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Bush 43 Will Happily Finish What Bush 41 Started: Embezzling The Social Security Trust Fund.


“We put those payroll contributions in so as to give the contributors a legal, moral, and political right to collect their pension and unemployment benefits with those taxes in there.  No damned politician can ever scrap my Social Security Program.”



"The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than the democratic state itself. That in its essence is fascism: ownership of the government by an individual, by a group or any controlling private power." 


What the hell does that sign say?

            Given the heightened scrutiny of Social Security and it’s potential problems in recent weeks, it seems like the public would be aware of all the problems associated with the program, as well as their causes and of course the solution(s) being proposed.  Unfortunately, nearly all public discussion and media coverage about Social Security fails to mention the real Social Security crisis, which both Republicans and Democrats alike should be very concerned about.  Why is there so little discussion about how much this is going to add on to our record twin deficits, while the dollar is hovering near record lows?  On 1/17, John Snow said “the numbers that are being tossed around for the extra borrowing are a half-trillion to $2 trillion.”  A half-trillion to $2 trillion!?  That’s one hell of an approximation!  The low end of that is more than double the cost of the war in Iraq!  Well, once you find out what this money is for, it’s no surprise that there is little discussion about it.  It’s the so-called “surplus” in the Social Security trust fund.  Unfortunately, it only exists on paper. 


The government used the growing surplus as if it were “general revenues” and replaced it with “special issue” government bonds, a type of government IOU designed exclusively for the government trust funds, which are worthless unless and until the government chooses to repay the looted money by raising taxes or borrowing massive additional funds from the public.  They are basically 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. And the government continues to loot and spend the approximately  $438 million in Social Security surplus that is generated each and every day. 


This is explained in the CBO’s annual report on the “Budget of the United States” annually, in some form or another.  (2000 Report): These balances are available to finance future benefit payments and other trust fund expenditures--but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. From an economic standpoint, the Government is able to prefund benefits only by increasing saving and investment in the economy as a whole.  (2003 Report): The Government’s responsibilities to make future payments for social insurance and certain other programs are not shown as liabilities according to Federal accounting standards; however, they are measured in other contexts.




So not only did the government illegally, yes illegally, spend the money, but they want the taxpayers to pay back the looted funds.  While cutting future benefits!  “The problem began with President George H. W. Bush who used Social Security money as if it were general fund revenue from day one of his presidency. The practice has continued ever since, including during Clinton’s terms in office.  The 1983 payroll tax increase has generated more than $1.5 trillion in Social Security surplus, earmarked specifically for funding the retirement of the baby boomers.  Because of that tax increase, the trust fund should today contain at least $1.5 trillion in real liquid assets in the form of regular marketable Treasury bonds just like those bonds in which many private pension plans invest, but it does not contain any marketable bonds.  With the new “special-issue” T-notes, the government “technically” has to back their IOUs, but with the changing of party representation in Congress and the resulting finger pointing over responsibilities over two decades, the various administrations have made no provision for repaying the money, and there currently are no 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.


This process is fairly well documented in newspapers, and even more so in the Congressional Record.  Here are some key historical events:



The Washington Post

January 24, 1990

As Congress Returns to Work, Democrats Seek Advantage Over Bush

Tom Kenworthy, Helen Dewar


Democratic leaders faced a more difficult and ticklish task in coming to grips with a proposal by Sen. Daniel Patrick Moynihan (D-N.Y.) to roll back the latest increase in the Social Security payroll tax, an idea that is gathering steam despite misgivings by some key lawmakers.

As Moynihan formally introduced his proposal, House Democratic leaders began exploring ways to keep the administration from using a mounting Social Security surplus to mask the size of the federal budget deficit, but without locking themselves into Moynihan's idea of a tax rollback.


House Speaker Thomas S. Foley (D-Wash.) kicked off leadership discussions of whether the Social Security reserve could be invested in instruments other than U.S. Treasury bills, the only investment currently allowed. Democrats said this could help boost private investment while preventing the Social Security surplus from being used to understate the budget deficit.

