Was the Social Security Money “Borrowed” or “Stolen”?

By Allen W. Smith
Dissident Voice

In December, the Obama deficit-reduction commission will make recommendations for budget cuts that will then be voted on, with an up or down vote, by the lame-duck Congress. Already, there is much speculation that Social Security will be one of the big targets. The rationale for cutting Social Security seems to be that, during such difficult economic times, everything should be a candidate for the chopping block, and that the public should support such cuts out of a sense of patriotism.

The flaw in this argument is that Social Security has not contributed a dime to the budget deficits or the soaring national debt. Social Security is funded exclusively by payroll taxes (also known as FICA taxes), paid into the fund by working Americans. In 1983, the payroll tax was increased substantially in response to the recommendations, the previous year, of the Greenspan Commission on Social Security Reform.

Prior to 1983, Social Security had operated on a “pay-as-you-go” basis with each generation responsible for paying for the benefits of the generation that preceded them. The 1983 legislation changed the nature of Social Security funding. In addition to paying for the benefits of the preceding generation, as was customary, the baby boomers were also required to pay additional taxes to partially pre-fund their own retirement. The net result is that the baby boomers have paid more into Social Security than any other generation. Yet they are often made scapegoats and blamed for the Social Security funding problem. I am not a baby boomer, but I am very sympathetic to them. They are getting a bum rap.

The intent of the 1983 legislation was to generate large Social Security surpluses for the next 30 years that were supposed to be saved and invested, in order to build up a large reserve in the trust fund that could later be drawn down to pay benefits to the baby boomers. The 1983 payroll tax hike has generated more than $2.5 trillion that is supposed to be in the trust fund. If the trust fund actually held this amount in real assets, full Social Security benefits could be paid until at least 2037 without any changes. Unfortunately, none of the surplus revenue was saved or invested in anything. It was all spent by the government on wars and other government programs without making any provisions for repaying the money.

Over the past 25 years, five presidents, and the members of Congress, have participated in the great Social Security scam. All Social Security contributions made by working Americans, except the amount which was needed to pay current retirement benefits, has been funneled into the general fund and used for non-Social Security purposes. Some like to say that the government just “borrowed” the money during the time period when it was not needed to pay benefits.

But borrowing implies repayment, and no provisions for repayment have been made. The government did not enact future tax increases that would automatically kick in when the Social Security money was needed. Neither did they enact legislation that would end other spending programs once the Social Security money was needed so the money could be transferred to the trust fund. The government spent the Social Security money, pure and simple, without making any provisions for future repayments. The IOUs in the trust fund are not marketable, and they could not be sold to anyone even for a penny on the dollar. The Social Security trustees confirmed the worthlessness of the IOUs in the 2009 Social Security Trustees Report with the following words:

“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.”

In order for Social Security to pay full benefits after 2016, it will be necessary for the government to begin repaying the money it has spent on other things. This will mean increased taxes and/or additional borrowing. Neither of these is politically popular, and there is no assurance that future politicians will be willing to raise taxes to pay for the irresponsible behavior of past politicians. If the money is not repaid in full, with interest, it will have been stolen by the government from working Americans who paid into the fund.

Since Social Security would be fully funded until at least 2037 if the government had not used the money for other things, the only reason that politicians are advocating cuts in Social Security benefits is the fact that the government does not have the money with which to pay its debt to Social Security. Given the fact that Section 13301 of the Budget Enforcement Act of 1990 made it a violation of federal law to use Social Security revenue for non-Social Security purposes, it is hard to justify using the word “borrow” to refer to any of the Social Security money spent after 1990, even if it is eventually paid back.

Dr. Allen W. Smith is a Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books and has been researching and writing about Social Security financing for the past ten years. Read other articles by Allen, or visit Allen’s website, www.thebidlie.net

Source: Dissident Voice

Cut Social Security? Are they crazy in Washington, DC?

The National Commission on Fiscal Responsibility and Reform is sounding the alarm around deficit spending. While many economists are calling for more spending to energize the economy, this commission is using exaggerated rhetoric to heighten deficit fear. They are talking about cuts to Social Security, Medicare and middle class benefits like the home mortgage deduction.

The time is now to build opposition to these recommendations and urge Congress and the administration to cut programs that will not make the economy worse for most Americans. When I testified before the commission I urged:

* Cuts in military spending as this makes up half of U.S. discretionary spending and is filled with waste and bloat.

* Cuts to corporate welfare, especially to the oil and gas industry which is scheduled to received billions in tax breaks despite massive profits.

