The Real Social Security Crisis That Nobody Is Talking About
Social Security is in deep trouble, but not for the reasons most people think, says economist Allen W. Smith, Ph.D., author of the new book "The Looting of Social Security: How the Government is Draining America"s Retirement Account" (2004 Carroll & Graf). The Social Security trustees say the system will have enough money to pay full benefits until 2042, and the CBO thinks there will be enough to last until 2052. "They are both wrong!" Smith says. "They are counting make-believe money as if it were the real thing."
"Almost every article that appears in the news about Social Security fails to mention the real Social Security crisis," Smith argues. "The money allegedly in the trust fund is gone. It has all been "borrowed" by our government and spent on other things. This has been true since the first surpluses generated by the 1983 Social Security tax increases appeared. The Social Security surplus money was supposed to be set aside for the funding of the baby boomers" retirement. That did not happen." According to Smith, both Republican and Democrat presidents and members of Congress have been engaged in major fraud against the American public for nearly 20 years. None of the Social Security surplus money has been set aside as intended. Every dollar of the $1.5 trillion in Social Security surpluses generated by the 1983 tax increases has been looted and spent for non-Social Security purposes, and the looting continues on a daily basis. The government replaced the real money it took from the Social Security Trust Fund with non-marketable "special-issue" government securities that are essentially worthless.
Smith argues that the Social Security trustees, the CBO, and almost every journalist who writes on the subject, look at these phony assets (non-marketable government securities) held in the trust fund as if they were real assets. They are not. They cannot be used to pay benefits. Actually these government IOUs have no value until and unless the government chooses to repay the money it has looted from the fund. Herein lies the problem. The government has made no provision for repaying the money, and it does not have any means of repaying the money. According to the 2004 Social Security Trustees Report, the government will have to start making annual payments on its debt to Social Security in 2018 when Social Security benefit payments begin to exceed the annual revenue generated by the payroll tax. By the year 2035, the government would have to come up with $747 billion from the general fund to pay interest and principle on their debt in order for full Social Security benefits to be paid. In 2040, interest and principle payments that would have to come from the general fund would total $959.8 billion!
Unless the public becomes aware of, and politicians begin to deal with, the looting problem in the very near future, the problem will become unmanageable, and government default on the debt it owes to the Social Security trust fund at some point in the future seems almost a certainty. If nothing is done, a few years down the road politicians running for office will have to decide whether proposing large tax increases to honor the debts incurred by previous irresponsible politicians, or arguing that the government default on its debts to Social Security will get them the most votes. Smith says, "I"m betting that both the politicians and the voters will opt for abandoning Social Security as we know it today."
Press Release Source: Allen W. Smith
Social Security Trust Fund Fraud May Become Bush's Watergate, Suggests Author of 'The Looting of Social Security'
Tuesday February 1, 11:47 am ET
WINTER HAVEN, Fla., Feb. 1 /PRNewswire/ -- Economist and author Allen W. Smith, Ph.D., argues that the biggest obstacle to getting clear debate on the Social Security problem is the misinformation that continues to be spread by the AARP and others who argue that the trust fund holds real assets. "It is amazing how many people, including some Social Security experts, still just don't get it!" Smith said. "Weisbrot and Baker continue to spread the myth that, 'The Social Security trust fund will have more than $3.7 trillion in today's dollars in 2018.' Unless there is a change in policy, the trust fund will not have even $1 of real assets in 2018!"
Smith points out that David Walker, Comptroller General of the Government Accounting Office (GAO), while speaking at a Washington luncheon, co-hosted by Centrists.Org and the Alliance for Worker Retirement Security on January 21, 2005, said, "The left hand owes the right hand, and that has legal, political and moral significance. But it doesn't have any economic significance whatsoever. There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down."
"If the Comptroller General of the GAO says there is 'nothing of real value' in the trust fund, then there is nothing of real value," Smith said. "So what happened to the $3.7 trillion that so many people believe will be in the trust fund in 2018, or the $1.6 trillion that is supposed to already be in the trust fund today? The government has 'borrowed' it and made no provision for repayment of this debt." The Social Security surplus generated by the 1983 payroll tax increase was supposed to be used to pay down the public debt. This would have been accomplished by purchasing regular marketable Treasury bonds in the financial markets. If this had been done, the trust fund would contain real assets and it would be able to pay full benefits until 2042. However, Smith maintains that President George H.W. Bush began using the money as if it were general revenue, and non-marketable special issue government securities were issued. Smith says that President Clinton continued this practice, so every cent of the Social Security surplus that flowed in under both Bush Senior and Clinton was spent. This misuse of Social Security funds became a major campaign issue in 2000, and both George W. Bush and Al Gore pledged to end the looting. President Bush repeatedly promised not to touch the Social Security money. Finally, in his first State of the Union address, delivered on February 27, 2001, Bush said, "To make sure the retirement savings of America's seniors are not diverted to any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security, and for Social Security alone."
