The Social Security trust fund has been raided. It holds no real assets that can be converted into cash or used to pay benefits.
The Ugly Truth About
The Social Security Trust Fund
By Allen W. Smith, Ph.D.
The 1983 Social Security Amendments laid the foundation for one of the biggest government scams in American history. The amendments included a hefty hike in the payroll tax, which was designed to create Social Security surpluses for the next 30 years. The surplus revenue was supposed to be saved and invested in marketable Treasury bonds, in order to build up a large reserve fund before the baby boomers began to retire.
When the first surplus revenue from the tax increase began to flow in, during President Reagan’s second term, it was deposited in the general fund and spent just like other tax revenue. Since it would be nearly 30 years before the money would actually be needed to pay benefits, the Reagan administration apparently saw no harm in spending the early surpluses for other things. The money could be replaced later.
However, once Reagan had set the precedent, his succesors (Bush I, Clinton, and Bush II) also chose to raid the trust fund and use the money for non-Social Security purposes. Beginning in 2010, Social Security began running deficits, and its tax revenue was not sufficent to pay full Social Security benefits. Since there was no money in the trust fund, the government had to borrow money to make up the difference between annual revenue and the cost of paying full benefits.
The only thing in the trust fund is government IOUs, called “special issues of the Treasury.” These IOUs are not like the real marketable Treasury bonds held by China and other U.S. creditors. They are nothing more than an accounting record of how much Social Security money was spent for non-Social Security purposes. They are worthless pieces of paper, stored in a filing cabinet at the Bureau of the Public Debt office in Parkersburg, West Virginia. These facts are well known by the President and by every member of Congress. However, most Americans don’t have a clue that their Social Security contributions have been looted and spent by the government for wars and other government programs.
Only rarely does any politician or government official say anything that might help to alert the public to what is going on. One notable exception was the public admission by Senator Tom Coburn (R-OK), that he and his colleagues had used the Social Security surplus for non-Social Security purposes. On March 16, 2011, Senator Coburn said:
“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.”
Senator Coburn’s shocking public statement provided an opportunity for every member of Congress to weigh in on the status of the trust fund. If they thought he was wrong, they should have said so, but to my knowledge, not a single member of Congress publicly disputed Coburn’s claim. However, behind closed doors, Coburn was probably heavily chastised by colleagues from both sides of the aisle for breaking the sacred code of silence and admitting the misuse of Social Security funds.
The fact that the government has spent all of the $2.7 trillion of surplus Social Security revenue for non-Social Security purposes is a matter of public record. However, that basic truth is not widely known by the American public, and the government does not want the public to know about it. Many members of Congress, in both political parties, would see their careers badly damaged, and perhaps ended, if the ugly truth becomes public knowledge. This secrecy has kept the public in the dark about the misuse of Social Security funds for the past quarter century.
Copyright 2012 Allen W. Smith
Dr. Allen W. Smith is Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books, including "The Looting of Social Security," and he has been researching and writing about Social Security financing for the past twelve years. He has discussed Social Security on national TV and done more than 200 radio interviews on the subject.
Allen W. Smith, Ph.D.
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