Government Should Level With Public About Social Security Trust Fund

The author says that the Social Security Trust fund is empty and has been for the past 30 years, but the public has been deliberately mislead to believe that the funds are still in place.

The Security Trust fund is empty.  It contains no bonds or anything else of value.  This has been true for the past 30 years, but the public has been misled to believe otherwise the whole time. 

On January 21, 2005, David Walker, Comptroller General of the Government Accountability Office (GAO), made a public statement that was designed to make it clear that the trust fund did not hold any real assets.  Walker said, “There are no stocks or bonds or real estate in the trust fund.  It has nothing of real value to draw down.”

The intent of the Social Security Amendments of 1983 was not followed. The surplus Social Security revenue from the tax hike was supposed to be saved and invested in marketable Treasury bonds to build up a reserve with which to finance the retirement of the baby boomers. But that didn’t happen.  From the time the first surplus revenue arrived in 1985, until the surpluses ended in 2009, all of the Social Security surplus revenue was deposited into the general fund where it became indistinguishable from other federal tax revenue.  The Social Security money helped to finance wars and other government programs. But none of it went to Social Security.  The actual money was replaced with non-marketable government IOUs, called “special obligations of the Treasury.”  These IOUs are not at all like the marketable Treasury bonds held by China and other U.S. creditors. They are nothing more than an accounting record of how much Social Security money was spent for other purposes.

Some members of Congress spoke out against the misuse of the Social Security money more than 20 years ago.  The late Senator Daniel Patrick Moynihan (D-NY) was so outraged by the misuse of the Social Security money that he introduced legislation that would repeal the 1983 payroll tax hike and return the system to “pay-as-you go.” Moynihan’s position was that, if the government could not keep its hands out of the Social Security cookie jar, the jar should be emptied so there would be no Social Security surplus.  Senator Ernest Hollings (D-SC) felt compelled to warn future generations about the bogus “securities” in the trust fund.  During a senate speech on October 13, 1989, Hollings warned 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 bank notes.”

On March 16, 2011, Senator Tom Coburn (R-OK) uttered the following words 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.”

Every word that Senator Coburn spoke was absolutely true, and all members of Congress, and the President, know that they are true.  But the Senator’s public admission that he and his colleagues had “stolen money from social security” got amazingly little news coverage.  Probably the only consequence of Coburn’s statement was that, most likely, Senator Coburn was privately chastised by members of both political parties for daring to admit that Congresses and Presidents from both parties had misused Social Security money.

Some individuals and organizations continue to claim that the Social Security trust fund does hold enough real assets to pay full benefits for another 20 years.  But they are wrong.  The Social Security Trustees, including the Secretary of the Treasury, the Secretary of Labor, the Secretary of Health and Human Services, and the Commissioner of Social Security are the ultimate authority on the financial status of Social Security.  In the Summary of the 2009 Social Security Trustees Report the following definitive statement is made.

“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.”

If anyone still had doubts about whether or not the trust fund holds real money, President Barak Obama inadvertently set the record straight during an interview with CBS News on July 12, 2011.  It was during the stalemate over raising the debt ceiling.  President Obama was asked if he could assure the American people that Social Security checks would go out on August 3 as scheduled, even if the debt ceiling dispute was not settled.  President Obama said, “I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

If Social Security had its own bank account with surplus money, why couldn’t the Social Security payments have been paid with that money? Why would Social Security payments be dependent on an increase in the debt ceiling?  The answer is that, since 2010, the Social Security tax revenue has been insufficient to pay full benefits.  The government had to borrow $49 billion in 2010 and $45 billion in 2011 in order to pay full Social Security benefits.  And the amount of money that will have to be borrowed in the future to supplement the inadequate Social Security tax revenue will increase at an increasing annual rate.

There is no money, or assets of any kind, in the trust fund.  The only thing it has is those worthless IOUs that cannot be used to pay benefits or anything else.  Every member of Congress and the President have known this basic truth for years.  Yet, the vast majority of the American people are still convinced that the money is there.  It is a basic fact that all of the surplus Social Security money was spent on other things, as it came in, over the past 30 years.  The president and members of Congress know all about the spending of Social Security money for non-Social Security purposes, but the American people know almost nothing about it.  The public has both a right and a need to know about the looting of Social Security and the empty trust fund.  And they need to know it before any action is taken with regard to changes in benefits.  But most politicians do not want the government to have to repay the $2.7 trillion of looted Social Security money.  That is why so many are calling for cuts in Social Security benefits. 

There has been a deliberate effort by the government, the AARP, and some other senior organizations, to lead the public to believe that the Social Security surpluses were saved and invested as planned, and that the trust fund now hold enough assets to pay full benefits for more than 20 years, without any government action. But that is a lie. And don’t expect to get much information on the trust fund from the official website of the Social Security Administration.  This site is designed to confuse people about the true status of the trust fund.  If you can navigate deeply enough into the official site to even find mention of the trust fund you will find a lot of double talk.   For example, the site makes the following statement:

The Trust Funds can hold both regular Treasury securities and special obligation securities issued only to federal trust funds. Currently, all securities in the Social Security Trust Funds are special obligations.

The Social Security surpluses were supposed to be saved and invested in “regular Treasury securities.”  With this statement, the Social Security Administration is admitting that currently there are no regular securities in the trust fund.  The only thing it holds is “special obligation securities,” which cannot be held by anyone but the trust funds.  These are simple IOUs that are not marketable, and they have no value.

The government has been pulling the wool over the eyes of the public for the past 30 years.  The President and the Congress know that their efforts to hide the looting from the public have been successful.  Most Americans have been “programmed” to believe something that is not true.  This big lie must be made public.  If it is made public, I think it will become a national scandal that might make Watergate pale by comparison. 

About the Author

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