findings, because it just did not seem credible that the United States government would spend the Social Security contributions of American workers for non-Social Security purposes while at the same time misleading the public into believing that the funds were being invested in regular U.S. Treasury bonds.  But it did not take much additional research to realize that the practice had already been going on for more than a decade and that some very high-profile members of Congress had tried to stop it. 

On October 13, 1989, Senator Ernest Hollings of South Carolina, spoke the following words during a speech on the Senate floor,   “…the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund…in the next century…the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate bank notes.”  

On October 9, 1990, Senator Harry Reid of Nevada expressed his outrage at the practice during a senate speech.  Pointing to a chart displaying a single word in large letters, Senator Reid said,   “…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 used both the words, “embezzlement” and “stealing” as he lambasted the raiding of the trust fund. He knows better than anyone that the practices he so denounced twenty years ago have continued to this day and that he has been a party to the embezzlement.  Yet, as he seeks still another term, he falsely  assures voters that Social Security is solvent for decades.   

 I have been trying to expose the Social Security scam for more than a decade, now, with little cooperation from the media, until very recently.  But the tide is turning.  My first big break came when Allan Sloan, Fortune’s Senior Editor at Large, quoted me and referred to my book in his August 10 Washington Post column.  I’m sure Allan shocked a lot of people with that column.  And he became the first major media person to reveal the dark secret that the government has managed to keep hidden for 25 years. 

Below is an excerpt from that column.    

Let me show you in two different ways how useless the fund is. The first is a quote from the introduction to the 2009 Social Security trustees report, the second is the graphic by my Fortune colleague Robert Dominguez that accompanies this article. 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.  

Once Allan Sloan broke the ice, and reported  on a subject that has been taboo for two decades, he was followed by other journalists.  Below are excerpts from the Social Security writings of three mainstream journalists who have recently joined the effort to expose the awful truth about the trust fund.   

Doesn’t the Social Security trust fund cover that? No, silly.  All those years of surplus in Social Security were recorded in a book entry dubbed the “trust fund”, but the non-marketable special Treasury bonds that make up the fund don’t represent any assets that can be cashed in to pay benefits.

       — Eric Schurenberg from CBS Money Watch,  August 19, 2010  

Your payroll taxes go into a bottomless hole.  So where did all that FICA money go?  Down the drain of federal spending on everything.  It’s certainly not sitting in an account waiting to pay your retirement benefits.

      — Terry Savage, Chicago Sun-Times, September 6, 2010


For more than 25 years, while working people were told that they were paying extra taxes to ensure their retirement security, that surplus tax revenue was actually being siphoned off to run general government operations…In reality, the trust fund contains government IOUs that taxpayers today and tomorrow will have to redeem probably through paying higher taxes

       – Jay Bookman, Atlanta Journal-Constitution, September 7, 2010

In less than 30 days, four major journalists have joined the ranks of those who have been trying for so long to expose the Social Security scam.  That scam is the fact that $2.54 trillion of the Social Security surplus revenue has been diverted from the Social Security program and used for whatever unscrupulous politicians chose to spend it on.  None of this money was saved, or invested in anything.  Money can be spent or saved. If it is saved, it can also be invested, but, if it is all spent, there is nothing left to invest.  This $2.54 trillion heist by the United States government may well be the “crime of the century!”

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.

4 comments on this article so far ...

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  1. bozh said on September 10th, 2010 at 10:59am #

    Am i wrong to say that the congress appears split asunder into dozens of commitees, subcommitees so that some congress people and newcomers to it in particular appear powerless to gain anything for herhis constituents?

    And if s’he would raise cackles, s/he’d be told: watch it or else– and brought into line in just few hrs.

    Thus, it seems all congressional powers are in the hands of oldhands; tried and true inegalitarians, prowar, deceivers, etc.
    And there are always those cheques and balances to smoothen the process for tired, hard working public servanst. tnx

  2. disinterested spectator said on September 10th, 2010 at 12:52pm #

    There are three things at issue: truth, morality, and power. The truth is that the government borrowed the money from the trust fund and issued non-marketable Treasury bonds to represent that debt. Morally speaking, the government is obligated to pay that money back. But what really counts is power. Do we have the power to make the government pay the debt that many politicians are trying to weasel out of? Compared to that question, truth and morality are really minor issues. It is all a question of who is the stronger, the working men and women of this country, or the government. We have the numbers. If we lose this battle, we have only ourselves to blame.

  3. Deadbeat said on September 10th, 2010 at 1:11pm #

    I think the point that disinterested spectator (DS) is making is the correct one. I for a long time thought that there were T-bills in the trust fund. So kudos to Dr. Smith for his investigative work. If those notes were T-bills it would stand a better chance of the government meeting its obligations.

    However DS is correct in that we do have the numbers and the non-marketable T-Bills are reality. It is not as if the vault is empty. Also the government can print money just like they are doing now to assist with the financial crisis. In fact the focus on the non-marketable bonds assist with the idea that those notes are “worthless” and conditions the public to accept benefits cuts.

    As DS suggests it is up to us to bring value to those bonds by demanding that the government meets its obligation. This is really an issue of political economy not “economics”.

    Therefore it is hyperbole to suggest that the Social Security fund has been “stolen”. This is really an issue of class warfare and what should happen is a restoration of the pre-1981-Kemp-Roth tax rates and the elimination of the Salary Cap.

    Nothing was “stolen” what happened is that in 1983 the American people got fooled into believing that SS was in trouble and accepted the regressive tax burden shift.

    What we need is accurate information and accurate analysis of the problem. Telling people that the bonds are “worthless” doesn’t help.

  4. klaatu said on September 10th, 2010 at 9:04pm #

    One caveat, however–the “crime of the century” was the demolition of the World Trade Center towers, preparing the U.S. people for the “War on Terrorism”. Stealing 2 1/2 trillion dollars is small potatoes compared to the audacious deception and its subsequent exploitation. And only when the Empire falls will journalists and researchers be free to explore the reality of 911. Kind of like other frauds and deceptions of the twentieth century…Sadly.