by Allen W. Smith / June 30th, 2012
Social Security is, today, facing its greatest challenges ever,
and it is not at all certain what the future holds for the program. If
the surplus revenue, generated by the 1983 payroll tax increase, had
been saved and invested in marketable U.S. Treasury bonds, as was the
intent of the legislation, the Social Security trust fund would today
hold 2.7 trillion in “good-as-gold” marketable U.S. Treasury bonds.
These bonds could have been sold in the open market, as needed, and full
benefits could have been paid until 2033. But the intent of the Social
Security Amendments of 1983 was not followed. Instead of saving and
investing the surplus money, as it was supposed to do, the government
spent every dime of it on wars and other government programs.
As a result, the trust fund today holds no real assets that can be
converted to cash. The $2.7 trillion of Social Security money has been
misused. The money was spent for non-Social Security purposes, and it no
longer exists. The government “borrowed” the money and replaced it with
IOUs, called “special issues of the Treasury.” These IOUs represent an
accounting record of how much Social Security money was misspent, but
they cannot be converted into cash, or used to pay benefits.
Unless the government repays that $2.7 trillion, Social Security will
face some hard times in the years ahead, and there is no certainty that
the government will repay the money. No provisions have been made for
repaying the money, and, given the political environment that currently
exists, it may not be politically feasible to repay the money.
Many people have a very naïve notion of how the United States
government operates. They picture Uncle Sam as a benevolent dictator,
with unlimited power, who always does whatever is right and fair. They
blindly trust the government to honor all of its commitments and to look
out for the best interests of the public. But that characterization of
the United States government is not even remotely accurate. The
government is made up of professional politicians, most of whom look out
primarily for themselves and their constituents.
America is, today, travelling through uncharted political waters. Our
political system has broken down, and we are going through the greatest
tax rebellion since the Boston Tea Party. The organization, Americans
for Tax Reform, led by Grover Norquist, has managed to get hundreds of
members of Congress to sign a pledge that they will not vote for any tax
increase of any kind or amount. This anti-tax movement has become very
powerful, and it is a major roadblock to any tax increase, including one
that might be exclusively earmarked for repaying the Social Security
money.
In the summer of 2011, irresponsible politicians took the nation to
the brink of national bankruptcy over what should have been a routine
vote to raise the debt ceiling, and there are indications that the same
thing might happen again. It is very questionable that today’s, or
tomorrow’s, politicians will risk their political careers by voting for a
tax increase to pay back the Social Security money that was “borrowed”
and spent by yesterday’s politicians.
Finally, the government is not legally obligated to repay the Social
Security money. Section 1104 of the 1935 Social Security Act,
specifically states, “The right to alter, amend, or repeal any provision
of this Act is hereby reserved to the Congress,” and, in a 1960 U.S.
Supreme Court ruling (
Fleming v. Nestor), the Court ruled that
nobody has a “contractual earned right” to Social Security benefits.
Thus, Congress could legally do whatever it wanted to do with regard to
changing, or even eliminating, Social Security.
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.
Read other articles by Allen, or
visit Allen's website.
This article was posted on Saturday, June 30th, 2012 at 7:49am and is filed under
Social Security.
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