The primary Social Security problem is that $2.7 trillion of the money that is supposed to be in the trust fund is missing. The government embezzled the surplus revenue resulting from the 1983 payroll tax hike and used it as a slush fund for non-Social Security purposes.
There would be no short-term Social Security problem today if the money had not been looted. Social Security would be able to pay full benefits for 20 more years. Since the misuse of Social Security funds by the government is the problem, the obvious solution would be for the government to repay the Social Security revenue, which it embezzled.
Former Secretary of the Treasury Tim Geithner wrote about the slush fund in his new book, “Stress Test.” Geithner wrote, “In treating Social Security like a slush fund, the federal government has borrowed, spent, and vowed to pay back the $2.5 trillion or so ’surplus’ in payroll tax revenue it has siphoned out of Social Security. The money has been spent, but the federal government has promised to pay it back.”
As secretary of the Treasury, Geithner also held the post of managing trustee of the Social Security trustees. He signed the annual Social Security trustee’s reports and played a major role in determining the content of the reports. Absolutely nobody has a better understanding of how Social Security has operated in recent years than Geithner.
By explaining the operation of Social Security in his new book, Geithner has publicly stated that the federal government has: (1) “siphoned” the surplus payroll tax revenue “out of Social Security,” and (2) the government has treated “Social Security like a slush fund.” Geithner became a whistleblower when he included this important information in his book.
‘Big Dirty Secret’
Why are we not hearing proposals for repaying the looted Social Security money? The answer is that few Americans know anything about the $2.7 trillion theft of Social Security money, and the government wants to keep it that way.
Every member of Congress knows all about the looted money and most of them participated in the looting. It is not a partisan issue. Both Republicans and Democrats are equally responsible for the quarter-century act of misappropriation of Social Security money.
Social Security’s “big dirty secret” has been a taboo subject for many years, and most journalists have just turned a blind eye to the crime. They remember what happened to Dan Rather when he reported a story that the White House did not want reported. He was fired!
The government has kept the public in the dark on this issue for the past quarter century. And, unless something changes, the truth may never be known by the public. America no longer has the same degree of freedom of the press that it traditionally has had. Investigative journalism of government practices is almost a thing of the past. If the media knows that the government does not want a particular story reported, it is not likely that the media will report it.
The Social Security trust fund holds no real assets. The IOUs, that some call “trust-fund bonds” are not real bonds. They are not marketable, so they cannot be converted into cash or used to pay benefits. The IOUs are a pledge made by our government that we, the people, will pay enough additional taxes, in the future, to redeem the $2.7 trillion in government IOUs.
The $2.7 trillion debt must be repaid in order for Social Security to remain solvent in the short run. Since much of the surplus revenue, from the payroll tax hike, ended up in the pockets of the super-rich, in the form of large income tax cuts, those people who benefited most from the Social Security scam should be the ones who pay higher taxes to repay the debt.
The baby boomers have already paid enough taxes to cover the cost of their benefits. They should not be required to pay twice, which is exactly what would happen if the repayment of the looted money is financed with an increase in the regressive payroll tax. The baby boomers have been the big losers during the period since the 1983 payroll tax hike. And there is a good chance that they will become even bigger losers as efforts are taken to “fix” Social Security.
Allen W. Smith taught economics to college students for 30 years before retiring as professor of economics at Eastern Illinois University in 1998. Smith has written eight books, including a high school textbook, “Understanding Economics,” published by Random House, which was used in more than 600 schools in 48 states. Dr. Smith has appeared on CNN, CNNfn, CNBC, and more than 200 radio talk shows. He holds a doctorate in economics from Indiana University. Copyright 2014 Allen W. Smith.
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