I am offering Chapter 1 of my new book, "Raiding the Trust Fund" free to the public. Please download your copy and pass the offer on to as many people as possible

You are invited to Download Chapter One and Read it Free! RAIDING THE TRUST FUND Using Social Security Money to Fund Tax Cuts for the Rich Allen W. Smith, Ph.D. Copyright © 2016 by Allen W. Smith All rights reserved. No part of this book may be reproduced in any form, except for brief reviews, without written permission from the publisher. All inquiries should be addressed to Ironwood Publications, 74 Oakridge Drive, Frostproof, Florida 33843. ISBN 978-0-9903036-6-4 To Joan CONTENTS CHAPTER ONE Introduction CHAPTER TWO Social Security is More Vulnerable Than You Think CHAPTER THREE Economic Illiteracy and Malpractice CHAPTER FOUR How It All Started CHAPTER FIVE Economic Policies During the Reagan-Bush Years CHAPTER SIX Clinton and a Return to Traditional Economic Policies CHAPTER SEVEN George W. Bush and Another Round of Reaganomics CHAPTER EIGHT Tax Cuts and Job Creation CHAPTER NINE The Hidden Agenda CHAPTER TEN The Impending Crisis INDEX CHAPTER ONE INTRODUCTION The starting point of this story dates back 32 years to April 20, 1983 when President Ronald Reagan signed the Social Security Amendments of 1983 into law with great fanfare. He called them, “landmark legislation,” and made glowing remarks about what he thought the legislation had accomplished: Our elderly need no longer fear that the checks they depend on will be stopped or reduced. These amendments protect them. Americans of middle age need no longer worry whether their career-long investment will pay off. These amendments guarantee it. I did not become a part of the story until 17 years later, when on a warm September morning in 2000 I was sitting at my desk in my Naples home when the phone rang. I picked up and the pleasant female voice on the other end asked, “Are you Dr. Allen W. Smith?” I assured her that I was. “This is CNN News in Atlanta,” she said. I had never received a call from CNN, or any other news organization, so I just assumed they were conducting a poll or survey. “We’ve had a last minute cancellation for the two o’clock news today,” the polite caller said, “And we were wondering if you could appear instead. We have your book here, and, if you could get to our studio in Fort Myers in time for the two o’clock news, we’d like to have you as a guest.” I had sent complimentary review copies of my new self-published book, “The Alleged Budget Surplus, Social Security and Voodoo Economics,” so I wasn’t surprised that CNN had a copy. But I was shocked, and thrilled, at the prospect they might want me to talk about the book on the air. The call stemmed from an important discovery I had made several months earlier while doing some research. I discovered, to my astonishment, that the surplus Social Security revenue, which was supposed to be saved and invested in marketable U.S. Treasury bonds for the eventual baby boomers retirement, was being improperly used. The money was not being saved. Instead, it was being used to fund general government operations. My first clue to this came from a short pamphlet I found, written by an employee of the Social Security Administration. And that spilled a lot of beans! It stated that the Social Security money was being spent just like income tax revenue, and it was being replaced by putting non-marketable IOUs in the Social Security trust fund. As if this were not bad enough, the pamphlet alleged that the interest the government was supposedly paying on its debt to Social Security was being “paid” in the form of more of the same worthless IOUs—not cash. At first, I doubted all this was true . It was just too shocking. Surely our government could not be using money, which had been collected exclusively for Social Security, to pay other bills. My first thought was that the pamphlet might have been written as a joke. But it didn’t take much further research to discover that I had just stumbled onto a massive fraud. A quick review of the Congressional Record showed that as early as 1989, Senator Ernest Hollings (D-SC) had referred to the IOU’s in the trust fund as a “21st Century version of Confederate Bank notes.” And, in 1990, Senator Harry Reid (D-NV) had stated in a speech in the Senate, “We have been stealing money from the Social Security recipients of this country.” The government was indeed spending Social Security money on other programs in 2000, and, outside the government, almost no one seemed to know about it. As I approached the TV station in Fort Myers, my mind was running in circles. Once I had become absolutely sure that this was really going on, I had begun writing a new book about this scam in detail. I feared I had no time to search for an agent or publisher. This was hot, and the public had to be alerted immediately. So I self-published the book and had it out by early September. As we parked outside the TV station, I thought I was now about to get lucky. Once CNN reported my story, it would be big breaking news, and the word would explode out to the public. But I was so naïve about the nature of the news media at