An editorial by Allen W. Smith, Ph.D.
There is more confusion about Social Security today than ever before. We hear contradictory claims from individuals, organizations and government, and nobody knows who to believe.
There is no reason for people to be so confused. Top government officials could explain the current condition of Social Security and tell the public what happened to the surplus Social Security revenue that was generated by the 1983 payroll tax hike.
Instead, the government adds to the confusion with false statements. Politicians from both sides of the aisle are deliberately trying to mislead the public. The debate has turned into a political war – not about how to fix Social Security – but whether the current system is worth saving.
The debate seems to center on the status of the Social Security trust fund. If there is a trust fund, what is in it? Is it full of marketable Treasury bonds, as some claim, or full of government IOUs? This is a crucial question the public needs to have answered.
Actually, that question was answered on Jan. 21, 2005. David Walker, the Comptroller General of the Government Accountability Office at that time, said, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.”
That was 11 years ago. The public was entitled to know this important information, but it never reached the masses. Almost none of the mainstream media covered the story.
The Comptroller General of the GAO is the government’s top accountant. He is responsible for auditing financial statements from the Treasury Department and the Office of Management and Budget, among other things. If anybody knows what is in the trust fund, the Comptroller General certainly knows.
There are no bonds in the trust fund because all of the surplus revenue was spent. None of it was saved or invested. This may be a bitter pill to swallow, but it is the unadulterated truth.
What the trust fund does hold is $2.8 trillion of government IOUs that are not marketable and cannot be used to pay benefits. They are essentially a record of how much Social Security money was taken and spent for other things. If the government had saved and invested that money in marketable U.S Treasury bonds, as was the intent of the 1983 legislation, the trust fund would today hold $2.8 trillion of “good-as-gold” bonds.
But all $2.8 trillion was spent to fund such things as wars, income tax cuts and other government programs over a 30-year period
Since it is highly unlikely Congress and the public will support a substantial tax increase in the near future, the government may be unable to redeem the IOUs out of current income and will have to borrow from China, or one of our other creditors. With political fights over the debt ceiling, it won’t be easy to borrow enough to avoid cutting benefits.
When the first surplus revenue, generated by the 1983 payroll tax hike, began flowing into the Treasury in 1984, it was deposited directly into the general fund, where it became indistinguishable from the revenue from other federal taxes. The intent of the 1983 legislation was that the surplus should be saved and invested in marketable Treasury bonds, which were to be held by the trust fund until the baby boomers began retiring.
But the politicians knew it would be 30 years before any of the surplus money would be needed to pay current benefits. In the meantime, politicians couldn’t resist the temptation to spend the money. Democrats and Republicans were both guilty of wrongful spending of Social Security money.
This is the essence of why Social Security has so many problems today. It represents the truth about the so-called bonds.
The only income flow that Social Security has is its annual tax revenue. Since 2010, the cost of paying full benefits has exceeded Social Security revenue, so the government has had to borrow to close the gap.
America has been living a “big lie” for many years. It is time to set the record straight.
The government should repay that $2.8 trillion, although it will be difficult to find the resources and it might be necessary to pay in annual installments.
A great wrong has been committed against the American people by their government, and that wrong should be made right.
Allen W. Smith, professor of economics emeritus at Eastern Illinois University, is author of “Raiding the Trust Fund: Using Social Security Money to Fund Tax Cuts for the Rich.”