The Looting of Social Security: How the Government is Draining America's Retirement Account

THE BIG LIE

About the Social Security Trust Fund

Allen W. Smith, Ph.D.

THE LIE: "All revenue from the Social Security payroll tax is used to fund Social Security benefit payments. Surplus revenue, not needed to pay current benefits, is saved and invested for the payment of future benefits. The Social Security trust fund holds U.S. Treasury bonds that can be sold and used to pay for future benefits."

THE TRUTH: None of the Social Security surplus revenue has ever been saved and invested in Treasury bonds or anything else. All revenue, not needed to pay current benefits has been put into the general fund and used to pay for wars, tax cuts, and other government programs. Every dollar of the $2.5 trillion that is supposed to be in the trust fund has been "borrowed," "embezzled," or "stolen" by the government and spent for other purposes. The trust fund does not hold any real marketable government bonds or any other kind of real assets. It holds only IOUs in the form of "special issues of the Treasury." These are a gimmick, created by the government, to make the public think the trust fund holds "bonds" when it holds only IOUs. They are not marketable and could not be sold to anyone even for a penny on the dollar. They are nothing more than accounting devices.

THE CONSEQUENCES: All of the surplus revenue generated by the 1983 payroll tax increase was supposed to be saved and invested, in order to build up a large reserve to help pay for the increased benefits cost resulting from the retirement of the baby-boom generation. The Social Security fund has been running surpluses every year since 1985, and it will continue to run surpluses through 2016. However, beginning in 2017, the fund will run deficits that will get progressively larger every year. The purpose of the 1983 payroll tax increase was to build up a large enough reserve to cover the deficits that will occur after 2016. Each year, enough money was supposed to have been withdrawn from the reserve to supplement the inadequate payroll tax revenue so that full benefits could continue to be paid until at least 2037.

Instead of saving and investing the money, the government has used the Social Security surplus like a giant slush fund to pay for wars, tax cuts, and other government programs. Thus, beginning in 2017, the payroll tax will not generate enough revenue to pay full benefits, and there is no reserve to tap into. This means that, in 2017, and after, either Social Security benfits will have to be cut, or the government will have to raise taxes in order to pay full benefits. The government is so deeply in debt already that it is not realistic to think the government could borrow money from the public to repay the squanderd Social Security money.

WHAT OTHERS HAVE SAID ABOUT THE SOCIAL SECURITY TRUST FUND

"...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." --Senator Earnest Hollings (D-SC) Speech on Senate Floor, October 13, 1989

"...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 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

There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down."--David Walker, Comptroller General of the U.S. Government Accountability Office (GAO) Speech in Washington, DC, January 21, 2005

"To make sure the retirement savings of America's seniors are not diverted in any other program, my budget protects all $2.6 trillion of the Social Security Surplus for Social Security, and for Social Security alone."--President George W. Bush, State of the Union address, February 27, 2001

"There is no trust fund, just IOUs that I saw firsthand that future generations will pay--will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs."--President George W. Bush, Speech at West Virginia University at Parkersburg, April 5, 2005

Excerpts from each of the chapters of

THE BIG LIE: How Our Government Hoodwinked the Public, Emptied the S.S. Trust Fund, and caused The Great Economic Collapse

are reproduced below.

PREFACE

The great economic collapse of 2008 started with the implosion of the American banking system, and then spread, like wildfire, throughout the entire global economy. It happened so fast that the whole world was soon in a state of shock and disbelief. How could things get so bad so fast? Answering that question is the purpose of this book.

For more than a decade, I have been trying to alert the public to the fact that government economic malpractice would almost certainly lead us to such a crisis, if we didn’t change course. My book, The Alleged Budget Surplus, Social Security, and Voodoo Economics, was published in September 2000, during the heated presidential election campaign. The message of that book was that the proposed economic policies of either George W. Bush or Al Gore would lead to economic disaster if implemented.