that time. It was so different from the media that had exposed Watergate during the Nixon presidency. As I sat in the TV Studio, preparing for my first ever appearance on national television, I was too excited to be nervous. I would soon tell millions of people about the Social Security scam. Once the time arrived, I found myself staring into a monitor at the face of Lou Waters, the CNN anchor in Atlanta. And I was ready to expose the Social Security fraud. But the interview didn’t go the way I had hoped. Waters introduced me by saying, “The person you’re about to meet might accuse the federal government of economic malpractice. He is economist Allen Smith, who says there is no surplus, that it’s all a big, fat myth.” I tried my heart out to convince Waters that Social Security money was being spent for other programs. But he would have no part of it. Below are excerpts from the transcript of the interview: WATERS: You’re saying that this money that we’re hearing is a government surplus that we’re paying down the federal debt with is Social Security money? SMITH: It is Social Security money, and they are not paying down the debt. WATERS: So we’re being misled by the politicians with all these campaign promises? SMITH: We are being totally deceived. I think this is the biggest deception in American history. WATERS: Is there a danger for the future? SMITH: There is a big danger because our economy right now is healthy, extremely healthy, but the budget of the United States government is probably the worst it’s ever been in terms of indebtedness. Waters seemed more amused than interested in what I was saying, and finally he said, “We’re not hearing any of this in the news. I’m involved in the news. Are you a voice crying in the wilderness?” As things turned out, I was a voice crying in the wilderness on September 27, 2000. But I had spelled out the fraud in detail in my new book, and people would soon know about it, I naively thought. I’ve always been troubled by social injustice, and it appeared that this might be the greatest of all time. Social Security contributions, from working Americans, were being used to help finance the large Reagan income tax cuts. Cuts, which went disproportionately to the rich. The 1982 Commission on Social Security Reform, and the Social Security Amendments of 1983 were scams against the American public. As we drove back to Naples, I was excited, and a plan began to emerge in my mind. I vowed that I would not rest until the Social Security scam was exposed, and those responsible were held accountable. As my mind jumped from thought to thought, I realized that I needed to talk to my wife, Joan, about one idea that kept popping into my mind, uninvited. “Sweetie,” I said cautiously. “I want to ask you something.” “Okay,” she responded, “What is it?” “I’m thinking about borrowing money to promote the book.” “How much?” she asked. I don’t know. But we won’t sell many copies if people don’t know the book exists. And if the book doesn’t sell, the money we’ve already spent printing the books will be wasted.” “That doesn’t make sense,” Joan said. “It’s just that it’s such an important issue,” I said. “I want to get the word out as soon as possible.” When we got home that afternoon, life wasn’t quite the same. Earlier that morning, everything was normal. But that phone call, and the trip to Fort Myers to do the interview, had changed things, at least a bit. For the next few days, I did a lot of soul searching. My life was better than I’d ever dreamed it could be. So I didn’t want to mess things up. A few days after the CNN interview, Joan and I went to Caribbean Gardens, our favorite place in the Naples area. We had season passes to the beautiful botanical gardens, and we tried to go at least once a week. We had a favorite spot in the gardens, near a small pond, that was lined with palm trees and surrounded by a large grassy area. Joan and I liked to go to our special spot whenever we wanted to do some serious thinking or talking, and that’s what we needed to do that afternoon. As we sat on the grass, gazing at the beautiful pond and the lovely palm trees, swaying in the gentle breeze, it seemed inappropriate to drag a big problem into that tranquil place. So we just soaked in the sights and sounds for a few minutes before even thinking about what we would soon be discussing. It had been a few days since the interview, and we had a better perspective on the situation than on the day of the interview. We reminded ourselves that the interview came only because another guest had cancelled at the last minute. But, it had happened. I had told a large national audience about the Social Security scam, and I hungered for more opportunities to expose the fraud. We considered the options we had for promoting the book, and we both wanted to do something big. “What if we placed a full-page ad in a major national magazine?” I asked. “I don’t know,” Joan said. “It would cost a lot of money, and we couldn’t be sure that anyone would even read it.” “Yeah, you’re probably right,” I said. “But just spending small amounts here and there probably won’t do any good either. We need a way to reach a