Most of the public debate on Social Security is focused on the wrong problem. The real Social Security problem — the one that threatens the future of the program — has been hidden from the public for the past 30 years.
It began with the enactment of the Social Security Amendments of 1983. This legislation was intended to allow Social Security to build up a large reserve, which could later be drawn down to pay benefits to the baby boomers. But, instead, the 1983 law laid the foundation for the systematic raiding of the trust fund over the next 30 years.
The $2.7 trillion in surplus Social Security revenue, generated by the 1983 payroll tax hike, was spent on wars and other government programs as it came in. The money was replaced with government IOUs, called “special issues of the Treasury.” These IOUs are not at all like the marketable Treasury bonds held by China and America’s other creditors. They are nothing more than an accounting record of how much Social Security money has been spent for non-Social Security purposes.
The true status of the Social Security trust fund should come as no surprise to anyone who has kept a close watch on the raiding over the past three decades. It was clear to U.S. Sen. Ernest Hollings, of South Carolina, more than two decades ago. On Oct. 13, 1989, Hollings warned:
“… the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund … 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.”
Even President George W. Bush publicly admitted that Social Security money was being spent for non-Social Security purposes.
On Feb. 10, 2005, during a speech at Blue Bell, Pa., he made the following statement:
“Now one of the myths about Social Security is there’s a pile of money sitting there accumulating, because you put money in, the government saves it for you, and then when you retire you get it out. That’s not the way the system works. Every dime that goes in from payroll taxes is spent. It’s spent on retirees, and if there’s excess, it’s spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of government to the next.”
The surplus Social Security revenue, which was supposed to be used to pay benefits to the baby boomers, is gone.
The only money that Social Security has is its annual revenue. That revenue became insufficient to pay full benefits, beginning in 2010. The government had to borrow $49 billion that year, in order to pay full Social Security benefits. In 2011, $45 billion had to be borrowed to cover the gap between revenue and the cost of paying full benefits. The gap between revenue, and the cost of paying benefits, will get larger and larger, as time passes, and the Social Security trustees estimate that the gap will be a whopping $318.7 billion in 2030.
Those people who argue that Social Security has enough money to pay full benefits until 2033, without any government action, are just plain wrong. It doesn’t have enough current revenue to even pay this year’s benefits.
This is the hidden Social Security problem. This is the big national secret that government knows all about, but most Americans know nothing about.