Social Security is in Deep Trouble

by

Allen W. Smith, Ph.D

Social Security is in deep trouble—not because of any basic flaws in the current Social Security system—but because our government has embezzled $2.7 trillion of Social Security money and used it to pay for wars and other government programs.  Both Democratic and Republican members of Congress, and both Democratic and Republican Presidents, have, for three decades, been fraudulently depositing surplus Social Security revenue into the general fund and using it for whatever they chose to spend it on.  If the whole story ever becomes public knowledge, it will be a major national scandal that will make Watergate pale, by comparison. 

It all began in the early days of the Reagan presidency.  Reagan had promised the voters that he could make major cuts in income tax rates and still balance the budget by 1984.  But, a few months into the new administration it became very clear that supply-side economics (which soon became known as Reaganomics) was not working out the way Reagan had promised.  Instead of heading toward a balanced budget by 1984, both the deficit and the national debt began to rise rapidly.  Obviously Reagan’s tax cuts were far too big.  He should have acknowledged the truth and called for rescinding at least part of the income tax cuts.  But, it was not in Reagan’s nature to do so.  He was determined to find another solution to the deficit problems. 

That solution turned out to be raising Social Security payroll taxes substantially, so that large annual surpluses would exist for the next 30 years.  This would mean a lot of extra revenue coming in, which would not be needed to pay Social Security benefits for at least 30 years.  Any attempt to rescind the income tax cuts, to get the needed revenue, would have been very unpopular and difficult to get through Congress.  But pushing through Congress a payroll tax hike, which was allegedly intended to shore up the Social Security program and provide funds for paying full benefits to the baby boomers would be a piece of cake.

The first step toward implementing the plan required a letter from Reagan to Congressional leaders.  In a letter, dated May 21, 1981, Reagan wrote:

 “As you know, the Social Security System is teetering on the edge of bankruptcy.”

Reagan’s portrayal of Social Security as being on the “edge of bankruptcy” was blatantly untrue . The program could have used some tiny, short-term tweaks, but Social Security was fundamentally sound for the next 30 years.

Two months later, on July 18, 1981, President Reagan sent a second letter to Congress, emphasizing the urgency of the problem. Reagan wrote:

“The highest priority of my administration is restoring the integrity of the Social Security system…In order to tell the American people the facts, and to let them know that I shall fight to preserve the Social Security system and protect their benefits, I will ask for time on television to address the nation as soon as possible…I will call on the Congress to lay aside partisan politics, and join me in a constructive effort to put Social Security on a permanently sound financial basis…”

President Reagan instilled fear into the American people, especially those who were retired or nearing retirement. When the President went on national TV to explain the “crisis,” many Americans undoubtedly began to fear that those Social Security checks, which they depended on so much for their livelihood, might be in jeopardy

But Reagan was crying, “Wolf.”  Social Security had no major financial problems in the short run.  It would not be until 2010, when the first of the baby boomers began to retire, that Social Security would need a lot of additional revenue.  So, why did they raise taxes in 1983 for a problem that would not exist until 2010?  They did so because Reagan needed additional general revenue to replace the lost tax dollars resulting from his large unaffordable income tax cuts. 

In a perfect world, it might make sense to increase taxes in order to gradually build up a large reserve over a 30-year period so the money would be available when needed.  But, in a perfect world, nobody would try to steal the money and use it for other purposes.  The corrupt political environment in Washington DC is as far from a perfect world as the earth is from Mars. 

When the first surplus revenue from the 1983 payroll tax hike arrived at the Treasury, during Reagan’s second term, the money was deposited directly into the general fund, just like dollars from the income tax.  From the general fund, the money was used to pay for wars and other government programs.  A substantial portion of the surplus Social Security revenue ended up in the pockets of the super rich in the form of big income tax cuts, both under Reagan and under George W. Bush.

The intent of the 1983 Social Security legislation was that the money should all be saved and used to purchase pre-existing marketable U.S. Treasury bonds in the open market.  If that had been done, Social Security would be in fine shape today.  But not a single dollar of the $2.7 trillion in surplus payroll tax revenue went to Social Security in any way.  None of the money was saved.  Therefore there was no money to invest.  Money can be spent or saved.  If money is saved, it can also be invested.  But money that has been spent cannot also be invested.  Every dollar of the Social Security surplus was spent at the time it came in.  None of it was invested in bonds or anything else.  As awful as it is to accept, the truth is that the money was embezzled by the government and used for general government expenditures.   

