The Looting of Social Security: Pre-taxing the Baby Boomers

By on September 30, 2011 in News, Retirement

On April 20, 1983, one of the most significant developments in the history of Social Security legislation took place with great fanfare.  It was the signing ceremony for the Social Security Amendments of 1983, which President Ronald Reagan called landmark legislation.

This legislation laid the foundation for what would become one of the greatest frauds ever perpetrated against the American people by their government.  Yet, today, in the midst of one of the most heated national debates on Social Security in the history of the program, almost nobody knows about the 1983 legislation. 

The news media carries article after article about the status of Social Security without ever mentioning that the “baby-boomer problem” was supposed to have been “fixed” by that 1983 legislation. During the debate for the 1983 legislation, the baby boomers were vilified as the ones who were threatening the future solvency of Social Security.  They were also hit with a big payroll tax hike that required them to prepay the cost of their own retirement benefits, so there would not be a solvency problem when they actually retired.  But the 1983 legislation, which hit the boomers so hard, is now forgotten, and the baby boomers are once again popular scapegoats.

Below are remarks made by President Ronald Reagan just before he signed the legislation into law.

It’s especially fitting that so many of us from so many different backgrounds–young and old, the working and the retired, Democrat and Republican–should come together for the signing of this landmark legislation.

This bill demonstrates for all time our nation’s ironclad commitment to social security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire…

…Political leaders of both parties set aside their passions and joined in that search. The result of these labors in the Commission and the Congress are now before us, ready to be signed into law, a monument to the spirit of compassion and commitment that unites us as a people.

Today, all of us can look each other square in the eye and say, “We kept our promises.” We promised that we would protect the financial integrity of social security. We have. We promised that we would protect beneficiaries against any loss in current benefits. We have. And we promised to attend to the needs of those still working, not only those Americans nearing retirement but young people just entering the labor force. And we’ve done that, too…

…So, today we see an issue that once divided and frightened so many people now uniting us. 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. And younger people can feel confident that social security will still be around when they need it to cushion their retirement.

These amendments reaffirm the commitment of our government to the performance and stability of social security.

–President Ronald Reagan on signing the Social Security Amendments of 1983 on April 20, 1983

When the first surplus Social Security revenue showed up in 1985, it was deposited in the general fund and spent on general government operations, just like all other revenue.  However, non-marketable government IOUs were placed in the trust fund as an accounting device to show how much Social Security money had been spent.  Reagan set the precedent, which would be followed by the next four presidents, and their Congresses, Republicans and Democrats alike.  However, when President George H.W. Bush continued the looting of the trust fund, he faced strong opposition.  A group of Senators began to speak out against the looting, and they tried to end it.

In 1990, Senator Daniel Patrick Moynihan of New York introduced legislation to repeal the 1983 payroll tax hike.  He was outraged that, instead of being saved and invested for the baby boomers, as was the intent of the law, the money was being used to finance other government programs.  Moynihan’s position was that, if the government could not keep its sticky fingers out of the Social Security cookie jar, he wanted the jar emptied so there would be no surplus revenue to loot. 

Although Moynihan’s proposed legislation was supported by the conservative Heritage Foundation, the liberal Institute of Policy Studies, and the U. S, Chamber of Commerce, it did not stand a chance of passing because of the strong opposition of President Bush.  Bush was not about to give up his large, secret slush fund. The looting continued, unchanged, under Presidents Bill Clinton and George W. Bush.  President Obama was able to loot only the small surplus of 2009.  The many years of Social Security planned surpluses came to an end in 2009, and the perpetual annual deficits began in 2010.

The United States government has reached that point where annual revenue from the payroll tax will be insufficient to pay full benefits.  This is when we were supposed to dig into the $2.6 trillion reserve that was supposed to be in the trust fund.  But every dime of that surplus has already been spent, and the only thing in the trust fund is non-marketable IOUs that can neither be sold nor used to pay benefits. 

The great day of reckoning has finally come.  Either the government will have to take money from the general budget to supplement the inadequate payroll tax revenue, or it will have to cut benefits.  That is why so many politicians are today calling for cuts in Social Security benefits.

© 2016 Allen W. Smith, Ph.D.. All rights reserved. This article may not be reproduced without express written consent from Allen W. Smith, Ph.D..

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  1. jeffgood says:

    To all those reading this article, please understand that it is entirely based upon a complete lie.  This is the lie at the end of the article: “the only thing in the trust fund is non-marketable IOUs that can neither be sold nor used to pay benefits.”

     The trust fund is alive and well.  It is fully funded, as the law required, and those funds were invested in non-marketable treasuries — again, exactly as the law required.  The law did not allow the SS Administration to invest the trust funds in anything else, for obvious reasons.  And for the entire time those funds were invested in treasuries, those treasuries have been earning and paying to the trust fund interest at a rate higher than other investments earned for most of that time (such as stocks or real estate).

    Todays retirees receive their benefits from today’s wage earners.  If SS payroll taxes are insufficient to pay all benefits, the SSA uses the money from the non-marketable treasury redemptions to pay the difference.  The treasuries are not sold to pay the benefits, but they are definitely used to pay the benefits.  

    This author is a liar and should be ignored.

    Please note that I do not believe the SS is presently funded in a manner that is actuarially sound.  Modest changes, however, can put it on a sound footing.  Medicare is the problem, not SS.