The New York Times

January 24, 1990

Democrats Seek Advantage on Tax Cut Plan


The proposal, to roll back Social Security taxes paid by workers and their employers, has burst like a firebomb onto the Congressional agenda, sending both parties in search of cover. While it has stirred some applause on Capitol Hill, President Bush (41) has termed the measure a charade designed to force him to raise taxes or cut benefits.

Other Republicans acknowledged that whatever happened to Mr. Moynihan's tax proposal Congress would be forced to deal with the broader issue that he has raised about how the current surplus in the Social Security retirement trust fund is being used to help offset the Federal budget deficit.



Republicans, meanwhile, were doing some scrambling of their own, as Richard G. Darman, the White House budget director, tried to line them up behind a Social Security alternative that President Bush will lay out in the budget he presents to Congress next week. Mr. Bush's proposal, outlined by Mr. Darman in a meeting with Senate Republicans, would gradually halt the use of Social Security reserves to offset the Federal budget deficit but would not cut Social Security taxes.

Senator Pete V. Domenici of New Mexico, the senior Republican on the Senate Budget Committee, said Mr. Moynihan's plan would lead to cuts in benefits, increases in other taxes, or abandonment of the balanced-budget law that requires Congress to bring the Federal deficit to zero by the 1993 fiscal year.


On October 9, 1990, Senator Moynihan said this in a speech on the Senate floor, “About a year ago, the Rochester Democrat Chronicle used a rather striking term to describe what was going on. It said that the word for what has happened to these trust funds is “thievery.”  It happened that some months later--in early January of this year--I was on the “Today Show” on NBC, with my colleague and friend on the Finance Committee, Senator Heinz and the moderator asked Senator Heinz if he agreed with the characterization of what was going on as “thievery.” With great candor he said, “Certainly not. It is not thievery. It is embezzlement.” This is a distinction of some consequence, and it suggests the enormity of what is happening. The Social Security surplus was then $1 billion a week. It is now verging on $1.5 billion.


On the other hand, theoretically, the pay-as-you-go system could present problems in the second quarter of the 21st century. We have always planned Social Security on a 75-year basis. You get a sense, Mr. President, of how distinctive Social Security is, knowing that it plans for 75 years ahead. The Senate can barely plan for the day.


So in the seventies, the idea of moving to a partially funded system began. It was apparent that the retirement of the baby boom, which would begin in the second decade of the 21st century but really kick in, in the third decade, would be followed by that dramatic lower birth rate, the baby bust, and would push the Social Security fund into serious actuarial imbalance over 75 years. And it seemed that some preparation should be made, that we should start collecting more money than we needed to pay out and save the surplus.


We began planning for partial funding of the Social Security System in the early 1970's and, in the Social Security Amendments of 1977, put the system in place. I can say to you, Mr. President, that almost nobody noticed. Nothing was concealed, but nobody noticed. It was a new idea. We actually put in place tax increases that would start in 1977 and terminate in 1990, 14 years later

Well, on August 8, 1988, I asked the General Accounting Office if they would look into this system for us. They produced a quite extraordinary study, as the GAO increasingly does under Comptroller General Mr. Bowsher. It was called Social Security the Trust Fund Reserve Accumulation, the Economy and the Federal Budget.

The report said everything in one sentence. It said:

If the Congress and the President are unable to agree upon and implement the strategy for restoring fiscal balance in the non-Social Security part of the budget, we believe that the Congress should reconsider the pattern of payroll tax increases that is producing the current and projected Social Security surpluses. To implement this option, it would be appropriate to return the Social Security program to a pay-as-you-go financing basis once the Social Security reserves have reached a desirable contingency level of about 100 to 150 percent annual outlays.

Senator Harry Reid of Nevada then made the following statement on the Senate floor, 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. But for the dialog started by the Senator from New York, we would not be here today. And I publicly commend and applaud the vigorous activity generated by the Senator from New York because on that chart in emblazened 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.


