Social Security Ain’t Broke

There is a high probability that Social Security benefits will be cut in 2017 or 2018, because there will not be enough Social Security money to pay full benefits.  The payroll tax hike of 1983 generated $2.7 trillion in surplus Social Security revenue, but none of it ended up in the trust fund.  In the words of Senator Tom Coburn (R-OK), in a Senate Speech on March 16, 2011:

Congresses under both Republican and Democrat control, both Republican and Democrat presidents, have stolen money from social security and spent it. The money’s gone. It’s been used for another purpose.

The money is gone, and the trust fund does not hold anything of value. On January 21, 2005, David Walker, Comptroller General of the GAO, tried to make it absolutely clear that there were no bonds in the trust fund. He said:

There are no stocks or bonds or real estate in the trust fund.  It has nothing of real value to draw down.

Most Americans believe the trust fund holds $2.7 trillion in marketable bonds because that is what they have been told by the government over a 30-year period.  But it is a big lie.  Every dollar of the surplus Social Security revenue was taken by the government and spent for non-Social Security purposes.

The current status of Social Security is very dismal.  It is a crisis waiting to happen.  But most Americans don’t have a clue that Social Security is paying out substantially more in benefits each year than it is taking in.  The cost of paying full Social Security benefits began to exceed the incoming Social Security revenue in 2010, and the government has been borrowing money from China, or one of our other creditors, in order to avoid cutting benefits.

Enactment of the Social Security Amendments of 1983 laid the foundation for the greatest fraud ever perpetrated against the American public by their own government.  The alleged purpose of the 1983 legislation was to strengthen Social Security by building up a huge reserve of Social Security money in order to prepare for the retirement of the baby-boomer generation, which was expected to begin in about 2010.  The surplus money was supposed to all be saved and invested in marketable U.S. Treasury bonds.  These “good-as-gold” marketable bonds were supposed to be held in the trust fund until additional money was needed to pay benefits when the boomers retired.

Social Security ran a $39 billion deficit in 2014, closing out five years of consecutive deficits.  In 2015, the Social Security deficit was more than double that of 2014.  The amount of money that came in was $84 billion less than what was needed to pay full benefits.  Once again, that $84 billion gap between Social Security revenue and the cost of paying full benefits had to be borrowed.  If the government had not borrowed the money, Social Security benefits might have been cut by $84 billion. The size of the annual Social Security deficits will continue to increase at an increasing rate, and it is just a matter of time until Social Security benefits will have to be drastically cut.

When the surplus revenue, from the 1983 payroll tax hike first began to flow into the Treasury, during Reagan’s second term, it was deposited into the general fund, where it could be spent for whatever the government chose to spend it on.  Some of the Social Security surplus revenue was used to help fund wars, some of it was used to offset the lost revenue resulting from the huge unaffordable cuts in income tax rates, and some of it was used for other non-Social Security programs.

Presidents Reagan, H.W. Bush, Bill Clinton, and George W. Bush all raided every dollar of the $2.7 trillion in Social Security surplus revenue.  President Obama might have also raided the trust fund, if he had had the opportunity to do so. But the 30 years of annual Social Security surpluses came to an end shortly after Obama became President.  The last small surplus was during the first year of Obama’s presidency.  The next year, the annual surpluses came to an end and were replaced by permanent annual deficits that become larger with each passing year.

As the government raided the trust fund, it replaced the Social Security money with government IOUs, called “Special Issues of the Treasury.”  The trust fund holds no cash, no real marketable Treasury bonds, or anything else of value.  The government IOUs are essentially worthless, because they cannot be sold, or used to pay benefits.

The trust fund is empty. On April 5, 2005, President George W. Bush, during a speech at the West Virginia University at Parkersburg. confirmed that the trust fund is empty.  He said:

There is no trust fund, just IOUs  that I saw firsthand that future generation will pay—pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs.

