For three decades, politicians managed to hide from the public the awful truth about the Social Security trust fund. But the cat finally got out of the bag during the Republican presidential debate held Oct. 28 in Boulder, Colo.
Most Americans were probably shocked when New Jersey Gov. Chris Christie boldly said: “Let me be honest with the people who are watching at home. The government has lied to you and they have stolen from you. They told you that your Social Security money is in a trust fund. All that’s in the trust fund is a pile of IOUs for money they spent on something else a long time ago.”
Every word Christie spoke was absolutely true. I have devoted the past 15 years of my life to researching and writing about Social Security financing. During that entire period, I have tried to expose the misuse of Social Security money and the cover up of the theft. Christie’s words accurately describe the raiding of Social Security and the deliberate deception to keep the public from finding out about it.
There is no question about the truth of Christie’s assertion that the trust fund holds no real assets. Anyone can prove that point by simply checking the annual budgets of the federal government for the years 1984 to 2010, when the surpluses ended.
These budgets make it clear that all of the surplus revenue was spent and none of it was saved. These budgets are available to the public, and you don’t have to be an accountant to see the picture.
By adding up all of the federal spending, including payment of Social Security benefits, and comparing the total with total revenue, including payroll tax revenue, it becomes clear that there is something terribly wrong.
In each and every budget year, during that 26-year period, the government spent all of its own general revenue, plus all of the surplus Social Security revenue and still had to borrow even more money. The budgets make it absolutely clear that none of the surplus Social Security money was saved or invested.
The American people have a right to know that the revenue from higher payroll taxes they paid were used for such things as wars, tax cuts for the rich, and other government programs. None of the money was saved or invested.
The question of whether the government saved any of the surplus revenue, and invested it in marketable U.S. Treasury bonds, is easily answered by the budgets. Since the government spent all of its general revenue, plus all of the surplus Social Security revenue, there was nothing left to invest.
On Jan. 21, 2005, David Walker, the Comptroller General of the GAO, tried to alert the public to the fact that none of the Social Security money was being saved or invested. Walker issued the following public statement: “There are no stocks or bonds or real estate in the trust fund. It has nothing of value to draw down.”
On March 16, 2011, Sen. Tom Coburn, R-Okla., said, in 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 high-level government official, and every member of Congress, knows the trust fund is empty, and most of them participated in emptying it. But the truth about the trust fund, and the cover up, has been kept from the general public.
It is recognized as a taboo subject by much of the media, and anyone who claims the trust fund is empty is ridiculed. Christie has learned that painful lesson. Once he broke with tradition by saying the trust fund is empty, many media outlets immediately began throwing rocks at him.
As the government spent the money, it was replaced with IOUs, which the government calls “special issues of the Treasury.” The public has been led to believe that the IOUs are real bonds, just like the bonds held by China and our other creditors.
But they are not real bonds. They cannot be sold or used to pay benefits. They represent only an accounting record of how much Social Security money has been spent on other things.
In 2015, the cost of paying full Social Security benefits was $84 billion more than Social Security revenue, and the gap between revenue and benefit costs will become larger and larger in the years ahead.
Since there is nothing of value in the trust fund, the government must borrow the needed money from China or one of our other creditors to fill the gap between costs and benefits. The ability of the United States government to borrow money is not without limits. The debt cannot be increased without periodic increases in the debt ceiling, and that has become a political football.
If in a future year the government is unable to borrow the money it needs to fill the gap, Social Security benefits will have to be reduced.
If the surplus Social Security revenue, generated by the 1983 payroll tax hike, had been saved and invested in marketable U.S. Treasury bonds, there would be $2.8 trillion of “good-as-gold” marketable Treasury bonds in the trust fund, which could have been resold to raise money with which to pay benefits to the baby boomers.
But none of the surplus money was saved and invested. Every dollar of the surplus Social Security revenue was channeled directly into the general fund where it was spent as general revenue on whatever the government chose to spend it on.
The bottom line is that the trust fund holds nothing of value that can be sold to raise money. The $2.8 trillion that was supposed to be available for paying benefits to the boomers was instead looted by the government and spent for non-Social Security purposes.
Allen W. Smith, author of “Raiding the Trust Fund: Using Social Security to Fund Tax Cuts for the Rich” (www.ironwoodpublications.com), has devoted much of his adult life to promoting economic education.