On September 27, 2000, I appeared on CNN TODAY with Lou Waters to discuss the newly published book. Excerpts from the transcript of that interview are reproduced below:

CNN Today:

Economist Allen Smith Discusses 'The Alleged Budget Surplus, Social Security & Voodoo Economics'

Aired September 27, 2000 - 2:01 p.m. ET

LOU WATERS, CNN ANCHOR: …The person you're about to meet might accuse the federal government of economic malpractice. He is economist Allen Smith, who says there is no surplus, that it's all a big, fat myth. His book is entitled "The Alleged Budget Surplus, Social Security & Voodoo Economics."

Dr. Smith joins us from Ft. Myers, Florida. He taught economics for 30 years, retiring from Eastern Illinois University in 1998 to write. And he wrote this book entitled, once again, "The Alleged Budget Surplus, Social Security & Voodoo Economics," all of which suggests you're not elated over President Clinton's announcement today of 19 billion more in the surplus since June.

ALLEN SMITH, AUTHOR, "THE ALLEGED BUD-GET SURPLUS, SOCIAL SECURITY & VOODOO ECONOMICS": The figures released today I haven't seen, the breakdown in terms of the amount that is off budget and the amount that is on budget. But like all the other surpluses they've been talking about, most of this is Social Security money and Social Security Trust Fund. Prior to the figures released today, in the last 40 years, we had a surplus in the operating budget of seven-tenths of a billion, or 700 million, and that came in fiscal '99. Thirty-eight years prior to that, every year had a deficit in operating budget. This is Social Security money they're talking about and not general tax revenue.

WATERS: You're saying that this money that we're hearing is a government surplus that we're paying down the federal debt with is Social Security money?

SMITH: It is Social Security money, and they are not paying down the national debt…

WATERS: Well, if what you say is true, what do we make of these political promises of a prescription drug benefit, preschool for all, college tuition paid for, tax cuts? We heard Al Gore just a few minutes ago saying they, meaning Republicans, would squander the surpluses. And he's talking about a tax cut.

SMITH: These are outrageous proposals, both the proposals of George W. Bush and that of Al Gore, will tend to derail the economy, as has happened so many times before. I don't know if they've consulted with any economists, if they've looked at the facts. But Al Gore has said we'll be debt-free by 2012, and you can—anybody can go to the Internet and get this "Mid-Session Review." It's from the office of the president, the OMB, submitted to Congress in June. And the figures in here will show that President Clinton is showing an increase in the national debt between 2000 and 2012 of about close to an additional trillion dollars.

WATERS: So we're being misled by the politicians with all these campaign promises?

SMITH: We are being totally deceived. I think this is the biggest deception in American history…

WATERS: Is there a danger for the future?

SMITH: There is a big danger because our economy right now is healthy, extremely healthy, but the budget of the United States government is probably the worst it's ever been in terms of indebtedness, and any actions taken by the government does have an impact on the economy. And I think that either—the plans of either of the two candidates will derail this economy and put us back into recession and major problems…

WATERS: A dire warning from economist Allen Smith. Thank you, Professor, for joining us today.

SMITH: Thank you for having me.

WATERS: The book: "The Alleged Budget Surplus, Social Security & Voodoo Economics."

Even as I spoke during that interview, the seeds that would yield the terrible harvest of 2008 continued to be sowed. President Clinton had cooperated with Congressional Republicans the previous year in repealing the Glass-Steagall Act of 1933, a primary pillar of FDR’s New Deal legislation that was designed to prevent a repeat of the 1930s financial collapse. When President Clinton signed into law the bill that repealed the Glass-Steagall Act, on November 12, 1999, he opened the floodgates for mass mergers of companies in the financial industries. In 2000, by creating the budget-surplus myth, Clinton was unwittingly laying the foundation for George W. Bush’s devastating tax cuts. Those tax cuts, along with the deregulation of the banking industry, started the clock that would continue to tick until the Wall Street meltdown.

CONTINUE HERE