lot of people.” We finally decided to gamble big time. We borrowed $4,000 to place a full-page, four-color ad in The New Republic. The ad appeared in the October 9, 2000 issue—the one with the cover photo of George W. Bush, kissing Oprah on the cheek. I still have that magazine. I keep it to remind me of the $4,000 ad, which accomplished almost nothing. It was the closest I had ever come to playing the lottery, and I vowed to be a lot more careful how I spent money in the future. On January 20, 1983, the Greenspan Commission on Social Security Reform had s 1ent its recommendations to the President and the Congress. The proposed legislation was rushed through Congress in only three months, and, on April 20, 1983, President Reagan signed the legislation into law. At the signing ceremony, Reagan had made it sound like April 20, 1983 would go down in history as a proud day for America. And, ironically, even to this day, the myth that Democratic House Speaker Tip O’Neill and Republican President Ronald Reagan “solved the Social Security crisis of 1983,” still persists. But it was all a big lie. The 1983 legislation enabled the government to embezzle and spend $2.7 trillion that belonged to the trust fund and to the workers who had contributed to it. The baby boomers were the reason for the 1983 legislation. The Greenspan Commission had found that there were no major financing problems for Social Security in the short term. The only major problem on the horizon was the forthcoming retirement of the baby boomers, some 30 years down the road. A tiny tax increase might have been warranted. But there was no justification for enacting a large tax increase to solve a problem that was decades away. Nevertheless, Reagan and Greenspan convinced Congress to take action on the future financing problem that would exist when the baby boomers retired. The plan called for a hefty payroll tax hike on the baby boomers. In addition to paying for the cost of their parents’ benefits, the boomers were required to pay enough additional taxes to prepay their own benefits. As a result, the baby boomers have contributed more to Social Security than any other generation. The higher taxes were designed to generate large Social Security surpluses for the next thirty years. The surplus revenue was supposed to be saved and invested in marketable U.S. Treasury bonds. The Treasury bonds would later be sold to raise cash with which to pay benefits to the boomers. What should’ve been seen as a red flag was that the legislation called for imposing large tax increases, effective immediately, to deal with a problem that was 30 years away. That is just not the way the United States has traditionally done things. By nature, we are a crisis nation. We usually don’t take action on a major problem until it’s almost too late. So why did the government raise taxes in 1983 when the money wouldn’t be needed for 30 years? Reagan needed general revenue to replace the lost revenue from his unaffordable income-tax cuts. Instead of moving closer to a balanced budget, which Reagan had promised we would have by 1984, we had exploding federal budget deficits and a doubling of the national debt . from $1 trillion in 1981 to $2 trillion six years later. Supply-side economics wasn’t working the way Reagan had said it would work, so additional revenue was desperately needed. Reagan could have just admitted that he’d been wrong about the tax cuts, and he could’ve proposed rescinding a large portion of them. But that was not in his nature. He had to find another way to keep the deficits down. When the first significant revenue from the 1983 payroll tax hike arrived at the U.S. Treasury in 1985, instead of setting it aside for the baby boomers, the money was quietly deposited directly into the general fund. There was a Social Security surplus of $9.4 billion in 1985, with increasingly larger annual surpluses thereafter. In total, the 1983 payroll tax hike had generated $2.7 trillion in surplus revenue by the time the annual surpluses ended in 2010. That is how much Social Security money has been used to fund wars and other government programs. That is how much the government now owes to the Social Security trust fund. As part of my effort to expose the Social Security fraud, I began to advertise my availability for radio interviews via telephone in Radio-TV Interview Report. I got quite a few interviews through the ads, and I paid a large PR firm, to schedule additional interviews for me with some of the bigger radio stations. I have done more than 200 radio interviews about Social Security with stations, both large and small, all over the country. My goal of getting another book on Social Security published, was achieved when New York publisher, Carroll & Graf, released, “THE LOOTING OF SOCIAL SECURITY: How The Government Is Draining America’s Retirement Account,” in early 2004. I was elated. I thought I had almost reached the promised land. After four years of frustration in my efforts to expose the Social Security theft, I finally had a book, published by a regular publisher, that I thought would finally expose the awful truth about the trust fund. When the book first came out, I was confident that it would reach a large audience. But events over the next few months showed just how wrong I was. The first hint of trouble was a lengthy UPI.com article, about me and the book, written by Paul W. Robberson. The article/review appeared in the Business section of the Washington Times on January 27, 2004. To give the reader a feel for the nature of the article/review, I am reproducing the first three paragraphs below: “Screaming ‘Fire! Fire!’ when smoke is detected in a crowded room may be the prudent thing to do, but what about an author who stridently writes ‘Fraud! Fraud!’ about the operation of the Social Security system, when, in fact, the U.S. government is spending the money according to rules enacted by Congress. If fraud has occurred, then someone must be brought to justice, but if the claim is manufactured or embellished, then someone has been falsely accused. Allen W. Smith does just that in ‘The Looting of Social Security’ (Carroll and Graf Publishers, New York, 2004, $11.20 paperback, 256 pp). Smith unleashes his attack with the bold salvo that President George W. Bush is “participating in massive fraud against the American public.” The above excerpt is only about 10 percent of the “review.” Mr. Robberson rants on for more than 1100 words. Near the end he writes: “Clearly Smith is no fan of Bush, his father, his family, or his friends, and he uses his poorly constructed looting indictment as the vehicle for his venting.” I was flattered that the right-wing Washington Times would devote 1100 words to me and my book. But, I felt almost sure they had an ulterior motive for doing so. I saw the article as a warning to conservatives that a book exposing the Social Security fraud was about to be published. A month later, on February 25, 2004, Alan Greenspan launched a verbal bombshell, which set off anger, and some degree of panic, throughout the nation. Social Security had not received much public attention since the “fix” of 1983, and most Americans were confident that the program was fiscally sound. Thus, Greenspan’s call for trimming Social Security benefits for future retirees touched a nerve in many Americans. Testifying before the House Budget Committee, Greenspan said: We are over committed at this stage. It is important that we tell people who are about to retire what it is they will have. Greenspan pointed to the forthcoming retirement of the baby-boom generation as the reason for his concern “This dramatic demographic change is certain to place enormous demands on our nation’s resources—demands we will almost surely be unable to meet unless action is taken.” I was furious over Greenspan’s double-crossing of the baby boomers. In 1983, Greenspan had argued that we needed to raise taxes on the baby boomers so they would prepay most of the costs of their own benefits. That was the whole point of the Social Security Amendments of 1983! Taxes were raised to build up a large reserve surplus in the trust fund so there would be enough money for the baby boomers’ retirement. That money had been stolen by the government and spent on other things, and Greenspan was pretending that the money had never been there. Surprisingly, I had the unexpected opportunity to vent my anger directly at Greenspan the following morning. Another, almost miraculous, phone call, much like the one four years earlier, had come—this time from CNBC. I was one of two invited guests to respond to Greenspan on the morning CNBC news. I lived in Winter Haven, Florida at that time, so the closest TV station was in Tampa. I rushed over to the Tampa studio where I engaged in a three-way, debate-type short interview with the CNBC anchor in New York, and the other guest in Washington DC. The adrenalin was really flowing by the time I got my chance to speak, and I held nothing back. I held a copy of my new 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! It is the Bush tax cuts that are causing the problem! It sure felt good to tell Greenspan off on that TV show. I felt certain that one of Greenspan’s aides would make sure he viewed the video, given its nature. He would hear my angry words, and see the anger in my face. But, by confronting Greenspan via TV, I probably drove the final nail into the coffin of my new book. Several weeks later, I would learn that The Looting of Social Security was no longer in bookstores, and Amazon.com would list the book as “unavailable.” I had emailed my editor on March 15, 2004 and asked how the book was selling. He responded with the following email. Hi Allen, “Your book is selling pretty well for us. We have shipped almost 8500 copies so far, with Barnes & Noble being the single largest customer for the book. They are averaging sales of around 60 copies per week chain wide. That’s not a huge number, but it has been selling at that clip just about since they got copies last December. We have also just gone back to press for 1500 copies to replenish the stock that is moving through the system, which is good news.” _______________ I considered the email good news, and I thought the book was off to a good start. The first hint I got that there was a