The Big Lie

The Long Struggle
The Big Lie
Allen W. Smith, Ph.D.
The Looting of Social Security
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Throughout history, governments around the world have misled and deceived their citizens, at least some of the time.  Sometimes the deception could be justified on the basis of national security concerns.  But, at other times, the only thing at stake has been political power and greed.  That is the case with the embezzlement of $2.7 trillion of Social Security money and the spending of that money for wars, tax cuts and other non-Social Security programs.

The United States of America has had its share of government scandals from Teapot Dome, under President Harding, to the Watergate scandal, which brought down Richard Nixon, to the Iran Contra scandal under Reagan, and the Monica Lewinsky affair under President Bill Clinton. These scandals have garnered a lot of news coverage and resulted in political casualties.  They have also called into question the integrity of government, in general, during the periods of heavy news coverage. But, in each of these scandals, public concern over government dishonesty, in general, has been only temporary.   

Most Americans want to trust and feel good about their government, and government distrust is usually limited to politicians of the opposite political party.  In other words, Democrats usually do not trust Republicans, and Republicans do not trust Democrats.  When one party is caught up in a political scandal, the other party goes on the offensive until they have made as much political hay of the incident as possible.  But what if there are offenses against the public in which members of both parties are equally guilty?  There is no political gain from exposing misconduct in one party if the other party is equally guilty.  On the contrary, secrets that both parties want to keep from the public are very hard to expose. 

When I first discovered that the government was systematically embezzling Social Security money, and using it for non-Social Security purposes, I didn’t want to believe what I had found. I did a lot of research in an effort to disprove my findings, but the deeper I dug, the more evidence I found that the crime of mishandling Social Security funds had enjoyed bipartisan support from the very beginning.  The only way the government could have gotten by with the scam for so many years was by extensive bipartisan support and a trusting public.           

The public trust of the government was strengthened when Ronald Reagan became President in 1981.  Millions of Americans had welcomed Reagan into their homes for years, as the host of “Death Valley Days” and  “The General Electric Theatre.”  He was loved by many from the day he entered the White House.  No matter what went wrong during his years as President, Reagan seemed to almost never be blamed directly.  He was often called the Teflon President because almost nothing of a negative nature seemed to stick to him.   As a trained professional actor, Reagan had an uncommon degree of charisma.  He soon became America’s most loved modern-day president, and he was seen by many as an elder statesman, and even a beloved grandfather figure.  Some people even suggested that his likeness should be carved onto Mt. Rushmore with other great former presidents. 

A man with the talents of Ronald Reagan could tell a lot of big lies and possibly never get caught.  Reagan told more than one whopper.  His first one was straight out of fantasy land.  Reagan said he would cut income tax rates by 30 percent over a three-year period, and end up with more revenue than before the cut in rates.  You don’t have to be an economist to figure out that, if the government wants to increase revenue, it would usually raise tax rates—not lower them.   

Reagan’s big lie about getting more revenue with lower tax rates led to his biggest lie of all.  Once it became clear that supply-side economics was not working, Reagan had a big crisis on his hands.  His promises to reduce the deficits and lower the national debt flew right out the back door.  Reagan did not want to admit that his economic plan had failed and he didn’t want to rescind his cuts in income tax rates.  He desperately needed to find a new source of revenue to offset the revenue which had been lost because of the cut in income tax rates.

Alan Greenspan, who was worth his weight in gold as an advisor to Reagan, came to the rescue.  He pointed out that there was a way to get more revenue without touching the income tax cuts. Greenspan told Reagan that they could raise payroll taxes, and say they were doing it to strengthen Social Security.  Then they could use the surplus revenue just like income- tax revenue.

It was a clever plan.  The surplus Social Security revenue from the payroll-tax increase wouldn’t be needed to pay actual benefits for 30 more years. Why not just put the money in the general fund, for now, and let future presidents worry about replacing it.  It probably didn’t seem like such and evil deed to Reagan and Greenspan at the time.  After all, they were only “borrowing” the money.  Hopefully some future president would repay it.  But the real effect of their action was to take money from working baby boomers, in the form of increased payroll taxes, and give that money to some of the richest Americans in the form of big income tax cuts.  

It must not have taken Greenspan very long to convince Reagan to begin embezzling the Social Security surplus revenue, because Reagan took his first action toward getting his hands on the money by writing a letter, which greatly exaggerated the plight of Social Security, to Congressional Leaders on May 21, 1981, just four months after  taking the oath of office as President.  Excerpts from that letter are reproduced below.

