The Looting of Social Security: The Code of Silence

The author says that he was surprised to find that members of Congress and the media have been mostly silent on sharing information about what he refers to as “the looting of Social Security.”

Senator Tom Coburn (R-OK), on March 16 of this year, said during 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.”  In so doing, he broke the sacred code of silence about the misuse of Social Security funds that has been in effect ever since the Reagan administration began using Social Security revenue for non-Social Security purposes in 1985.

It had been a long time since members of Congress openly talked about the looting of Social Security.  In 1989, Senator Ernest Hollings (D-SC) warned, “…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 bank notes,” and the following year, Senator Harry Reid (D-NV) described the looting as “embezzlement” and “thievery.” But, except for those minor efforts, the practice of taking money from the trust fund, replacing it with non-marketable IOUs, and then spending the money for wars and other programs, has remained a dark secret for a quarter century.  When I first discovered it in 2000, I was so outraged that I wanted to tell the whole world so everyone would be outraged.  But I soon learned that nobody in the mainstream media wanted to hear what I had to say.

I saw the AARP as my most likely ally in exposing the great Social Security theft.  I sent William Novelli, then CEO of the AARP, review copies of my new book, “The Looting of Social Security,” as soon as I received the first copies from the publisher in early 2004.  As an active member of the AARP,  I assumed that the organization would help me inform the public about the theft.  But, to my astonishment, I learned that the AARP was a part of the code of silence.

I received a personal letter from William Novelli, dated April 9, 2004, in which he scolded me for daring to make the looting of Social Security public knowledge.  He wrote, “Saying that the trust funds  have been looted could result in people losing confidence in Social Security, and that is counterproductive.”  After that one communication, the AARP  wanted nothing to do with me because I was trying to expose the looting. 

If the AARP had supported my effort to expose the looting of Social Security in 2004, I believe the looting could have been halted at that time, and the trust fund would today hold “good-as-gold” marketable Treasury bonds.  Instead, the senior organization contributed to the misinformation by publicly stating that Social Security had enough money in the trust fund to pay full benefits until 2036.   They also insisted that the trust fund money was in U.S. Treasury bonds “just like those held by China.”

The American people were told in 1983 that the tax revenue generated by the payroll tax hike would be saved and invested to build up a large reserve in the trust fund.  This money would then be available to supplement the inadequate payroll tax revenue, once the baby boomers began to retire.  Congress and the public supported the payroll tax hike in a way that they would never have supported a similar increase in the federal income tax because they believed the American government would keep its word.  If the public had known that the surplus Social Security revenue would be channeled through the general fund and used for non-Social Security purposes, they would never have supported the 1983 payroll tax increase.

Members of Congress have known about the looting of the Social Security trust fund from the very beginning, but only a few of them have been willing to speak out against the practice.  Similarly, the leaders of the AARP have known about the looting for many years, but they have chosen not to make the looting an issue.  Instead of being outraged by the looting, and demanding that the stolen money be repaid, they have just ignored the problem.  With the mainstream media honoring the government’s desire to keep the looting secret, the public has remained in the dark.  With government officials and the leadership of those organizations, who are supposed to represent the interests of seniors, remaining mum, and the mainstream media participating in the code of silence, the American public remains under the impression that the promises made in 1983 have been kept. The objective truth is available, but very few are seeking it.

In the Summary of the 2009 Social Security Trustees Report, a single sentence, buried deeply within the report, spills the truth about the so-called “trust fund bonds.”  That sentence reads:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

This report was signed by Treasury Secretary, Tim Geithner, and all the other Social Security trustees.  The report represents the official position of the Trustees, but the above sentence was deliberately buried deeply within the report where few readers would notice it.  When I pointed these words out to Allan Sloan, senior editor at large of Fortune Magazine, who had missed the sentence when reading the report, he thought they were so significant that he quoted me in his August 10, 2010 Washington Post column.

The fact that the government has spent all of the $2.6 trillion of surplus Social Security revenue for non-Social Security purposes is a matter of public record.  But that truth is so covered up that most Americans will never find out about it as long as the government, the senior organizations, and the mainstream media continue to honor the code of silence.

About the Author

Allen W. Smith was a professor of economics at Eastern Illinois University for 30 years.