In casting their votes in the 2000 election, the American people, whether they voted for Gore or for Bush, were voting for a candidate who had solemnly pledged repeatedly that no Social Security money would be used for non-Social Security purposes. Smith argues that George W. Bush violated both that pledge and federal law when he spent every dollar of the $509 billion in Social Security surplus that was generated during his first term. "He continues to violate his pledge, and the law, each and every day as he spends the approximately $400 million in Social Security surplus that becomes available on a daily basis," said Smith. Smith argues that the Bush privatization proposal is a Trojan horse to distract attention away from the looting of Social Security money. According to Smith, "Bush and Greenspan know that the government will face a major financial crisis beginning in 2018 when Social Security begins to run deficits, and the public discovers that there is nothing of value in the trust fund." Smith believes that "given the fact that Bush acknowledged the looting problem during the 2000 campaign, and made a solemn promise to the American people to end the practice, his misuse of Social Security money is a serious breach of the public trust," and Smith suggests that historians may refer to Bush's misuse of Social Security funds as "Bush's Watergate."
FROM: http://www.allenwsmith.com/Saturday, February 5, 2005Solution to Social Security Trust Fund Fraud and Actuarial Deficit Solution to Social Security Trust Fund Fraud and Actuarial Deficit Proposed by Author of 'The Looting of Social Security'
WINTER HAVEN, Fla., Feb. 4 /PRNewswire/ -- Economist and author Allen W. Smith, Ph.D., today released his proposed solution to the Social Security fraud problem and the long-term actuarial deficit. Smith's three-step proposal is outlined below:
1. President Bush should immediately discontinue his practice of spending the approximately $400 million in Social Security surplus that flows in each day, and he should instruct the Secretary of the Treasury to invest this money in marketable Treasury bonds.
2. The $1.6 trillion that has already been "borrowed" by the government and spent on other things must be repaid and invested in marketable Treasury bonds. Unlike Bush's proposal to borrow between $2 and $3 trillion to launch his privatization plan, borrowing the $1.6 trillion from the public and using it to pay off the debt to Social Security would not increase the public debt. The debt to Social Security would go down while the debt to the public would go up by an equal amount. If these two actions were taken, the Social Security trust fund would truly have the assets it will need to continue to pay full benefits until 2042. The Social Security Trustees could sell these marketable Treasury bonds in the open market as needed to supplement the declining payroll tax revenue without any additional action by the president or the Congress. 3. The above two steps would solve the short-term Social Security problem and leave only the actuarial deficit that will show up no earlier than 2042. That problem can also be fixed at this time with a single simple action. Remove the Social Security payroll tax cap of $90,000 per year so that those earning more than $90,000 will pay Social Security tax on their entire income just like everyone else. Those earning more than $90,000 have received such large tax breaks from the Bush income tax cuts, that they can certainly afford to pay the additional payroll tax.
Smith summarizes his view of President Bush's actions with regard to Social Security as follows:
"President Bush spent $509 billion of Social Security surpluses during his first term, and he continues to spend Social Security money for non-Social Security purposes each and every day while asking the public to believe that he really wants to 'save and strengthen' the program. His actions show no evidence that he truly wants to strengthen the system. They are more consistent with those of a person who wants to drive as many nails into the coffin of Social Security as possible. Now he is trying to drive a giant spike into that coffin to make sure the system, as we know it today, cannot survive in the long term. It is time for President Bush to be honest and truthful with the American people."
Allen W. Smith, who has been crusading for economic education and sound government fiscal policy for nearly three decades, holds a Ph.D. degree in economics from Indiana University. He is Professor of Economics Emeritus, Eastern Illinois University. The author of several books, including "The Looting of Social Security: How the Government is Draining America's Retirement Account," (Carroll & Graf, 2004) and "The Alleged Budget Surplus, Social Security, and Voodoo Economics," Dr. Smith has appeared on CNBC, CNNfn, and more than 100 radio talk shows to discuss Social Security.
Bush to Geezers: Save Yourselves!
On Social Security, the president says to throw the kids overboard.