  2. Tgstr1 says:

    Although Dr. Smith is correct in his assumption that S.S. has been plundered he chooses to make this article just another left wing, biased intelligentsia opinion when he leaves out many pertinent facts from the other side of the argument – Smith puts most of the blame on Republicans like Reagan for tax cuts to the wealthy as fraud but fails to mention the biggest fraudulent program ever created, namely, LBJ’s “War On Poverty” ,which to date has thrown away over $13 trillion on inner city black programs with absolutely no accountability and no results, talk about a fraud – he also fails to mention the undeniable fact that over 47% of our citizens pay no income tax at all yet he paints the wealthy 1% as the tax dodgers when of course they contribute more than the bottom 90% – at least tax cuts to wealthy have a chance of stimulating business investments and new job growth while most government run programs simply throw money down a drain on Utopian dreams with no means of repayment  – come on Smith, $13 trillion, that’s almost our total national debt – and for what?  As Thomas Sowell would say to Dr. Smith “you’re just another one step thinker”

  3. SanDiegoRetired says:

    The irony of this is that Reagan gets credit for signing the 1983 amendments to the social security act but in reality no one wanted it less than Reagan–he only signed it because social security was considered a “third rail” and political suicide to take any action to harm it.  In other words it was a very popular program with the U.S. people.  During his tenure Reagan tried time and again to dismantle social security both through legislation and administrative action–if you worked for social security during the 80s you will remember the cuts and purges and changes to the regulations.  It’s also ironic but predictable that he continued his efforts to destroy social security by first signing the amendments and then looting the trust fund to undo the fix the amendments intended.  Bush I definitely followed suit as described as did the following presidents.

    The problem now isn’t so much that the trust fund has been used for other things–it’s the economy stupid.  The real issue is how the U.S. government is going to repay those IOUs and there won’t be a good answer to that until the economy improves and more tax revenues are received and/or taxes are raised.  I assume, however, that they will take the easy way out and cut social security benefits and put even more people into poverty.  It’s always blame the little guy or the innocent.  I just hope social security is a “third rail” and that it shows at the voting booths.

  4. Tax & Spend Republican says:

    We should’ve known that you can’t put a pile of money in front of politicians without some form of “legislative lock” on it. Reminds me of my children at the cookie jar; just too tempting.

  5. Spiper says:

    Where is the news MEDIA when you need them. So sad that our FRee press is not free.

  6. Stuia says:

    I am so tire of the finger pointing on who did what to whom.  It is pathetic.  We need solutions instead of who did what to whom.  I would propose that we as a general public file a lawsuit against our government that they put back every penny for all the programs they raped to run the general government with.  Further, I propose that we as a general public file that they take a pay cut of 25% from their current pay and they have the same retirement and all other entitlements as the rest of us.  Further, they cannot give themselves any raises or entitlements without an approval vote by 65% of the general public.  
    The blame game will not fix the problem.  Our problem is you all keep feeding on the asses and the elephants.  They do not care about you or your problems.  Grow up!  Be somebody! Be anybody except an ass or elephant.  Be a human being that cares about other human beings.  It is not about you or me.  It is about all of us – the elderly, us, our children, grandchildren and their children, etc…  You do need education, more than that you need vision, honesty, love of fellowmen and the ability to hold you balls and say enough is enough.  Then go out and do what is right for the GENERAL Public, which is all of us.  Just my take on things    

  7. Sandra says:

    So much for the GREAT Ronald Reagan and reaganomics that everyone touts about.  Just look at the amount of money that has been “STOLEN” from the American people in the last 28 years.

  8. JRMORT74 says:

    I can remember when the CSRS retirement fund was operating every year in the black.  The fund was only paying out money from the fund.  I can also remember when SS was operating in the black with somewhere around 2.5 trillion dollars in the trust fund.  I can remember when the TSP G fund was sitting on several hundred billion dollars of real assets.  Because of our elected officials and their smoke and mirror tactics,  all these funds were left with government IOU’s that need to be payed by somebody.  That somebody is “all” of the American taxpayers.  And somehow, the federal workers and retirees get blasted for being the lazy, overpaid, greedy, and the group that caused all of the fiscal problems.  Our elected officials know what caused the CSRS, FERS, SS, Medicare problems, but choose to ignore the fact that they caused them.

  9. Noshortmemory says:

        Social Security is NOT an entitlement, its an OBLIGATION the federal government owes to every wage-earner who has contributed to it.     It is not only a PONZI scheme, it has become a government slush fund, which is NOT our fault or doings.   Our elected representatives OWE it to us to HONOR the OBLIGATION/CONTRACT made with us that is known as Social Security.     We, as in contributors, have lived up to OUR part of the CONTRACT and have FAITHFULLY paid into it and, for the most part, have never complained about having to do so.      
        We’ve done our part and are still doing our part.   Its time for members of Congress to stop the finger-pointing witch hunt and honor their part and stop the “broke/bankrupt” rhetoric.   
         Put the money in the fund that is supposed to be there and STOP the thievery.   
          Plain and simple. 

  10. Alden Ebling says:

    Review and repair the retirement situation of our congressmen (women) and throw the money into social security for our people who have worked so long, so tirlessly etc, for something that President Roosevelt and  later, President Regan foresaw for our country. What has happened is nothing short of a slap-in-the-face for these great men. Let’s get rid of the present regime and vote in people who truly mean what they say in thier campain promises. GOD BLESS AMERICA !!!!!!!

  11. Ray says:

    It doesn’t matter at this point who or what caused this problem, we need our representitives to address and resolve the issue. nothing more or less.