New Book to Expose Social Security Fraud

Allen W. Smith, Ph.D.

            For decades the American people have been led to believe that revenue from the Social Security payroll tax was used exclusively to fund Social Security, as required by federal law.  Any revenue, not needed to pay current benefits, was believed to be saved and invested in “good-as-gold” U.S. Treasury bonds to be put in the trust fund for the payment of future benefits.  This is a big lie.  The government has “borrowed,” “embezzled,” or “stolen” every penny of the $2.4 trillion of Social Security surplus that is supposed to currently be in the Social Security trust fund, and no provisions, whatsoever, have been made for repayment of the funds.

According to the latest Social Security Trustees Report, in just seven years (2016), the annual surpluses that have resulted from the 1983 payroll tax increase will come to an end, and from that point on, payroll tax revenue will be insufficient to pay full benefits.  This means that, beginning in 2016, Social Security benefits will have to be reduced unless taxes are increased. 

The 1983 Social Security tax increase was in response to the report of the 1982 Presidential Commission on Social Security, headed by Alan Greenspan.  That report warned that Social Security would face serious solvency problems when the baby boom generation retired, and it recommended a substantial tax increase that would require the baby boomers to prepay most of the cost of their benefits.  The surplus revenue that resulted from the tax increase was earmarked specifically for funding benefits for the baby boomers, and all surplus revenue was supposed to be saved and invested to build up a large reserve in the trust fund.  If the surplus revenue had been saved and invested as planned, there would be enough money in the trust fund to supplement the inadequate payroll tax revenue so that full benefits could be paid until 2037.

None of the Social Security surplus has been invested in anything.  You can save and invest money, or you can spend it, but you cannot do both.   Once the money is spent, there is nothing left to invest.  Thus, the Social Security trust fund does not contain any real assets.  Probably the most objective, nonpartisan person in the federal government is the Comptroller General of the Government Accountability Office. When there are conflicting reports on government activity the public and the media usually look to the GAO for the truth.  On January 21, 2005, GAO Comptroller General, David Walker, tried to make it clear, once and for all, that the Social Security trust fund contained no real assets.  In a public speech, he said, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.”

Contrary to popular belief, the trust fund holds no “real bonds.”  The government should have used the surplus money to purchase public issue U.S. Treasury bonds in the open market.  Such bonds are “good as gold” and probably the safest investment in the world. The reason the government did not do this was that there would have been no surplus money for the government to spend.  Instead, the government chose to use the money as a giant slush fund to be used for anything and everything.  The reason that so many people are confused on this point is that the government created a special type of government certificate called “Special Issues of the Treasury” specifically to be held exclusively by the trust funds.  These are not real bonds.  They are nothing more than IOU’s that serve as accounting devices to show how much Social Security money the government has spent.  They are not marketable and do not have any real value.  Nevertheless, many Americans believe that these special issue “bonds” are just like other U.S. Treasury bonds, and this belief has allowed the government Social Security fraud to continue under the last four presidents. 

All this is explained in my forthcoming new book, “The Big Lie: How Our Government Hoodwinked the Public, Emptied the Social Security Trust Fund, and caused The Great Economic Collapse.” The book will be released on August 1, 2009 by Ironwood Publications.  (ISBN 978-0-9770851-8-7, Hardcover $21.95)