On March 16, 2011, Senator Tom Coburn (R-OK) uttered the following words during a Senate speech. 

“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.”

Every member of Congress, the Treasury Secretary, the Chairman of the Federal Reserve, and indeed the President of the United States, know that every word that Senator Coburn spoke was absolutely true .  But only a small percentage of ordinary citizens even have a clue that their Social Security contributions were stolen and spent for other purposes. 

Why doesn’t the public know?  They don’t know because the government has managed to keep its fraudulent activities a secret for three decades, with the help of the media, the AARP, the NCPSSM, and many other individuals and organizations.  Freedom of speech and the press are a lot less free today than they were at the time Watergate was exposed.   The media tell you just as much as the government wants you to know, and no more.

I first discovered the Social Security fraud in 2000, while doing research for a book.  I was outraged, and I wanted to tell the whole world. But I soon found out that the government, and a lot of other individuals and organizations, did not want the world to know about it.  I have devoted the past 13 years of my life to a relentless campaign to expose the Social Security fraud.  In addition to my time, I have spent more than $50,000 of my own (borrowed) money on publicity and PR campaigns, trying to expose a story that the government did not want exposed, and the media refused to report   

I thought I would get the message out when my book, The Looting of Social Security, was published by a New York publisher in 2004.  But, that book became the victim of foul play. I dared to publicly challenge Federal Reserve Chairman, Alan Greenspan, on national TV, when I appeared on CNBC on February 26, 2004. I held a copy of the book in front of the camera and said, as forcefully as I could,   “Alan Greenspan should be ashamed of himself for what he is not telling the American people.”

Several weeks later, my book was censored and removed from the market by some unknown entity.  It might have been an individual, an organization, or possibly some government official. The book suddenly disappeared from bookstores, nationwide, and Amazon.com listed it as “unavailable.”  I contacted my publisher and asked that the publishing rights to the book be reverted back to me so that I could publish it elsewhere.  But the publisher refused to relinquish the rights.  This effectively taped my mouth shut during the very time that President George W. Bush was traveling around the country trying to convince the public to partially privatize Social Security. 

If Reagan had been the only president to embezzle Social Security funds, the situation might not be so serious.  But once Reagan had set the precedent, his successor George H.W. Bush continued to use the Social Security surplus revenue for non-Social Security purposes.  As long as he had his giant slush fund, Bush could afford to promise “Read my lips, no new taxes.” 

I had high hopes that Clinton would spill the beans about the misuse of Social Security money by his two predecessors.  But, instead, he became a copycat Social Security thief.  And George W. Bush did the same thing. 

What about President Obama?  Has he followed in the footprints of his predecessors?  No, but he might have if there had still been Social Security surplus money to steal.  However, the thirty-year run of Social Security surpluses came to an end with the tiny surplus of 2009.  Beginning in 2010, Social Security would run permanent annual deficits.  The Social Security deficit for 2010 was $49 billion, so the government had to borrow (probably from China) $49 billion in order to pay full benefits.  The annual deficits in Social Security will become larger and larger in the years ahead, until the time comes when the government can no longer borrow sufficient money to pay full benefits.   

Ironically, today Ronald Reagan is seen as one of Social Security’s heroes.  He is lauded for the 1983 legislation, which is often referred to as one of Reagan’s greatest achievements.    He and House Speaker, Tip O’Neill allegedly engaged in bipartisan negotiations, which resulted in a long-term “fix” of the Social Security program.   But what Reagan actually did was to sow the seeds of the greatest fraud ever perpetrated against the American people by their government.”

Reagan had never been a friend of Social Security.  In 1975, while campaigning for the Republican nomination, Reagan proposed making Social Security voluntary, which would have effectively destroyed the program.  Reagan was not trying to help Social Security in 1983. He was trying to fool Congress into raising Social Security taxes so he could use the surplus revenue for his own purposes.  Reagan is guilty of looting only the Social Securiy surplus during is presidency.  George H.W. Bush, Bill Clinton, and George W. Bush also share the blame for the government’s participation in the $2.7 trillion fraud. But it was Reagan who paved the way for future looters. 

Now you know why Social Security is in deep trouble.