problem with availability came in a call from the organizer of a Social Security forum to be held at Shepherd University in Shepherdstown, West Virginia. I was scheduled to be co-speaker, along with James Roosevelt Jr. (FDR’s grandson), and, as the forum neared, the organizer checked on the availability of my book in her area. I was astounded when she called and said, Your book is not available at any bookstore in the entire Baltimore–Washington, DC Metropolitan Area! I was shocked. How could this be? I called bookstores around the country and verified that the book was no longer available. I sought the assistance of an employee at the Barnes & Noble bookstore in Naples, Florida to help me try to find out what had happened to the book. She checked the records for her store. She said they had received eight copies of the book initially. They had sold four copies when they were instructed, on May 10, 2004 to return the unsold books. There were a lot of mysteries during that first year after “The Looting of Social Security” was published. As a long-time member of the AARP, I just automatically assumed that they would want to help expose the Social Security fraud. In fact, I hoped they would review the book in their publications and maybe even help to promote it. In my mind, it was crucial to alert the public to the fact that the Social Security money was being looted. I sent copies of the book to the then CEO, William D. Novelli, along with a letter seeking his help in exposing the truth about the Social Security trust fund. I have in front of me, as I write, Novelli’s letter of response, dated April 9, 2004. It has been nine years since I got that letter, and I am still as dumbfounded by it as the day it arrived. The AARP . chief scolded me for daring to expose the looting of Social Security. He did not deny that the looting was taking place, but he was adamant in his determination to keep the public from finding out about the looting. He wrote: To have a productive national debate about how to strengthen Social Security for future generations, it is vitally important that the American public has confidence in Social Security. Unfortunately, saying that the trust funds have been looted could result in people losing confidence in Social Security, and that is counterproductive. Novelli made it very clear that he did not want to hear from me again. He closed the letter by writing, If you want to discuss this issue further, please contact AARP ’s Federal Affairs Department at .aarp.org. I did try to get in touch with the contact person Novelli referred me to, but without success. I tried to contact various other AARP officials, by phone and by email, but none of them would respond to me. It soon became clear that I was persona non gratis at the AARP. But I don’t give up easily. I checked the list of new AARP board members who had been elected for the following year, and, to my delight, one of the new board members was a physician who practiced medicine in Orlando, just about 50 miles from where I live. I looked up the physician’s contact information and sent an email to him through his private practice. I introduced myself and expressed my desire to discuss Social Security with someone from AARP. The doctor responded to my email in a cordial manner and said he would do whatever he could to help me. He apologized for the behavior of fellow AARP officials and he seemed puzzled that nobody from the Washington Office would communicate with me. I asked him if he would read my book, if I mailed a copy to him. He said he would be happy to read it. We exchanged emails for about three weeks, and he gave me useful feedback on the book. I soon began to envision him as my stepping stone into the hierarchy of the AARP And then it happened. I received the following email from the doctor. “Dr. Smith, I choose to have no further contact with you. May life be fair to both of us.” Dr. ________________ I could hardly believe it. After numerous cordial email exchanges, why would the doctor end the correspondence this way? I emailed him several times, asking for an explanation. Finally, I suggested that I drive to Orlando and meet him for dinner at a restaurant of his choosing so we could have a private conversation. I waited and waited, and I hoped and hoped that he would get back in touch with me. But nine years have now passed since that last short email exchange, and I have not heard another word from the good doctor from Orlando. I am still somewhat haunted by the last sentence of the doctor’s last email to me. “May life be fair to both of us.” What did he mean by those strange words? And that final message from the doctor in Orlando was also the final communication that I received from anyone at the AARP. I am still a member of the organization, and Joan and I use the AARP card to get a 20 percent discount off meals at Denny’s every Saturday evening. But that is the full extent of my relationship with an organization that professes to want to save and protect Social Security. Few people knew it at the time, but Federal Reserve Chairman, Alan Greenspan’s February 25, 2004 call for Social Security benefit cuts was the