By: Dr. Allen Smith 2013
Obama’s comments saying that he cannot guarantee that Social Security checks will go out if the debt ceiling doesn’t get raised, it’s time to take a closer look at why politicians are pushing to cut this vital program.
The Social Security Trust Fund should currently have $2.5 trillion in surplus. So how is it that these checks could stop being issued if the debt ceiling isn’t raised? Economics professor Dr. Allen Smith, author of The Looting of Social Security: How The Government is Draining America’s Retirement Account, has been reporting on the theft of Social Security funds for years. As he sums it up:
“The government’s $2.5 trillion debt to Social Security is the real reason that so many politicians want to cut benefits. They are trying to find a way to avoid having to repay the looted money…
I: It’s Time to Tap the Empty Social Security Trust Fund
AP writer, Stephen Ohlemacher, sent shock waves throughout the nation with his story, “Social Security to start cashing Uncle Sam’s IOUs.” Social Security has been running large surpluses ever since the enactment of the 1983 payroll tax hike,(Ronald Regan) and was projected to continue running surpluses until at least 2016.Instead, Ohlemacher reports that the cost of Social Security benefits will exceed payroll tax revenue by approximately $29 billion this year,
Because of the severe recession which has reduced payroll tax revenue at the very time that many unemployed Americans have been forced to retire early. (severe recession?? Did not Obama give a payroll tax cut which reduces SS income from payrolls?????) and did not Lyndon Johnson and the democratically controlled House and Senate, originally take Social Security from the Independent Trust Fund, IOU’s, or whatever the Cretins we voted for want to call them”and put it into the General fund so that Congress could spend it?
What it all boils down to is that, in order to pay full benefits this year, Social Security will have to come up with an extra $29 billion to supplement the inadequate payroll tax revenue. Where will that money come from? It will have to come from increased taxes or from borrowed money. “Wait a minute!” some readers will say. Hasn’t Social Security been receiving surplus revenue ever since the 1983 payroll tax hike? Isn’t there supposed to be approximately $2.5 trillion in the Social Security trust fund? The answer to both questions is yes. But there is a problem. Every dollar of that surplus Social Security revenue has already been spent by the government. The American people were not supposed to find out about the great Social Security scam for another six years, and the government was hoping to continue to receive surplus money from the Social Security contributions of working Americans for at least that long.
But the inevitable day of reckoning has come, six years sooner than anybody expected. And the government of the United States has been caught with its hand still in the empty Social Security cookie jar.
. If anyone deserves credit for helping the government to keep its dirty secret for so long, that honor should go to the AARP and the NCPSSM. . Instead, they have continued to bombard their members and the public with misinformation. They have argued that the trust fund is full of “good-as-gold” U.S. Treasury Bonds that could be used to pay full Social Security benefits until at least 2037 without any changes.
In reaction to Olemacher’s AP story, president of the NCPSSM, responded with the following words, “Good luck to the politician who reneges on that debt. Those bonds are protected by the full faith and credit of the United States of America. They’re as solid as what we owe China and Japan.” ???
It has been clear for quite some time that the trust fund contained no real assets. David Walker, Comptroller General of the GAO, stated on January 21, 2005, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.” On April 5, 2005, President George W. Bush acknowledged the empty trust fund by saying, “There is no trust fund, just IOUs that I saw firsthand that future generations will pay—
will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs.”
**If there was any doubt remaining, with regard to whether or not the trust fund contains any real assets, that doubt should have been removed by the following words in the 2009 Social Security Trustees Report:
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.
There is nothing ambiguous about the above words. They make it clear that the government does not receive any cash income from the alleged interest payments on the trust fund IOUs. The interest payments are made in the form of additional worthless IOUs. The government cannot sell the IOUs because they are not marketable and have no cash value. The IOUs simply represent a debt of one branch of the government (the Treasury Department) to another branch of government (Social Security). They cancel each other out.
The Social Security surplus revenue should have been saved and invested in public-issue, marketable Treasury bonds. These bonds are “good as gold” and default-proof. They are the kind of U.S. Treasury bonds that are owned by China and Japan, Bill Gates, pension funds, and every other serious investor that owns Treasuries.
