Protests Will Start When the Checks Stop

My article, “Let the Public Know the Truth About Social Security,” Dissident Voice, September 26, 2016, raised doubts in the minds of some readers.  One reader wrote: “Unlike protests such as Occupy Wall Street and Black Lives Matter, no one is taking to the streets to protest this big theft.  So, what will it take to well up enough anger to stage protests?”

The reason there are no protests is that most people don’t know about the theft, and they are still getting their checks on time.  On July 12, 2011, during a stalemate between President Obama and the Congress over raising the debt ceiling, CBS Evening News anchor Scott Pelley asked President Obama whether he could tell the folks at home that, no matter what happens, the Social Security checks are going to go out on August the 3rd?” President Obama replied. “I cannot guarantee that those checks go out on August 3rd, if we haven’t resolved this issue, because there may simply not be the money in the coffers to do it.” If Congress and the president had not reached agreement before August 3rd, the Social Security checks would not have gone out on time, and many Social Security recipients would have taken to the streets in protest.

When, and if, the public finds out about  the theft, they will take to the streets, and there will be nation-wide protests.  Protests will begin when the first Social Security checks fail to show up in the mailbox.  I have devoted the past fifteen years of my life to trying to expose the Social Security theft, but it has been a hard sell.  During the early years, I was referred to as a crazy man, a crackpot, or even worse.  Nobody would believe that the government stole $2.7 trillion of Social Security money and used the money as a giant slush fund to be used for whatever Congress chose to spend it on.  It is hard for people to give up a belief that they very much want to believe.  Most children, including my three, get a lot of pleasure out of the Santa Claus myth.  They get great pleasure from the belief for the few short years before reality sets in.  I am glad that most young children have the opportunity to get the pleasure out of believing in Santa Claus for at least a short time.  During that short period of strong belief, it would almost be impossible to take the belief away from the children, and there is no reason to do so.

Social Security recipients and future recipients feel the same toward Social Security as children do about Santa Claus.  As a young child, I remember my grandparents, and elderly neighbors being so excited about the new government program which many referred to as old-age pensions.  There was great excitement about the new program, and most Americans believed it would be around for as long as they lived.  On April 23, 1983, the day President Reagan signed the new law with lots of pomp and ceremony, Reagan made several promises to the people.  Below are  some experts from Reagan’s speech.

This bill demonstrates for all time our nation’s ironclad commitment to social security.  It assures the elderly that America will always keep the promises made in troubled times a half century ago….Today, all of us can look each other square in the eye and say, we kept our promises.

Instead of being a proud day for America, April 23, 1983 has become a day of shame. The Social Security Amendments of 1983 laid the foundation for 30 years of federal embezzlement.  It was the beginning of the great Social Security theft, which totaled up to $2.7 trillion over the next 30 years.

The history of how the 1983 Social Security legislation came into existence is known by very few Americans. Almost never do you hear reference in the news to the SociaI Security Amendments of 1983.  Most people don’t even know that important Social Security legislation was enacted in 1983.  Launching and enacting the 1983 legislation was a sinister plot against the American people to change the tax structure in a way that would benefit high-income Americans at the expense of the rest of the American people.  It represented a legislated transfer of income and wealth from low-income working Americans to members of the upper class.

Faced with unprecedented, annual deficits, the Reagan administration was faced with the harsh reality that either the tax cuts must be rescinded, or a new source of revenue had to be found to replace the lost revenue from the income-tax cuts. . One member of Reagan’s team, Alan Greenspan, who would later become Chairman of the Federal Reserve, came to the rescue. He suggested raising the Social Security payroll tax and using the money as if it were general revenue. Greenspan and other Reagan advisors suggested that a rise in payroll taxes “for the future good of Social Security” would be more palatable to the public than an increase in income taxes.  They would get Congressional and public support by saying that Social Security was facing financial insolvency unless it received more revenue.

To get the ball rolling, President Reagan sent a personal letter to Congressional leaders on May 21, 1981, just four months into his presidency.  The letter had an ominous  tone.  It warned Congress that Social Security was headed for insolvency unless Congress enacted higher Social Security taxes.  Reagan’s first letter to Congressional leaders included the following words.

As you know, the Social Security System is teetering on the edge of bankruptcy…in the decades ahead its unfunded obligations could run well into the trillions.  Unless we in government are willing to act, a sword of Damocles will soon hang over the welfare of millions of our citizens.

Reagan’s letter to Congress was a scare letter.  He was crying “wolf.”  Social Security was definitely not teetering on the edge of bankruptcy in 1981, as Reagan had claimed in his letter to Congressional leaders.   There was a problem on the horizon when the baby boomers began retiring about 2010 but that was nearly three decades down the road.  What need was there for a large Social Security payroll tax hike in 1983?  There was no need for it, with regard to Social Security.  The need for additional revenue was to offset the lost revenue in the general fund.  But Social Security taxes are not supposed to be used for anything other than paying Social Security benefits, but who would enforce the law.  As it turned out, nobody would be policing the Social Security surplus money.  When the first surplus revenue from the 1983 payroll tax increase began flowing into the Treasury, it was simply deposited directly into the general fund and spent for whatever the government chose to spend it on.  As the money was deposited into the general fund, non-marketable government IOUs were placed in the trust fund.

The IOUs serve as a record of how much Social Security money was spent for non-Social Security purposes.  But that is all they are.  They cannot be sold  or converted into cash, and they cannot be used to pay Social Security benefits.  There are no stocks, or bonds, or anything else of value in the trust fund.  The IOUs represent a debt to Social Security, but there is no certainty that the government will repay the $2.7 trillion debt to Social Security.  The government has a moral obligation to repay the money, but it is not legally required to do so, because of a 1960 Supreme Court decision.  In the case of, Fleming v. Nestor, the Supreme Court ruled that nobody has a “contractual earned right” to Social Security.  In this specific  case, the Supreme Court upheld the denial of benefits to Nestor even though he had contributed to the program for 19 years and was already receiving benefits. In its ruling, the Supreme Court established the principle that benefits “is not a contractual right”.

Every dollar of the $2.7 trillion in Social Security surplus revenue is gone.  The trust fund holds no real assets.  It has no real bonds or anything else, with which to pay Social Security benefits.  The only thing in the trust fund is the non-marketable government IOUs which serve as a record of how much Social Security money has been spent for other purposes.  These IOUs are just IOUs, which cannot be sold or used to pay benefits.  The public has been misled, over and over, to believe that the IOUs can be used to pay Social Security benefits, but they are essentially just worthless pieces of paper.  That is why President Obama said, “I cannot guarantee that those checks go out on August 3 if we haven’t resolved this issue, because there may simply not be the money in the coffers to do it.”

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.