opening salvo in an organized campaign to dismantle Social Security, as we now know it. On August 27, 2004, Greenspan again called for benefit cuts during remarks at a symposium in Jackson Hole, Wyoming. Once George W. Bush was re-elected, Social Security reform suddenly rushed to the top of his domestic agenda. At a press conference on November 4, 2004, Bush said: Let me put it to you in this way. I earned capital in the campaign, political capital, and now I intend to spend it. It is my style…I’m going to spend it for what I told the people I’d spend it on, Social Security, tax reform, moving this economy forward. At the time I lashed out at Greenspan, during my CNBC appearance in February 2004, the Bush Social Security privatization campaign was already in the early planning stages. The Bush people were probably scouting the road ahead to make sure there would be no surprises, or bumps in the road, that could derail the privatization campaign, once it got underway. That 1100 word “review” of “The Looting of Social Security,” which had appeared in the Washington Times in January, left little doubt as to what, at least one conservative—the reviewer—thought about me and the book. And it dramatically announced to the conservative world that someone was trying to expose the awful secret about the Social Security trust fund. Even the possibility that my book might catch on and become widely read, would have been unacceptable to the Bush people. It would be a new “inconvenient truth” which would be just as unwelcome as Al Gore’s “inconvenient truth” about global warming. I don’t know exactly what happened, but, some entity—a private individual, a conservative organization, an agency of government, or someone else—must have decided that “The Looting of Social Security” had to be rendered “unavailable” because it could wreck Bush’s privatization campaign if it became widely read. As soon as I was sure the book was definitely “unavailable,” I contacted my publisher and requested that the publishing rights to the book be reverted back to me, so I could publish it elsewhere. But the publisher refused to relinquish the rights, which pretty much taped my mouth shut. Without owning the publication rights to the book, I couldn’t even self-publish it. When I vowed, in the year 2000, to continue my effort to expose the looting of Social Security money, for as long as it took, I gave little thought to how long it might take. Anyone could check the public record and verify, for themselves, that every dollar of the surplus Social Security revenue was being spent for non-Social Security purposes. All they had to do was to check the federal budget for the years after 1985, when the looting began. But nobody had to resort to checking the federal budget numbers to know that Social Security money was being misused. The whole controversy blew up into a big news story when Senator Daniel Patrick Moynihan (D-NY) introduced legislation in 1990 to repeal the 1983 payroll tax hike and put Social Security back on a pay-as-you-go basis. Senator Moynihan was outraged that, instead of being used to build up the Social Security trust fund for future retirees, the surplus Social Security revenue was being used to pay for general government spending. Moynihan, perhaps the best friend that Social Security ever had in Congress, believed the American people were being betrayed and cheated. His position was that, if the government couldn’t keep its hands out of the Social Security cookie jar, he wanted the jar emptied so there would be no Social Security surplus to loot. President Bush was furious over Moynihan’s proposal. He had said in the campaign, “Read my lips-no new taxes.” How could he keep that promise if his giant, secret Social Security slush fund was taken away? Moynihan’s proposal to repeal the 1983 payroll tax increase, and return Social Security to pay-as-you-go, had a lot of support from both conservatives and liberals. But President Bush used every resource at his command to defeat the Moynihan proposal. It was another one of those things in life that would have changed so many other things if the vote had just gone the other way. Among other things, I would have been spared the need to devote fifteen years of my precious time on this earth to trying to expose the Social Security fraud. I don’t know how I might have spent those years, if things had gone the other way. But, I’m pretty sure that whatever I might have done would have been a lot more fun than beating my head against a brick wall for thirteen years. Getting back to Social Security, the truth about the trust fund sometimes gets some space on editorial pages, but reporting the story as part of the mainstream news is apparently still taboo. My wife, Joan, who has walked beside me every step of the way, throughout this thirteen-year odyssey, has a favorite question that she keeps on asking me. “Allen,” she asks. “How do the news people know that they are not supposed to report the truth about Social Security?” “Too many journalists still remember what happened to Dan Rather,” I say. “When Dan reported a story the White House didn’t want reported, he got fired.”