RAIDING THE TRUST FUND

Allen W. Smith, Ph.D.

RAIDING THE TRUST FUND
Read Chapter One Free RAIDING THE TRUST FUND
The Long Struggle
The Big Lie
Allen W. Smith, Ph.D.
The Looting of Social Security
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CONTEMPLATIONS

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"A Voice Crying in the Wilderness"

When Allen W. Smith appeared on CNN to discuss his newly published book, The Alleged Budget Surplus, Social Security and Voodoo Economics, on September 27, 2000, he thought that what he was about to say would soon become breaking news that would spread throughout the nation like wildfire.  Smith was so outraged by what he had discovered a few months earlier that he thought it would shock the public and generate a national scandal that would make Watergate pale by comparison.    Smith thought that, when the public found out that their Social Security contributions were being embezzled, and used to help finance Reagan's large tax cuts for the rich, they would share his outrage and demand action.  Smith thought that taking money from the payroll tax contributions of working Americans and transferring it to America's richest citizens was more than wrong.  It was immoral.  

Dr. Smith, a strong supporter of Social Security as we now know it, saw the raiding of the Social Security fund as a first step toward destroying the current Social Security system and replacing it with a privatized system.  The payroll tax hike of 1983 was designed to generate Social Security surpluses for 30 years prior to the retirement of the oldest baby boomers in about 2010.  These surpluses were to be saved and invested in marketable U.S. Treasury bonds, which could later be resold in the open market to raise cash with which to pay benefits to the boomers.  If the $2.7 trillion in Social Security surplus revenue, which the tax hike was designed to accumulate by 2010, were to be taken by someone like Bernie Madoff, the baby boomers would be  out of luck. The enemies of Social Security would then point to the dire financial condition of Social Security as proof that Social Security benefits had to be cut, and the system should be scrapped and replaced with a privatized system.  Most readers can readily see that if the $2.7 trillion in surplus Social Security revenue had been taken by Madoff, who is now serving a 150-year prison sentence, Social Security would now be in deep trouble.  Bernie Madoff did not steal the Social Security money. but the United States government did.  The money is gone and the only way to get it back is by raising taxes, which appears to be politically impossible in the near future.   

If the CNN interview, thirteen years ago, had gone differently, Smith thinks the public outrage would have been so strong that Congress and the president would have been forced to bring the raiding of Social Security to an abrupt end.  If that had happened, all the surplus revenue that came in after 2000 would today be safely held by the trust fund in the form of "good-as-gold" marketable U.S.Treasury Bonds, which could be sold in the open market as needed to pay benefits to the boomers. 

Smith was really excited as he entered that CNN studio.  He would soon be able to tell millions of viewers about the Social Security theft.  But the interview didn't go the way he had hoped.  Instead of showing interest in what Dr. Smith had to say, the CNN Anchor, Lou Waters from Atlanta, was amused, and he treated the interview as a big joke.  He ended the interview with these words:

"We're not hearing any of this in the news.  I'm involved in the news.  Are you a voice crying in the wilderness?" 

As thing turned out, Smith was a voice crying in the wilderness in September 2000,  and he has continued to be such a voice to this day.  In addition to Reagan, Presidents George H.W. Bush, Bill Clinton, and George W. Bush all looted and spent every dollar of the surplus that came in during ther presidencies. Obama might have done the same, but we can't know for sure because the surpluses were over and Social Security was running permanet annual deficits by the second year of Obama's presidency.

Dr. Smith is the author of nine books, and he has appeared on CNN, CNBC, and more than 200 radio talk shows.  He has a B.S. in Education degree from Ball State University and a Ph.D. degree in Economics from Indiana University.

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Links to articles: 

 

 

 

 Interview with investigative reporter, Mike Deeson, WTSP--CBS local affiliate in Tampa: http://www.wtsp.com/news/local/article/195201/8/Social-Security-Trust-Fund-stolen-by-the-Government

 

Archive of Allen's articles published by Dissident Voice.org: http://dissidentvoice.org/2013/05/government-owes-2-7-trillion-to-social-security/ 

Archive of Allen's articles published by FedSmith.com: http://www.fedsmith.com/author/allen-smith/

Allen's articles published in the Orlando Sentinel:   http://articles.orlandosentinel.com/2012-08-07/opinion/os-ed-social-security-con-080712-20120806_1_social-security-trust-fund-ious; http://articles.orlandosentinel.com/2013-06-10/news/os-ed-social-security-061013-20130609_1_social-security-income-subject-payroll-tax  

 

 

 

 

 

 


CONTACT ALLEN:  Phone: 1-863-875-2735     Email: ironwoodas@aol.com

Allen W. Smith is available for media interviews and speaking engagements.  Call 1-800-840-6812.

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Allen converted his Honda Odyssey into the "Social Security Info-van" several years ago with the hope that  it might be another tool with which to deliver his message directly to the public. 
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Allen's Blog 

"THE LOOTING OF SOCIAL SECURITY"

Email Address: ironwoodas@aol.com

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March 17, 2010

Social Security to Run $29 billion Deficit this Year

 

AP writer, Stephen Ohlemacher, sent shock waves throughout the nation this week 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, 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.  

 

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.  Much of it went to fund wars in Afghanistan and Iraq.  The rest has been spent on other government programs.

 

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, because of the severe recession.  And the government of the United States has been caught with its hand still in the empty Social Security cookie jar.

 

For more than a decade, I have been trying to expose the Social Security scam just like Harry Markopolos  was trying to expose the Bernie Madoff scam.  But nobody would listen.  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.  I have been members of both organizations for years and I have tried very hard to get their cooperation in exposing the fraud.  But they have refused to have anything to do with me.  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, Barbara Kennelly, 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.”

 

I believe Barbara Kennelly to be among the strongest and most honorable defenders of Social Security.  I think she truly wants to save Social Security, as we now know it, which is the same goal that has motivated me to make so much effort for more than a decade.  I have tried to convince Ms. Kennelly that I was trying to save Social Security by exposing the truth about the trust fund, but she wouldn’t even consider the possibility that the government has been looting the trust fund all these years.  I requested the opportunity to discuss this issue with her, either in a face-to-face meeting, or through telephone conversations, in the hope that we could work together toward a common goal.  She ignored my requests and refused to communicate with me in any way. 

 

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 finally 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.

    
10:44 pm edt 


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