There is no Social Security trust fund
The long-kept secret of the empty Social Security trust fund is no longer a secret, says economist Allen W. Smith who has been trying to alert the public to the trust fund fraud for the past five years. Smith, the author of "The Looting of Social Security: How The Government Is Draining America's Retirement Account," first stumbled onto the fraudulent way Social Security contributions were being handled in early 2000 while doing research for a previous book. (Related article: What happened to the Social Security trust fund?)
"When I first discovered that the Social Security surplus was being used just like general fund revenue, I was shocked," Smith said. "I wanted to tell the whole world about it, but nobody would listen. So I set out to convince Al Gore to take a stand against the looting, hoping it would then become a major campaign issue in the 2000 presidential campaign." Smith sent advance copies of his forthcoming new book, "The Alleged Budget Surplus, Social Security, and Voodoo Economics," along with many other research findings to Gore through multiple channels to make sure that at least some of the material got to him. When Gore announced his Social Security lockbox proposal Smith knew the message had gotten through. During the campaign, Bush also pledged to put the surplus in a lockbox so Smith thought the looting was about to end no matter who became the next president.
Allen Smith's findings are very interesting because a lot of Americans think that the Social Security trust fund is some kind of a bank account in which all their contributions are deposited. The reality is that there is no such thing and that is why the current rush to privatize Social Security since in recent years, a series of tax cuts, a lousy economy, millions of unemployed Americans (or Americans who are making much less than they did in the 90s), and the Iraq war means that the government is simply burning too much money too fast. "Bush broke his promise and kept right on spending the Social Security money. He is currently spending approximately $400 million of Social Security money each and every day," Smith points out. (Related article: What is an ownership society?)
Until very recently Smith was almost the only person trying to alert the public to the looting and the empty Social Security trust fund. But suddenly major newspapers and other news media are beginning to cover the story. Smith says the first major story on the trust fund was Dan Froomkin's "The Amazing Disappearing Trust Fund," in the February 11, Washington Post in which Froomkin reported that President Bush himself was now admitting that all the money in the trust fund has been spent. He quoted Bush as making the following statement in a Pennsylvania speech the previous day: "Every dime that goes in from payroll taxes is spent. It's spent on retirees, and if there's excess, its spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of the government to the next." (Related article: So who does privatization help then?)
In the February 14 issue of Newsweek, Allan Sloan wrote, "The money isn't being saved. Instead, one part of the government, the Treasury, is writing IOUs to another part, Social Security...The trust fund's irrelevant, folks. It's an accounting entry, not real money. How the Democrats can cling to the trust fund with a straight face is beyond me?" (Related article: Raising wage cap better than personal retirement accounts)
On March 4, Scripps-Howard columnist, Jay Ambrose's column, "The Big Lie About Social Security," appeared. Ambrose wrote, "The money -- the so-called trust fund -- has not been saved. It has been spent on other programs. When it comes time to lay its hands on it, the government will not open a vault somewhere and haul the dollars out. It will have to tax or borrow of some combination of the two, and the implications are far reaching, very far reaching, trillions of dollars worth of far reaching." (Related article: Fed governor opposes Bush's approach)
On March 6, Richard Halicks of The Atlanta Journal-Constitution titled his column, "Basically It's a Promise Bound to Bonds." Halicks wrote, "The Social Security trust fund is worth about $1.6 trillion. So where's all that money? Stacked in neatly banded $100 bills in secret government warehouses? Stashed in the gold vaults under the Federal Reserve Bank of New York? Actually, the government has already spent it. Economists talk about Social Security running into the red in 2018, and they say that the agency can dip into its trust fund to make up the shortfall through about 2042. But they're talking about money that doesn't technically exist." (Related article: Only poorly informed Americans currently support Bush's plan)
Also on March 6, Joel Havemann, staff writer for the LA Times wrote, "Everyone agrees...that the government has been spending money from the fund -- money raised through the Social Security tax and that is intended for future retirees. But debate has escalated over whether the government has the ability -- or even a reliable intent -- to repay that money to the retirement system. As Bush battles his critics over his plan to restructure Social Security, both sides are characterizing the trust fund and the IOUs it holds in sharply different ways. Bush, in arguing that the system needs major changes, has portrayed the trust fund as an unreliable source of money for retirees." (Related article: Bush fails to convince American people of the phony crisis)
On March 7, USA TODAY reported in an editorial, "...The cost of paying benefits to the first wave of retiring baby boomers will begin exposing the accounting gimmickry that is the true driver of the Social Security 'crisis.' ... For years the government has collected more in Social Security taxes than it needed to pay current benefits...But there is no actual money in the fund. Instead, the government spends the money for other purposes and issues the fund IOUs. In 2009, the shell game begins to end. The amount by which Social Security taxes exceed benefits starts to shrink. By 2018...the flow reverses ... Absent large tax hikes or spending cuts, already astronomical deficits will skyrocket. The problem could have been avoided, and it still could be reduced ... The bottom line is that Washington, through profligate borrowing and policies that lock in red ink for years to come, is passing the burden to future generations. And the problem is getting worse." (Related article: Americans prefer retirement security over wealth)
Also on March 7, David E. Rosenbaum wrote in the New York Times, "All tax receipts go into the same pot in the Treasury and are spent at the discretion of Congress; for years, excess Social Security taxes have been used to pay for other programs. The government has made promises to retirees it cannot keep without raising taxes, imposing deep cuts in other programs or borrowing loads of money." (Related article: Transition costs of privatization to hurt US economy)
Smith believes that enough details about what he calls, "The greatest fraud ever perpetrated against the American people by their government," have now broken through the shell of government secrecy that it will be impossible to keep the full story from gradually making its way out. "When it all comes out, I think it will be a much bigger scandal than Watergate," Smith says, "because it involves both political parties and has been going on for more than two decades."