If the Social Security surplus had been invested in public-issue marketable Treasury bonds, as it could have been, and should have been, Barbara Kennelly would be correct in saying that the Social Security holdings are “as solid as what we owe China and Japan.” Unfortunately not a single dollar of the surplus Social Security revenue was saved or invested in anything. It was all spent, and, once money is spent, there is nothing left to invest.
The government cannot, and will not, ever default on any of its public issue, marketable Treasury bonds because of the panic it would create in world markets and the damage it would do to the nation’s worldwide credibility. But Congress has the legal authority to default on its debt to Social Security, and, if it should do so, the outside world would probably view it primarily as an internal matter between the United States Government and its citizens.
One of the least known facts about Social Security is that, although the government does have a moral obligation to pay Social Security benefits to those who have earned them, the government does not have a legal obligation to do so.
In a 1960 ruling by the United States Supreme Court, the court ruled that nobody has a “contractual earned right” to Social Security benefits. Section 1104 of the 1935 Social Security Act specifically states, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” According to the above strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security.
Early on, some did not take the language seriously because they thought it was probably unconstitutional. However, in 1960, in the case of Fleming v. Nestor, the Supreme Court upheld the denial of benefits to Nestor, even though he had contributed to the program for 19 years and was already receiving benefits In its ruling, the Supreme Court established the principle that entitlement to Social Security benefits “is not a contractual right.”
As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.
II: The Social Security Fraud Has Finally Been Exposed On December 13, 2010, the highly respected Kansas City Star, winner of eight Pulitzer Prizes, published an editorial entitled, “The myth of the Social Security trust fund,” which included the following statement:
A lot of people speak of those IOUs as if they can be pulled out and exchanged for money to pay benefit checks. They can’t. As the Clinton administration budget of 2000 explained, the securities in the Trust Fund ‘do not consist of real economic assets that can be drawn down in the future to fund benefits. Those special-issue bonds can only be redeemed by raising taxes, cutting spending elsewhere, or borrowing — exactly what the government would have to do if the Trust Fund didn’t exist. The Trust Fund, said the Clinton budget message, ‘does not, by itself, have any impact on the Government’s ability to pay benefits. Clinton continued to spend just like the rest of them. Clinton used S.S funds to claim he balanced the budget.
On December 20, distinguished business columnist, Allan Sloan, seven-time winner of the prestigious Loeb award, business journalism’s highest honor, called the trust fund “a mirage” in his Washington Post column. In the column, titled, “New tax law reveals the mirage of the Social Security trust fund,” Sloan wrote:
The problem with the trust fund is that it’s a snare and a delusion for people who think that it makes Social Security financially sound. It doesn’t do that, because having government IOUs in a government trust fund doesn’t make it any easier for the government to cover Social Security’s cash shortfalls than it would be if there were no trust fund.
These are not new revelations. I have spent the past decade relentlessly trying to expose the Social Security fraud, and prominent government officials were screaming out the warnings two decades ago.
On October 13, 1989, Senator Ernest Hollings of SC stood on the Senate floor and 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.”
The Kansas City Star editorial and Allan Sloan’s Washington Post column seem to have stunned the AARP and the NCPSSM into silence. These organization have repeatedly claimed that the Social Security surplus is invested in U.S. Treasury bonds just like those held by the Chinese government. They have battled efforts to get this same message out for a decade, but they seem to have had the wind knocked out of them by the Star and Allan Sloan. So far, they have made no attempt to rebut either of the two articles. The AARP and the NCPSSM have been claiming for years that the trust fund holds enough assets to pay full Social Security benefits until at least 2037, when, in fact, in the words of the Kansas City Star, it has no “real economic assets that can be drawn down in the future to fund benefits.”
So where does that leave Social Security? The approximately $2.5 trillion in surplus revenue, generated by the 1983 payroll tax hike, rightly belongs to the Social Security trust fund and to American workers who paid the extra taxes. But the money is all gone — “borrowed” or “stolen” by the federal government and spent None of the money was saved or invested in anything, so the trust fund contains no real economic assets with which to supplement the payroll tax which will become inadequate to pay full benefits after 2015.
Itt is time for the public to demand, in a very strong way, that the government make arrangements to repay its debt to Social Security. It is futile for the AARP and the NCPSSM to continue to insist that Social Security is in fine shape and has enough assets to pay full benefits until 2037. This just isn’t true. What the organizations need to do now is put political pressure on the government to move quickly to enact legislation that would require the repayment of the looted money, as it is needed, over the next 27 years. There is no way that the government could possibly come up with the $2.5 trillion in the near future, given the budget crisis. But it can make a legal commitment to repay the money in installments. Will that happen? Not without major political pressure from the majority of Americans.