 “As you know, the Social Security System is teetering on the edge of bankruptcy. Over the next five years, the Social Security trust fund could encounter deficits of up to $111 billion, and in the decades ahead its unfunded obligations could run well into the trillions. Unless we in government are willing to act, a sword of Damocles will soon hang over the welfare of millions of our citizens…

 Social Security was definitely not “teetering on the edge of bankruptcy” in 1981 as Reagan claimed in his letter to Congressional leaders. The 1982 National Commission on Social Security Reform, headed by Alan Greenspan, issued its “findings and recommendations” in January 1983.  The Commission accurately foresaw major problems for Social Security when the baby boomers began to retire in about 2010.  But that was nearly three decades down the road.  In addition to the long-term problem of the baby boomers, the Commission found a possible short-term problem for the years 1983-89.  But the outlook improved and became favorable for the 1990s and early 2000s.  The possible minor problem for the years 1983-1989 was based on very pessimistic economic assumptions.  So, at the time Reagan informed Congressional leaders that Social Security was teetering on the edge of bankruptcy, the overall condition of Social Security funding was fairly sound for the next three decades. 

Reagan wrote a follow-up letter to Congressional leaders dated July18, 1981, which included:

“The highest priority of my Administration is restoring the integrity of the Social Security System. Those 35 million Americans who depend on Social Security expect and are entitled to prompt bipartisan action to resolve the current financial problem.

At the same time, I deplore the opportunistic political maneuvering, cynically designed to play on the fears of many Americans, that some in the Congress are initiating at this time…

…In order to tell the American people the facts, and to let them know that I shall fight to preserve the Social Security System and protect their benefits, I will ask for time on television to address the Nation as soon as possible.”

 This second letter to Congressional leaders was still another big lie.  Social Security was certainly not Reagan’s “highest priority.” Like other conservatives, Reagan had hated Social Security from the day it became law in 1935.  He was a hardliner when it came to all government social programs.  He called unemployment insurance “a prepaid vacation plan for freeloaders.” He said the progressive income tax was a “brainchild of Karl Marx.”  And, he called welfare recipients “a faceless mass waiting for handouts.”  Reagan referred to Social Security as a “welfare program” and, during the 1976 Republican Presidential Primary, Reagan proposed making Social Security voluntary, which would have essentially destroyed the program.  There is no way that anyone who knew Reagan’s record would accept his claim that Social Security was his highest priority. He had always wanted the program eliminated, or at least privatized. 

Reagan’s scare tactics worked. Congress passed the Social Security Amendments of 1983, which included a hefty increase in the payroll tax rate, in a record time of three months.  The tax increase was designed to generate large Social Security surpluses for the next 30 years.  The public was led to believe that the surplus money would be saved and invested in marketable U.S. Treasury Bonds, which could later be resold to raise cash with which to pay benefits to the boomers.  But that didn’t happen.  The money was all deposited directly into the general fund and used for non-Social Security purposes.   Reagan spent every dime of the surplus Social Security revenue, which came in during his presidency, on general government operations. Social Security, which Reagan claimed he was trying to fix with the legislation, never saw a penny of that money.

It would have been bad enough if Reagan had been the only president to raid the Social Security trust fund.  But his successor, George H.W. Bush picked up right where Reagan left off.  Bush had promised the voters during the campaign that he would not raise taxes by saying, “Read my lips.  No new taxes.” With the Social Security surplus as a huge slush fund, Bush did not need to raise taxes, but he raided the trust fund and spent the money, just like Reagan.  However, the secret practice of looting the Social Security trust fund did not remain a secret for very long.  Members of Congress began to see what was happening to the Social Security surplus, and they did not like what they saw. 

Some members of Congress were appalled by the embezzlement, and a few tried to end the theft. On October 13, 1989, Senator Ernest Hollings (D-SC) lambasted the Bush administration for its mishandling of Social Security funds.  Excerpts from the speech are reproduced below:

“Of course, the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund in order to mask the true size of the deficit…The Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the Government…The hard fact is that, in the next century, the Social Security system will find itself paying out vastly more in benefits than it is taking in through payroll taxes.  And the American people will wake up to the reality that those IOU’s in the trust fund vault are a 21st century version of Confederate banknotes.’     

A year later, on October 9, 1990, Senator Harry Reid of Nevada made the following statement on the Senate floor:

“The discussion is are we as a country violating a trust by spending Social Security trust fund moneys for some purpose other than for which they were intended.  The obvious answer is yes…

     The trust funds resources are there for the well-being of those who have paid into the Social Security System.  We should use those resources to see that Social Security recipients are treated well but also treated fairly and treated equitably. 

