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Social Security is on the verge of a deep crisis. The only thing of value that Social Security has is its annual tax revenue, which is not enough to pay full Social Security benefits. There is no cash reserve or money set aside in a special reserve. All of the surplus revenue that was generated by the 1983 payroll tax hike ($2.7 trillion) was embezzled by the government and used to finance wars, tax cuts for wealthy and other programs. The actual money was replaced with government IOUs which cannot be used to pay benefits and cannot be converted into cash. These IOUs are not real "bonds" and they are essentially worthless.
The money’s gone! Social Security doesn’t have $2.7 trillion stashed away for paying benefits, as so many people believe. It cannot pay benefits for another 20 years, as is often claimed. In fact, Social Security does not have enough money to pay full benefits, even for 2014, without borrowing money from China or another of our creditors.
How can this be? Wasn’t Social Security fixed by the Social Security Amendments of 1983, which included a large increase in payroll taxes? That’s what we were told at the time. President Reagan signed that legislation into law with great fanfare on April 20, 1983. With his comments at the signing ceremony, Reagan gave the impression that it was a proud day for America. But, instead of being a proud day for America, as Reagan implied, the day the new legislation was signed into law, turned out to be a day of shame for the United States. The Social Security Amendments of 1983 laid the foundation for 30 years of government embezzlement of Social Security funds. The money was used to pay for wars, tax cuts for the rich, and other government programs. The payroll tax hike of 1983 generated a total of $2.7 trillion in surplus Social Security revenue. This surplus revenue was supposed to be saved and invested in marketable U.S. Treasury bonds, which would be held in the trust fund until the baby boomers began to retire in about 2010. But not one dime of that money ever made its way to the Social Security trust fund.
The 1983 legislation was sold to the public, and to Congress, as a long-term fix for Social Security. With the help of Alan Greenspan, Reagan was a super salesman, who could have sold almost anything to the public—even a scam. And that’s exactly what he was selling. Reagan intended to use the surplus Social Security revenue to replace revenue lost because of his unaffordable income tax cuts. Instead of being set aside for the retirement of the baby boomers, as was the intent of the legislation, the extra Social Security revenue was deposited directly into the general fund just like income tax revenue.
From the very beginning, Reagan and his advisors had no intention of saving and investing the new revenue for the retirement of the baby boomers. They needed additional general tax revenue, and an increase in the payroll tax would be much easier to enact than higher income taxes. Also, the potential to get vast amounts of revenue was much greater with a payroll tax increase than from an income tax increase. The baby boomers, the largest generation of Americans who ever lived, were already making large contributions to the Social Security fund. Like all previous generations, prior to 1983, the boomers were being required to pay the full cost of benefits paid to the previous generation. But, the proposed new legislation would hit the boomers with a double whammy. In addition to paying for their parents’ benefits, the new law would require the baby boomers to also pay enough additional taxes to prepay the cost of their own benefits. This would generate a potential gold mine of surplus revenue that could be tapped and used for other purposes.
But none of the $2.7 trillion in additional Social Security revenue was ever saved or invested in anything. The actual surplus money was replaced with non-marketable government IOUs, which cannot be converted into cash or used to pay Social Security benefits. It would have been bad enough if only Reagan had looted Social Security money. But George H.W. Bush, Bill Clinton, and George W. Bush all followed in Reagan’s footsteps and spent all of the Social Security surplus revenue for non-Social Security purposes, just like Reagan.
This book is a must read for all who care about the future of Social Security and the integrity of their government.
The Social Security crisis we are now facing became much worse in 2010, when the annual Social Security surpluses of the previous 30 years suddenly turned into permanent annual deficits. The deficit for 2010 was 49 billion, and the gap between revenue, and the cost of paying full benefits, will get larger and larger in the years ahead.
How did the government make up for the $49 billion deficit in Social Security in 2010? It borrowed the money to pay back a tiny portion of its $2.7 trillion debt to Social Security. Seventeen years from now, in 2030, the government would have to borrow $318.7 billion in order to pay full benefits. The nation’s finances are under such close scrutiny by credit-rating agencies, the World Bank, and other nations, especially China and our other creditors, that we will be unable to borrow our way out of the Social Security crisis.
Of course, most Americans do not know that the government is now having to borrow money in order to pay full benefits. How could they possibly know? The Social Security Administration, the AARP and the NCPSSM all have statements on their official websites which tell the public that Social Security has enough money to pay full benefits for at least two more decades.
These statements are outrageous lies. Social Security has nothing but its annual tax revenue, which is insufficient to pay full annual benefits. Social Security does not have $2.7 trillion in the bank. It doesn’t even have 27 cents in cash reserves. It has nothing but a pile of worthless government IOUs, which couldn’t be sold to anyone, even for a penny on the dollar. Social Security is at the mercy of a government that has stolen $2.7 trillion of its money.
So the impending crisis is upon us now. If the government was willing to raise taxes, in order to get cash with which to repay the stolen money, that would be a potential solution. But the Republicans will not raise taxes for any reason. Neither will they raise the debt ceiling by enough to cover Social Security’s needs. There are only three options: (1) raise taxes; (2) borrow more money; or (3) cut Social Security benefits. If we rule out higher taxes and more borrowing, we are left with only one option—cutting benefits.
The nitty gritty of the problem is that Social Security will need to have that $2.7 trillion in surplus Social Security revenue paid back. Unless the money is repaid, Social Security is in deep trouble. That is why there are so many calls for cutting Social Security benefits. That is probably also why President Obama has offered to cut benefits by changing the way inflation is measured for Social Security cost-of-living adjustments.
The theft of the Social Security money is a terrible crime against the American people, and there is no point in mincing words. The government did not borrow the Social Security money. It stole it. And many members of Congress have no intention of ever repaying the money. The American people have been misled by the government, over the past 30 years, about what has been done with their Social Security contributions. Most seem to think the government saved the money and invested it in marketable U. S. Treasury bonds, as it was supposed to do. But that didn’t happen.
Not even one dollar of the $2.7 trillion in surplus Social Security revenue, generated by the hefty payroll tax hike of 1983, went to Social Security in any way. Every dollar of the revenue was deposited in the general fund and used to pay for wars and other government programs.
The money was replaced with non-marketable government IOUs. These are nothing more than an accounting record of how much Social Security money has been used for non-Social Security purposes. These IOUs are essentially worthless.
Why isn’t the government’s embezzlement of the Social Security trust fund money common knowledge today? It’s not common knowledge because the government does not want the public to find out that it has been using Social Security payroll tax revenue, as if it were income tax revenue, for the past 30 years. As bad as the deficits have been, they would have been much worse if the government had not used Social Security dollars to replace income tax dollars that were lost as a result of the unaffordable tax cuts under both Reagan and George W. Bush.
So it is all a Big Lie! Both Republicans and Democrats contribute to the lie, because they are equally guilty of misusing the Social Security revenue. If this were a partisan issue, where all the guilt rested with one political party, as was the case with Watergate, the innocent party would have exposed the guilty party years ago. But both Republicans and Democrats have a lot to lose if this becomes public information. Many incumbents in both parties could be voted out of office, if their role in the Social Security fraud were made public.