By Chris Suellentrop
Updated Wednesday, Feb. 2, 2005, at 9:32 PM PT
In his State of the Union address, President Bush claimed, for the first time during his presidency, to be asking Americans to sacrifice. The man who told the country, and the government, that the patriotic way to respond to 9/11 was to spend lots of money now says he wants the nation to be more penurious. Think of the children, Bush said, "on issue after issue," but especially with regard to Social Security. The president painted his plan to alter the Social Security system as a grand bargain in which the current generation of older Americans, like parents saving for their children's college tuition, would forgo some small benefit so that the next generation could reap huge rewards.
Sounds terrific. Except what Bush proposed is actually the exact opposite: His plan would allow the current generation of retirees and near-retirees to keep the current system, the one where they receive far more money than they put in during their lifetimes, while requiring the next generation to subsist on their own earnings for retirement. This isn't the equivalent of parents saving for Johnny's 529 plan. This is Mom and Dad asking Johnny to invest part of his allowance so that they won't have to bother with paying for college. You could call Bush's idea the Screw Your Grandchildren Act.
Here's how it works: Everyone 55 and up gets to stay in the current system. Everybody else gets their benefits cut. Bush was startlingly blunt about this, saying, "I have a message for every American who is 55 or older: Do not let anyone mislead you; for you, the Social Security system will not change in any way. For younger workers, the Social Security system has serious problems that will grow worse with time." Bush then listed off a bunch of benefit cuts that have been proposed by Democrats in the past: "indexing benefits to prices rather than wages," "increasing the retirement age," "discouraging early collection of Social Security," and "changing the way benefits are calculated."
The difference is that Tim Penney, Bill Clinton, John Breaux, and Daniel Patrick Moynihan proposed making those changes for everyone in the system, including people already receiving, or about to receive, checks. Bush has made the politically ingenious innovation of telling the politically influential baby boomers and current retirees that they need make no sacrifices. They can keep collecting and cashing the checks sent to them by today's young workers. And then, in the ultimate act of generational self-indulgence, they can change the benefit calculations so that those young workers will get far less when they retire.
The sweetener for the next generation is supposed to be the creation of personal investment accounts. And it's true, an account that can be bequeathed to your children and grandchildren sounds attractive. But it's only more attractive than the current system if you die before the account runs out, and if the account ends up being larger than the amount of money you would receive under the current system. After all, under the current system you can put your Social Security checks in an account and bequeath them to your children and grandchildren that way, if you want. For the first time, Bush and his administration have conceded that personal accounts have nothing to do with fixing the solvency of Social Security. (At a Wednesday background briefing for reporters, an anonymous senior administration official called it a "fair inference" when a reporter asked if "it would be fair to describe this as having"the personal accounts by themselves as having no effect whatsoever on the solvency issue?") Instead, personal accounts are just a clever way to reduce the Social Security system's progressivity. Higher-income people will get to keep a greater chunk of their own money than they do now. Lower-income people will have to get by with less.
But that scenario won't play out until the people who vote, the boomers and the retirees, are long gone. Politically, the idea of screwing your grandchildren is brilliant. Generations of lawmakers have known that younger people, much less future generations, don't vote. But Bush must be the first politician to propose screwing your grandchildren while executing a move I like to call the "straight-talking pander." Howard Dean and John McCain are the best-known practitioners of the straight-talking pander, which occurs when a politician tells an audience he is about to speak an unpopular truth but then proceeds to tell the audience exactly what it wants to hear.
This was the Greatest Love of All speech, in which Bush asserted that The Children Are Our Future. But before you sign on to Bush's proposal, be aware that what he's offering is pretty tough love
Is this a "I have an Idea or thought" on how SS should be handled or just another keep Bashin Bush for putting an idea out there that the bed wettin demo's haven't done in decades.
Granted Clint you feel Bush did it all. It's all his fault. Now lets move on.
What is your solution? Please explain it.
I'm lost to no end to see how would you solve years and years abuse of the system.
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John Adams The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.
Ronald Reagan: 'Everybody that is for abortion has already been born'
"I never said I was worth it. I only said I wouldn't do it for less " William F. Buckley Jr.
Clint, please deposit your paycheck at the door because your not earning it for the dems!
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John Adams The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.
Ronald Reagan: 'Everybody that is for abortion has already been born'
"I never said I was worth it. I only said I wouldn't do it for less " William F. Buckley Jr.
Clint, what you are describing is the exact reason why the person account idea is a great one.
With the way SS is set up right now, the total amount of SS taxes paid go into the general fund of the Federal Government. After they pay out existing SS debts, the mony left over is spent on whatever else Congress feels like.
If that money went into an account that you control, and not the Government, they can't spend it on some social program, or defense spending or anything else.
Social Security's REAL Problem