     It is time for Congress, I think, to take its hands—and I add the President in on that—off the Social Security surpluses.  Stop hiding the horrible truth of the fiscal irresponsibility that we have talked about here the past 2 weeks.  It is time to return those dollars to the hands of those who earned them—the Social Security beneficiaries and future beneficiaries…

I think that is a very good illustration of what I was talking about, embezzlement, thievery.  Because that, Mr. President, is what we are talking about here…On that chart in emblazoned red letters is what has been taking place here, embezzlement.  During the period of growth we have had during the past 10 years, the growth has been from two sources: One, a large credit card with no limits on it, and, two, we have been stealing money from the Social Security recipients of this country. 


”I think that is a very good illustration of what I was talking about, embezzlement, thievery.  Because that, Mr. President, is what we are talking about here…I publicly commend and applaud the vigorous activity generated by the Senator from New York because… on that chart in emblazoned red letters is what has been taking place here, embezzlement.”   

Out of this heated debate on the issue of government misappropriation of Social Security money, came Senator Daniel Patrick Moynihan’s proposal to cut Social Security taxes in order to deny the government access to the tempting surplus Social Security money.  Senator Moynihan, who had been a strong supporter of the 1983 efforts to strengthen the Social Security system, was outraged that, instead of being used to build up the size of the Social Security Trust Fund for future retirees, as was intended, the Social Security surplus was being used to pay for general government spending. 

President George H. W. Bush was furious over Moynihan’s proposal.  In response to reporters’ questions, Bush replied, “It is an effort to get me to raise taxes on the American people by the charade of cutting them, or cut benefits, and I am not going to do it to the older people of this country.”

But President Bush was in fact taking money from a fund that was supposed to be used to provide for “the older people of this country” and using it to fund general government. Despite the strong efforts, way back in 1990, to put an end to the raiding of the Social Security trust fund, President George H.W. Bush continued to loot and spend every dollar of the Social Security surplus. 

Later that day, Senator Moynihan responded to the president’s statement in a speech on the Senate floor.  Moynihan said, “Mr. President…If there is a problem of dissimulation, I would suggest that it resides with the present practice of using Social Security trust funds as general revenues.  My distinguished friend, the Republican Senator from Pennsylvania, Senator Heinz, has used a very direct word for this.  He says it is called “embezzlement.”


Because Moynihan believed the American people were being deceived and betrayed, he proposed undoing the 1983 legislation by cutting Social Security taxes and returning the system to a “pay-as-you-go” basis which would have provided only enough revenue to take care of current retirees.  Moynihan’s position was that, if the government could not keep its hands out of the Social Security cookie jar, the jar should be emptied so there would be no Social Security surplus


George H.W. Bush  looted every penny of the Social Security surplus generated during his term, and Bill Clinton continued to treat the surplus as if it were general revenue. The money continued to be “embezzled” and spent, with almost nobody aware that the crime was taking place.  However, the crime finally came to light again during the 2000 presidential campaign. 


The unlawful spending of Social Security money for non-Social Security purposes, became a major campaign issue in 2000.  Al Gore and George W. Bush both acknowledged that the government was spending Social Security revenue for non-Social Security purposes, and both candidates pledged to end the looting. 

            During his acceptance speech at the Democratic national convention, Al Gore announced that, if he was elected president, he would put Social Security funds into a Social Security lockbox for Social Security and for Social Security only. Gore’s dramatic announcement brought the looting of Social Security back into the limelight. When Senator Moynihan’s 1990 bill to repeal the  1983 payroll tax hike failed to become law, the looting of Social Security continued, unchanged, for another decade until the issue resurfaced during the 2000 presidential election campaign. 


Bush also promised to keep his hands off Social Security money.  Bush reiterated this pledge to the American people over and over, and further cemented it with a statement in his first State of the Union address, delivered on February 27, 2000.  In no uncertain terms, 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.” 


Like so many of his other promises, Bush broke that promise.  He “embezzled” and spent every dollar of the surplus Social Security revenue generated during his two terms as president, making him the biggest contributor of all to the real Social Security problem. 


In addition to the embezzlement under both Reagan and George H.W. Bush, Bill Clinton and George W. Bush looted and spent all of the Social Security surplus revenue that flowed in during their presidencies. So we can’t blame the whole problem on Reagan.  He was just the one who figured out a way to use Social Security money as general revenue, and his successors followed his example.