The AARP and the NCPSSM have frittered away the past ten years when the problem could have been resolved. If the looting could have been stopped when I first began actively urging such action in 2000, the trust fund would today hold approximately $1.5 trillion (the amount looted during the past 10 years) in “good-as-gold” real assets. Instead, it holds no real economic assets.
The reason many don’t believe the government will honor its debt to Social Security without major political pressure is that it does not legally have to repay the money. The government certainly has a moral obligation to do so, but, because of a 1960 U.S. Supreme Court ruling, it has an out. In the case of Fleming v. Nestor, the Court ruled that nobody has a “contractual earned right” to Social Security benefits. This ruling was based on Section 1104 of the 1935 Social Security Act which specifically states, “The right to alter, amend, or repeal any provision of this ACT is hereby reserved to the Congress.” Based on this strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security.
There is also $16 trillion reason why.
Many people argue that the government could not default on its debt to Social Security because of the effect such action would have on financial markets and the nation’s public image. If the government held the same kind of real bonds that are traded on world markets, this would be true. Public-issue, marketable U.S. Treasury bonds are default-proof, and that is the kind of bonds that the Social Security surplus revenue was supposed to be invested in. If this had been done, Social Security would be in fine shape today. But, instead of using the surplus Social Security revenue to buy such bonds in the open market, the government chose to spend the money and issue IOUs to replace the spent money.*** These IOUs are non-marketable and could not be sold to anyone, even for a penny on the dollar. The government has the legal authority to declare these IOUs null and void. Since these IOUs are not traded, such action would have little effect on financial markets, and foreign governments would probably consider such action as an internal matter between the American government and its citizens.
The Social Security trust fund does not hold any real economic assets that can be drawn down to pay future benefits. That is an indisputable fact today, and it has been true ever since the 1983 payroll tax hike was enacted. Every dollar of the $2.5 trillion in surplus revenue, generated by the payroll tax hike, has been spent on programs unrelated to Social Security, leaving nothing to save or invest.
A few United States Senators tried to sound the alarm two decades ago, . For more than a quarter of a century, the United States government, under five presidents, has hoodwinked the American public into believing their Social Security contributions would be used for future Social Security benefitsToday, thanks to the efforts of the editorial board of the Kansas City Star, and thanks to the courage and competence of Allan Sloan and a few other journalists, the big bad secret is finally out, and I think it is too late to get this cat back in the bag.President Obama is the fifth president to participate in the great Social Security scam.
All of the previous administrations knew that spending Social Security revenue, as if it were general revenue, was wrong and was a violation of both federal law and the public trust. But, they all had the luxury of knowing that the raided Social Security money would not be needed to pay benefits while they were still in office.
However, President Obama learned early in his presidency that, unless the government ended the raiding and began repaying the money that had already been raided, Social Security would face a major financial crisis during his presidency. Yet he ran up trillions of dollars of debt. And took billions from the seniors medicare funds to start obamacare.
Beginning in 2015, and every year after that, payroll tax revenue will be insufficient to pay full benefits. But that money has already been spent, so the government will have to come up with the money again to repay the $2.54 trillion that it embezzled. This might be manageable in the early years, when the difference between benefit costs and payroll tax revenue is minimal. But, each year, the amount of money needed to replace the looted money gets bigger and bigger. For example, Social Security will run a deficit of approximately $41.4 billion in 2010. But in 2020, the Social Security deficit will have grown to $101.4 billion. Five years later, in 2025, the Social Security shortfall will be $274.6 billion. In 2035, the government would have to come up with an astronomical $621.9 billion in order to pay full Social Security benefits.
The embezzlement of the Social Security trust fund money was done without public knowledge, President Obama will just kick the can farther down the road as his four predecessors have done. He must find a way to raise the money to repay the government’s debt to Social Security, or cut Social Security benefits so the money will not have to be repaid. This is what an Obama Presidency is most likely to do with 4 more years.
