The Awful Truth About Social Security?
by Allen W. Smith / November 28th, 2009
The mishandling of Social Security funds has been going on since the mid-1980s. As soon as the surpluses, resulting from the 1983 payroll tax hike, first began to flow into the Treasury, politicians from both political parties began using the money like a giant slush fund. At that time, it would be at least 30 years before the funds would actually be needed for Social Security, so politicians developed the bad habit of “temporarily borrowing” the money and using it for non-Social Security purposes. That bad habit never was broken, and every dollar of the $2.5 trillion in surplus Social Security revenue, generated by the tax hike, has been spent, leaving no real assets in the trust fund.
Some members of Congress were outraged by the practice and tried to nip this misuse of Social Security revenue in the bud. On October 13, 1989, Senator Ernest Hollings of SC expressed his outrage during a speech on the Senate floor. Excerpts from that speech, taken from the Congressional Record, follow. “…the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund…The public fully supported enactment of hefty new Social Security taxes in 1983 to ensure the retirement program’s long-term solvency and credibility. The promise was that today’s huge surpluses would be set safely aside in a trust fund to provide for baby-boomer retirees in the next century. Well, look again. The Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the government…The hard fact is that in the next century…the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate banknotes.”
A year later, on October 9, 1990, Senator Harry Reid of NV expressed similar outrage. Excerpts from his Senate speech, taken from the Congressional Record, include, “…Are we as a country violating a trust by spending Social Security trust fund moneys for some purpose other than for which they were intended. The obvious answer is yes…During the period of growth we have had during the past 10 years, the growth has been from two sources. One, a large credit card with no limits on it, and, two, we have been stealing money from the Social Security recipients of this country.”
Senator Daniel Patrick Moynihan of NY even introduced legislation in early 1990 to repeal the 1983 payroll tax increase. In an effort to keep politicians from spending the Social Security surplus money on other things, Moynihan wanted to eliminate the surplus revenue and return Social Security to a “pay-as-you-go” system. President George H.W. Bush was furious about Moynihan’s proposed legislation. Bush said, “It is an effort to get me to raise taxes on the American people by the charade of cutting them, or cut benefits. And I am not going to do it to the older people of this country.”
Bush, the “read-my-lips-no-new-taxes” president, did not need to raise taxes as long as he had access to the surplus Social Security revenue. During his four years in office, $211.7 billion in Social Security surplus revenue flowed into the U.S. Treasury. Every penny of it was spent for general government expenditures, and none of it was saved and invested for the payment of future Social Security benefits, as is commonly believed. This practice has continued until this day. The plan was that when benefit costs start to exceed payroll tax revenue, in about seven years, the Social Security trustees would begin dipping into the huge reserve that was supposed to be built up in the trust fund to make up the revenue shortfall in order to continue to pay full benefits. Unfortunately, there are no assets in the trust fund that can be dipped into.
Dr. Allen W. Smith is a Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books and has been researching and writing about Social Security financing for the past ten years. Read other articles by Allen, or visit Allen's website.
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