On ABC’s This Week, on October 6, 2013, former Speaker of the House, John Boehner, said:

It’s not like there’s money in Social Security or Medicare.  The government, over the last 30 years, has spent it all.

The outcome of the 2016 election greatly strengthened the hands of those who have advocated cutting, and/or privatizing Social Security for years.  Conditions are right for a major effort to cut Social Security benefits.  The Republican party has vehemently opposed Social Security ever since the Social Security Act of 1935 was passed, and now that the Republican party will control the House, the Senate, and the White House, they can almost do whatever they choose to do, as long as they don’t violate the Constitution. Changes to Social Security is probably at the top of their wish list. House Speaker, Paul Ryan, and his zeal for cutting Social Security, is in line with his Party’s history. Since he was elected to the House of Representatives in 1998, cutting Social Security has been his top priority.

In 2004, Ryan pushed a plan to privatize Social Security so extreme that even George W. Bush called it “irresponsible.” In 2007, Ryan became the ranking member of the House Budget Committee, and used that perch, to draft yearly budgets that included massive cuts to Social Security, Medicare, and Medicaid.

According to Tim Kaine, “When Mike Pence was in Congress, he was the chief cheerleader for the privatization of Social Security, even after President Bush stopped pushing for it.” With the new Vice President, elect, and the Speaker of the House, both enthusiastic for making changes in Social Security, there is no doubt that Social Security benefits will be on the chopping block. The election results have now transformed Social Security from “a serious problem,” into a dangerous crisis.

Every week, I do a Google search on the words, “social security trust fund” to see what is in the news about Social Security.  Approximately 75 to 80 percent of these articles appear to be written by people who either don’t know what they are talking about, or they are deliberately trying to deceive the public.  They usually portray Social Security in very favorable terms. And, sometimes, they make ridiculous statements like Senator Harry Reid made  on “Meet the Press” in 2011. “Social Security is a program that works. It’s fully funded for the next 40 years. Stop picking on Social Security.”

Social Security is a program that was designed to work, and it has worked in the past.  It would be working today, if the surplus of $2.7 trillion in marketable U.S. Treasury Bonds were in the trust fund as the 1983 Social Security legislation intended.  But the government took every dollar of the surplus, as it flowed into the Treasury, and spent the money for non-Social Security purposes.  As this theft took place over a 30-year period government IOUs were placed into the trust fund to serve as an accounting record, and only as an accounting record.  The IOUs have no monetary value.  They cannot be sold or used to pay benefits.   This is the basic source of confusion.

If the trust fund had not been raided, Social Security would be solvent today.  Similarly, if the government could, and would, repay the $2.7 trillion of stolen money, the Social Security solvency problem would be solved for the present.  What is wrong with Social Security? The government stole $2.7 trillion of Social Security money.  What is required to make Social Security solvent again?  If the $2.7 trillion of stolen money were repaid, Social Security would be solvent today, but some actions would be needed in the future to extend the period of solvency.

As an economist who has devoted the past sixteen years of my life to researching and writing about Social Security, I call on journalists to verify, and then report to the public, the following two facts:

  1. The government spent all of the $2.7 trillion in surplus Social Security revenue for non-Social Security purposes.
  2. The Social Security trust fund does not hold any cash, marketable Treasury bonds, or anything else of value which can be used to pay Social Security benefits.

These two facts are indisputably true, and the public has a need and a right to know about them.  If the Wall Street Journal, the New York Times, the Washington Post, or any other major news outlets were to verify, and then report to the public these facts, the public would soon see why there is so much confusion about Social Security.  They would see that the Social Security system is not broken.  It has worked well in the past, and can work well in the future.

The only major thing wrong with the current system is that $2.7 trillion of its reserves has been stolen and used for other purposes, depriving it of the ability to pay full Social Security benefits.  If the money had never been stolen, or if the stolen money was repaid, Social Security would be solvent for several years before any further adjustments would be required.  The public has a right to know this before any changes are made to the current system

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.