Barrak Hussein Obama is a Socialist I will not trust him and his Marxist Czars with Social Security No one can stop him
*****A real let them eat cake moment*****
Embezzlement is a crime, and every participant (all the presidents and members of Congress who supported the practice) knew they were people’s Social Security money as general revenue over the past 25 years. Some individuals, such as the late Senator Daniel Patrick Moynihan of New York, attempted to end the raiding 20 years ago. On September 27, 2000, I launched my decade-long campaign to expose the Social Security scam with an appearance on CNN News to discuss my then newly-published book, The Alleged Budget Surplus, Social Security, and bad Economics.
For the past 10 years, I have been warning, as forcefully as I could, that a day of reckoning would come, at which time the government might consider defaulting on its huge Social Security debt. But nobody wanted to listen. That day of reckoning is now upon us.
V: Censored Social Security Book Back in Print When my book, The Looting of Social Security: How The Government is Draining America’s Retirement Account, was published by a New York publisher in 2004, I thought my long battle to expose the truth about the Social Security trust fund was almost won. But that book met with foul play, and was removed from the market before many people had the opportunity to read it.
Early reviews revealed just how provocative the book was going to be. The Boston Globe reported, “… With dismal clarity, Smith lays out the step-by-step history of how a national pension plan was transformed into an outright shakedown of working people” and ALA Booklist said, “Smith has written a scathing account of massive fraud on the part of our nation’s leaders, who have plundered every cent of the Social Security Trust Fund surplus that was specifically earmarked for the retirement of the baby boomers.”
On February 26, 2004, I appeared on CNBC, to respond to Fed Chairman, Alan Greenspan, who had called for Social Security benefit cuts the previous day. I held my book in front of the camera and said, as forcefully as I could, “Alan Greenspan should be ashamed of himself for what he is not telling the American people.”
I now believe that this public criticism of the Fed chairman may have been the final nail in the coffin of The Looting of Social Security, which was very critical of Greenspan’s role in making the looting of the trust fund possible.
A few weeks after my controversial appearance on CNBC, the book mysteriously disappeared from bookstores, nationwide, and was listed as “unavailable” by Amazon.com. I tried to get the rights to the book reverted back to me so I could publish my message elsewhere, but my publisher refused to surrender the rights. Thus the book was effectively killed off, and there was nothing I could do about it. I was unable to pinpoint exactly who was responsible for rendering the book “unavailable,” but a lot of people did not want the contents of the book to become public. Certainly, people in government, such as Alan Greenspan.
Although the public knew nothing about it at the time, Greenspan’s February 25, 2004 call for Social Security benefit cuts was the opening salvo in an organized campaign to dismantle Social Security, as we now know it, once George W. Bush was safely elected to a second term. On August 27, 2004, Greenspan again spoke of cutting Social Security benefits during remarks at a symposium in Jackson Hole, Wyoming.
“As a nation, we owe it to our retirees to promise only the benefits that can be delivered,” Greenspan said. “If we have promised more than our economy has the power to deliver to retirees without unduly diminishing real income gains of workers, as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels.”
Almost immediately upon his re-election, President George W. Bush made public his plan to partially privatize Social Security. On November 4, 2004, Bush said, “Let me put it this way: I earned capital, political capital, and now I intend to spend it. It is my style…I’ve earned capital in this election— and I’m going to spend it for what I told the people I’d spend it on, which is — you’ve heard the agenda: Social Security and tax reform, moving this economy forward, education, fighting and winning the war on terror.”
Like other Americans, there is no way I could have known about the standby plan to privatize Social Security, which was already formulated at the time I appeared on CNBC and publicly challenged Alan Greenspan on Social Security. Therefore, I didn’t realize just how big the potential impact of widespread readership of my book could be on the future plans of the Bush administration. From the administration’s point of view, I’m sure that they were not going to allow my book, or a book by any other author, to sabotage their plan to privatize Social Security. The book was a threat, and the threat had to be dealt with.
What is far more puzzling to me, than the opposition to my book in 2004, is the current effort to discredit me, and the book.
If the intent of this internet campaign was to stomp out the message of my book, now and forever, their actions have backfired on them. It was in reaction to this campaign that I decided not to allow them to kick a dead book without bringing the book back to life. When I finally regained the rights to “The Looting of Social Security” in 2008, I vowed to re-publish the book, when the time was right, under an arrangement that would guarantee that the book remained in print for as long as anyone wanted to read it.
Dr. Allen Smith