* Taxes on the purchase of stocks, bonds and derivatives where even a tiny micro tax could raise tens of billions annually.

* Taxes on the estates of the wealthiest 2.5% of Americans which could raise more than $10 billion annually.

Read my full testimony http://www.prosperityagenda.us/node/4344

These are just a few of the areas where cuts in spending and taxes on wealth could balance the budget and avoid the need to cut Social Security and Medicare or tax the middle class. Social Security is in good financial shape for upcoming decades and merely raising the cap on Social Security taxes will make the program secure for the 21st Century. Medicare’s challenge is not the Medicare program but the cost of health care. Cuts to Medicare will make health problems and the cost of health care more expensive. The real solution for health care is ending the waste of the private insurance industry by making improved Medicare available to all Americans.

Please write to President Obama and your representatives in Congress now!

In addition, please share this message with everyone you know.

The commission is preparing its report for after the election. But, with the mid-term elections coming this is the time when voters have the most power. We need to ask elected officials to protect Social Security and Medicare by cutting spending for weapons and war, and tax dollars to corporations first. We also need to urge them to consider taxes on wealth before considering taxes on workers.

We need to build this movement now. We cannot wait until after the election.

Please take action today.

And, please support our ongoing efforts by making a donation today.

Thank you for your support.

The Missing Words at the G-20 – or an absurd plan for the global economic crisis

Does the G-20 Show the Shape of things to Come — austerity and extreme police actions?

By Paul Jay
Real News Network

With all the public attention during G20 on the 1000 arrests and such, something critical was overlooked. That’s the paradox the assembled heads of governments created for ending the global economic crisis.

The G20 leaders recognize that “demand” needs to grow. That means people must have the means to buy stuff. Do a search in the G20 Toronto Summit Declaration and fourteen times you’ll find a reference to boosting or increasing “demand”.

Yet they want to halve their deficits by 2013. How are they going to cut government spending and increase demand at the same time?

They acknowledge that some stimulus spending may still be necessary to stop the world from sinking deeper into recession. But by 2013 they want government deficits to plummet. How will they pull it off? It’s already in the works; cut social-safety-net programs with a focus on social security and public pensions.

So the G20 wants to increase “private demand” and cut the deficit. Ok, there must be ways to do this without simply adding more government stimulus money.

Now do a search in the Declaration for the word “wages”. You’ll find it once. The document says “Reforms could support the broadly-shared expansion of demand if wages grow in line with productivity.”

Wow! An admission that over the last four decades productivity has skyrocketed while wages have remained stagnant? A recognition that the greatest transfer of wealth from working people to the rich in modern history might have led to a lack of real demand and is a root cause of the crisis?

Are we about to see a G20 agreement on promoting anti-strike breaking laws, or eliminating legislation that makes it difficult to impossible to organize unions in many places around the world, including the US and Canada?

Sorry. That one sentence is all there is. Not one recommendation or agreement on how wages will rise in line with increases in productivity. One wonders why they bothered to put the sentence in the document.

Let’s backtrack. If productivity is up, why can’t we afford social programs now that we could in the past? Higher productivity means more wealth, not less, right? Let’s just say the top five percent of income earners in the world have never had it so good.

So if the economic pie is bigger, there must be ways to lower deficits without cutting social spending, right?

Now do a search in the G20 Declaration for the word taxes. You will find zero. Not a single reference to taxing the riches the very few accumulated over the last decades of growth.

That says it all. If you don’t like it, we always have a nice detention cell ready for you.

Paul Jay is the CEO and Senior Editor of The Real News Network. He is an award-winning filmmaker, founder of Hot Docs! International Film Festival and was for ten years the Executive Producer of the CBC Newsworld show counterSpin.

Click here to see video

Source: Real News Network

Build your advocacy skills!

Are you still looking for a great summer activity? Here is one that will be fun and build your advocacy skills.

Our close colleague, the Backbone Campaign, is organizing a “Localize This! Action Camp” which will teach campaign strategy and creative, non-violent tactics and direct action. All sorts of useful skills from puppet making to rappelling and blockades will be taught. The event is being held in Washington State from August 8 to 14 with the main workshops from the 9th to the 13th. The camp is inexpensive, indeed, no one will be turned away and they are suggesting a $25 donation per day or $100-300 sliding scale for the week. There will be on-site camping and Backbone Campaign will be providing food.

Get more information and register at http://localizethis.org or http://backbonecampaign.org