Let the Public Know The Truth About Social Security

During the past three decades, the American people have been kept in the dark about the true status of the Social Security program. Politicians from both political parties give out false and conflicting information on a regular basis, and nobody knows who to believe.

The basic, indisputable fact is that the Social Security Amendments of 1983 included a hefty hike in the payroll tax rate which was designed to generate large surpluses for the next 30 years.  Over the period from 1983, when the higher taxes were initiated, until 2010 when the annual surpluses came to an end, a total of $2.7 trillion in surplus Social Security revenue was accumulated.  This money belonged to Social Security, and to nobody else.  This money was supposed to be invested in “good-as-gold”, marketable U.S. Treasury bonds which would be held by the trust fund until the baby boomers began to retire, but that did not happen.  .

When the surplus revenue began flowing in, it was like manna from Heaven. It would be 30 years before any of this new money would actually be needed to pay Social Security benefits.  If the intent of the Social Security Amendments of 1983 had been followed, the money would have been invested in marketable U.S. Treasury bonds which would have been held in the trust fund until it was needed to pay benefits.  But greedy politicians, from both political parties, began to devour the surplus Social Security money as soon as it became available.  Some of the Social Security money helped to fund the large, unaffordable Reagan and Bush-43 income tax cuts.  Some of the money went to the Pentagon, and some of it was used as a giant slush fund for Congress.  Every dime of the $2.7 trillion in surplus Social Security revenue was spent for non-Social Security purposes. The money is gone. The only thing left is the government IOUs, in the amount of $2.7 trillion which are held by the trust fund., But they are just worthless pieces of paper, which are stored in a fireproof file cabinet which is located in a Federal Government building in Parkersburg, West Virginia.

Every member of Congress knows that the trust fund is empty, and most of them participated in emptying it. But the truth about the trust fund has been kept from the general public for the past 30 years.  Every dollar of the $2.7 trillion in surplus revenue generated by the 1983 payroll tax hike was embezzled by the government and transferred to the general fund.  As the government spent the Social Security surplus money, the actual money was replaced with IOUs, which the government calls “special issues of the Treasury.” The public has been led to believe that the IOUs are real bonds, just like the marketable Treasury bonds held by China, and our other creditors. But the IOUs are not at all like the marketable Treasury bonds. They cannot be sold or used to pay benefits. They represent only an accounting record of how much Social Security money has been spent on other things.

In 2015, the cost of paying full Social Security benefits was $84 billion more than Social Security revenue and the gap between revenue and benefit costs will become larger and larger in the years ahead. Since there is nothing of value in the trust fund, the government must borrow the needed money from China, or one of our other creditors, to fill the gap between costs and benefits. The ability of the United States government to borrow money is not without limits. If, in a future year, the government is unable to borrow the money it needs to fill the gap, Social Security benefits will have to be reduced.

The problem in getting accurate information on Social Security is that many of the writers who comment on Social Security either don’t know what they are talking about, or have an axe of their own to grind.  One award-winning business columnist who really understands Social Security and provides good information in his columns is Washington Post business columnist Allan Sloan.  I have carried on an intermittent email correspondence on Social Security with Sloan for more than a decade.  He sees the true status of Social Security and does good analysis.  As for my credentials, I have devoted the past 15 years to researching and writing about Social Security, and I am the author of two books on the subject — Raiding the Trust Fund and The Looting of Social Security.

It is dangerous to keep the public in the dark on an issue of vital importance.  In March 2009, Bernie Madoff pleaded guilty to eleven federal felonies.  It was probably the biggest swindle in the history of the world.  Madoff defrauded thousands of investors out of billions of dollars.  This disaster shouldn’t have happened. It happened only because the SEC, other government agencies, and the general public ignored the warnings of Harry Markopolis, an accountant who repeatedly tried, over a nine-year period, to warn the SEC about Bernie Madoff’s great Ponzi scheme.  Among other things, Markopolos sent a memo to SEC regulators titled,  “The World’s Largest Hedge Fund is a Fraud.”  But the SEC wouldn’t take his warnings seriously and took no action.

A very frustrated Harry Markopolis said:

I felt like an army of one. I wasn’t good enough or smart enough to out maneuver the SEC, the press wasn’t listening to me and I had no other avenue.

I can identify with Harry Markopolis.  Thousands of investors, including many charitable organizations, were defrauded out of billions of dollars simply because the SEC failed to do its job. Today, the United States government has defrauded millions of current and future retirees by embezzling $2.7 trillion of revenue from the Social Security trust fund, and spending it for general government operations.  The public is entitled to know about this theft and potential actions to restore the money to the trust fund.  .

The first step in uncovering the thirty-year lie is to get the facts out.  Most Americans have never been made aware of the facts, and they are often told lies to keep them in the dark.

The $2.7 trillion in Social Security surplus revenue, generated by the 1983 payroll tax hike is gone. It is not sitting in the trust fund or anywhere else. The money was embezzled as it came in and used to help finance wars. tax cuts, and other programs. As the money was spent, government IOUs were issued to keep track of the money. The IOUs, themselves, have no market value and cannot be sold. They serve as certificates of debt .   

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.