(Congressional Record: January 9, 1990)


Just a year earlier, on October 13, 1989, Senator Fritz Hollings of South Carolina, in a speech on the Senate floor, expressed his outrage at the fraudulent practices that had been taking place.  He said, 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. As we all know, the Social Security payroll tax has become a money machine for the U.S. Treasury, generating fantastic revenue surpluses in excess of the costs of the Social Security program.

The public fully supported enactment of hefty new Social Security taxes in 1983 to ensure the retirement program's long-term solvency and credibility. The promise was that today's huge surpluses would be set safely aside in a trust fund to provide for baby-boomer retirees in the next century.

Well, look again. The Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the Government. By thus reducing the deficit, we mask the true enormity of the Federal budget crisis while creating the illusion that Congress and the administration are actually doing something about deficits.

Mr. President, our proposed amendment, which we intend to attach to the debt-ceiling bill, would put Social Security surpluses off budget for purposes of calculating the Federal budget deficit beginning October 1, the first day of fiscal 1990. The distinguished junior Senator from Texas and his Republican colleagues, aiming to rescue the administration's read my lips strategy, plan an alternative amendment that would put Social Security off budget in the distant future, in 1994.

By 1994, however, a cumulative sum in excess of a half-trillion dollars will have been borrowed from the Social Security trust fund, and the denuded trust fund will be piled high with IOU's. Those IOU's are a charming bookkeeping nicety, but the sheriff who tries to collect on them is truly going to have his work cut out for him.

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.

Of course, the Treasury would have the option of raising taxes to repay the astronomical sums we have borrowed from the trust fund. But that would be a brazen ripoff of working Americans, many of whom will be retirees obliged to pay a second time for the benefits they have already earned.

On the other hand, if the Treasury wimps out and chooses not to raise taxes to reimburse the trust fund, then there will be no alternative but to slash Social Security benefits. The most likely scenario is that Social Security payments would be turned into just another means-tested welfare program for the very poor; if you make more than say, $15,000 per year, then forget about collecting any Social Security benefits.

Any way you slice it, it is a lousy public policy to borrow massively from the Social Security trust fund with no credible plan for reimbursement. Of course, the immediate damage from this approach is that it allows us to mask the true scale of the Federal budget deficit, thus making it easier for us politicians to sit on our hands.

This is a gross breach of faith with the American people. Social Security is perhaps the most successful social program ever enacted by the Federal Government. Without question, it is the most effective antipoverty program in history. Social Security is not charity or welfare. On the contrary, it is a supplementary retirement fund that workers pay for with their hard-earned money.

(Congressional Record: October 13, 1989)


Senator Holling’s proposal to make it unlawful to include Social Security funds in budget calculations was signed into law by President Bush on November 5, 1990 as Section 13301of the Budget Enforcement Act of 1990. http://budget.senate.gov/democratic/laws/budenfact1990cd.pdf

However, Bush continued to loot Social Security in violation of the law.  George W. Bush’s father 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.

Gore made his “lockbox” proposal during his 2000 Presidential election campaign. Bush also promised to keep his hands off Social Security money.  Bush reiterated this pledge over and over, and further cemented it with a statement in his first State of the Union address, delivered on February 27, 2001, in very blunt 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.” 

Well, not surprisingly, Bush broke that promise.  He “embezzled” and spent every dollar of the $509 billion in surplus Social Security revenue generated during his first term, making him the biggest contributor of all to the real Social Security problem.  This looted Social Security money became a major source of funding for Bush’s tax cuts for the rich.  Social Security is $509 billion deeper in the red today because of Bush’s looting in his first term, and he continues to loot the fund to the tune of approximately $438 million dollars each and every day.  


With the surplus drained by recession, last year's $1.35 trillion, 10-year tax cut and the war on terrorism, the president's new budget uses Social Security surpluses to pay for other programs every year through 2013, ultimately diverting more than $1.4 trillion in Social Security funds to other purposes.

This year alone, $262 billion in Social Security funds are to be tapped. In 2003, the budget envisions using $259 billion.