Recommended article: Retirement planning tips for under-30 Americans
"When I first discovered that the Social Security surplus was being used just like general fund revenue, I was shocked," Smith said. "I wanted to tell the whole world about it, but nobody would listen. So I set out to convince Al Gore to take a stand against the looting, hoping it would then become a major campaign issue in the 2000 presidential campaign." Smith sent advance copies of his forthcoming new book, "The Alleged Budget Surplus, Social Security, and Voodoo Economics," along with many other research findings to Gore through multiple channels to make sure that at least some of the material got to him. When Gore announced his Social Security lockbox proposal Smith knew the message had gotten through. During the campaign, Bush also pledged to put the surplus in a lockbox so Smith thought the looting was about to end no matter who became the next president.
Allen Smith's findings are very interesting because a lot of Americans think that the Social Security trust fund is some kind of a bank account in which all their contributions are deposited. The reality is that there is no such thing and that is why the current rush to privatize Social Security since in recent years, a series of tax cuts, a lousy economy, millions of unemployed Americans (or Americans who are making much less than they did in the 90s), and the Iraq war means that the government is simply burning too much money too fast. "Bush broke his promise and kept right on spending the Social Security money. He is currently spending approximately $400 million of Social Security money each and every day," Smith points out. (Related article: What is an ownership society?)
Until very recently Smith was almost the only person trying to alert the public to the looting and the empty Social Security trust fund. But suddenly major newspapers and other news media are beginning to cover the story. Smith says the first major story on the trust fund was Dan Froomkin's "The Amazing Disappearing Trust Fund," in the February 11, Washington Post in which Froomkin reported that President Bush himself was now admitting that all the money in the trust fund has been spent. He quoted Bush as making the following statement in a Pennsylvania speech the previous day: "Every dime that goes in from payroll taxes is spent. It's spent on retirees, and if there's excess, its spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of the government to the next." (Related article: So who does privatization help then?)
In the February 14 issue of Newsweek, Allan Sloan wrote, "The money isn't being saved. Instead, one part of the government, the Treasury, is writing IOUs to another part, Social Security...The trust fund's irrelevant, folks. It's an accounting entry, not real money. How the Democrats can cling to the trust fund with a straight face is beyond me?" (Related article: Raising wage cap better than personal retirement accounts)
On March 4, Scripps-Howard columnist, Jay Ambrose's column, "The Big Lie About Social Security," appeared. Ambrose wrote, "The money -- the so-called trust fund -- has not been saved. It has been spent on other programs. When it comes time to lay its hands on it, the government will not open a vault somewhere and haul the dollars out. It will have to tax or borrow of some combination of the two, and the implications are far reaching, very far reaching, trillions of dollars worth of far reaching." (Related article: Fed governor opposes Bush's approach)
On March 6, Richard Halicks of The Atlanta Journal-Constitution titled his column, "Basically It's a Promise Bound to Bonds." Halicks wrote, "The Social Security trust fund is worth about $1.6 trillion. So where's all that money? Stacked in neatly banded $100 bills in secret government warehouses? Stashed in the gold vaults under the Federal Reserve Bank of New York? Actually, the government has already spent it. Economists talk about Social Security running into the red in 2018, and they say that the agency can dip into its trust fund to make up the shortfall through about 2042. But they're talking about money that doesn't technically exist." (Related article: Only poorly informed Americans currently support Bush's plan)
Also on March 6, Joel Havemann, staff writer for the LA Times wrote, "Everyone agrees...that the government has been spending money from the fund -- money raised through the Social Security tax and that is intended for future retirees. But debate has escalated over whether the government has the ability -- or even a reliable intent -- to repay that money to the retirement system. As Bush battles his critics over his plan to restructure Social Security, both sides are characterizing the trust fund and the IOUs it holds in sharply different ways. Bush, in arguing that the system needs major changes, has portrayed the trust fund as an unreliable source of money for retirees." (Related article: Bush fails to convince American people of the phony crisis)
On March 7, USA TODAY reported in an editorial, "...The cost of paying benefits to the first wave of retiring baby boomers will begin exposing the accounting gimmickry that is the true driver of the Social Security 'crisis.' ... For years the government has collected more in Social Security taxes than it needed to pay current benefits...But there is no actual money in the fund. Instead, the government spends the money for other purposes and issues the fund IOUs. In 2009, the shell game begins to end. The amount by which Social Security taxes exceed benefits starts to shrink. By 2018...the flow reverses ... Absent large tax hikes or spending cuts, already astronomical deficits will skyrocket. The problem could have been avoided, and it still could be reduced ... The bottom line is that Washington, through profligate borrowing and policies that lock in red ink for years to come, is passing the burden to future generations. And the problem is getting worse." (Related article: Americans prefer retirement security over wealth)
Also on March 7, David E. Rosenbaum wrote in the New York Times, "All tax receipts go into the same pot in the Treasury and are spent at the discretion of Congress; for years, excess Social Security taxes have been used to pay for other programs. The government has made promises to retirees it cannot keep without raising taxes, imposing deep cuts in other programs or borrowing loads of money." (Related article: Transition costs of privatization to hurt US economy)
Smith believes that enough details about what he calls, "The greatest fraud ever perpetrated against the American people by their government," have now broken through the shell of government secrecy that it will be impossible to keep the full story from gradually making its way out. "When it all comes out, I think it will be a much bigger scandal than Watergate," Smith says, "because it involves both political parties and has been going on for more than two decades."
Recommended article: Retirement planning tips for under-30 Americans
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