Make your own free website on
Blog Tools
Edit your Blog
Build a Blog
View Profile
« May 2019 »
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
You are not logged in. Log in
Entries by Topic
All topics  «
The Big Heist: Social Security
Thursday, 3 February 2005
October 10, 1990 Excerpts From Senate Floor About Social Security
Moynihan (Excerpts):

But the fact in the foreground is that in an absolutely unprecedented pattern not known to any modern State of which I am aware and certainly never known to the Social Security System which is now in its second half century--we go back to 1935 for its enactment and back just exactly 50 years to the first check paid under the retirement system--the U.S. Government has begun to use a surplus in the fund as if it were general revenue.

This is not just a small stream of general revenue which could be thought of as incidental for maintenance of a large system. To the contrary, it is one of the primary sources of revenue of the Federal Government.

The trust funds are now rising at approximately $1.5 billion a week, and will shortly be rising at $2 billion, soon $3 billion, then $4 billion a week. They will, in sum, accumulate a surplus of some $3 trillion in the next 30 years.

Three trillion dollars is a sizable sum. The stocks of all the companies listed on the New York Stock Exchange would sell for about $3 trillion.

This money is coming in. It is the largest revenue stream in the history of public finance. One of the extraordinary facts is that it has come upon us almost unawares, and we have yet to make a decision about how to treat these moneys. Today we can begin that decision process. It is, I would like to suggest, Mr. President, a fateful decision, because the integrity of our revenue system is at stake.

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.

The point about these moneys, Mr. President, is that we refer to them as taxes, as payroll taxes, and yet they are not taxes. They are payments, payments into an insurance fund.

We know one thing in particular: President Roosevelt was absolutely determined that the payments made into this system would be credited to the individual who had paid them. Each individual would have an account recording every nickel he and his employer put in, and a passbook in the form of a Social Security card with his or her name on it.
He went in to see President Roosevelt, who was not then surrounded by staff. People could get to see him. A commission 2 years earlier had suggested that the President should have some assistants, up to five, but if a man like Luther wanted to see the old Governor of New York, he would be welcome. Indeed he was.

Professor Gulick suggested that perhaps the time had come to stop levying payroll taxes separately from income taxes.

Gulick said that it is all really one set of finances. Should we not just have one rate and collect it at one time? It would be efficient. Why have two sets of books, two sets of rates of contribution, when one would do?

Gulick went back and wrote a memorandum of the conversation. The President replied. He said:
I guess you are right on the economics, but those taxes were never a problem of economics. We put those payroll contributions in so as to give the contributors a legal, moral, and political right to collect their pension and their unemployment benefits with those taxes in there. No damned politician can ever scrap my Social Security Program.

Roosevelt wanted that money to be identified with the individuals who had contributed it. And that system worked very well indeed.

It was just 50 years ago in January that the first Social Security payment was made. It was probably not entirely accidental that the lady involved was a Vermont widow named Ida Mae Fuller. She had contributed a total of $24.75 in her years, and lived until 1975, collecting $20,000 altogether in benefits.

There was almost an annual check presentation ceremony between the Social Security Administration and Ida Mae Fuller. There is no doubt that this was the largest return on contributions, but to this day persons retiring will get back more in an actuarial sense than they paid in. This is the normal process, a maturing of an insurance system. It takes a long time--about 75 years. We are still a quarter century away from that point.

In the meantime, we have other problems. Social Security benefits for children, an important group in our population, have not been maintained. Since 1970, we have seen children's benefits under AFDC cut by one-third.

But, as our system was maturing, we came upon a surprise--the baby boom. Suddenly, there was an enormous increase in the cohort. It has been the biggest single cause of social turbulance and political change in the last 40 years. To get a sense of the size of that cohort, Mr. President, consider the people between the ages of 14 and 24. From 1890 to 1960, the size of that cohort grew by 10.6 million. In one decade--the sixties--it grew by 11.5 million. Then in the seventies, it grew by an additional 1.1 million. In the 1980's the cohort declined.

A very small group of greatly gifted public servants, who had been with the Social Security program from the first, understood it, and were known and trusted, in the Senate, the House, and the executive branch began in the 1970's to warn that given the baby boom, followed by the baby bust, we were going to be in trouble. We were going to have a ratio of active workers to retired persons, which is too low to handle easily.

That system has been in place ever since. We copied that system, and we knew what we were doing. But then, suddenly, we came into a situation here that was different. We had never had a `baby boom' situation before. So we began to think, in the 1970's, what to do, how to anticipate the event. We decided to go from a pay-as-you-go basis to a partially funded system. When Social Security was enacted in the middle of the 1930's, it was agreed that lots of money should not be taken out of the economy for the purpose of setting it aside for future payment benefits. In a system as large as Social Security, a pay-as-you-go system is the most logical. If Social insurance operated in the way that, say, Metropolitan Life Insurance does, investing its premiums and paying out benefits from the return on its investments, then the U.S. Government would have to own everything. That is how big the Social Security System would be.

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.

Saving is the crux of the matter.

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.

That is a new pattern of time horizon perspective. But we did it. I was a member of the Finance Committee then. I was a member of the committee of conference and signed the conference reports. I would not want to be on oath as to just how fully it had sunk in on me that we had changed the whole basis of Social Security, but we had.

The fact that we had, further was obscured by a very short-term crisis that followed almost immediately, when the funds ran down before the new rates schedules kicked in and increased the trust fund reserve. The funds ran down because of specific events--which is not to say that these events might not reoccur.

You know earthquakes only happen once, but they may happen again.

The events occurred in the late 1970's, after the oil shock, when, for a period of time, prices ran ahead of wages. As far as we know, prices never ran ahead of wages before in our history, and certainly never in our statistical history.

So, in 1972 we indexed benefits. Benefits started rising faster than the contributions to pay for them under the pay-as-you-go financing, and we had not yet kicked into the long run partially funded financing.

Then, Mr. President, we began to notice the surplus. When did we notice the surplus? Well, I do not know that I can say for certain. I think that by 1988 it was getting to be pretty clear, that not only was there a surplus, but also an opportunity.

Barry Bosworth of the Brookings Institution, for example, said, `this is wonderful'. `You have a surplus.' Now save the money, then the savings rates will go up and contributions and investment and interest will go down and the stock market will rise.

The unstated premise of his proposal was that we would have an operating budget that was, in fact, balanced so that the surplus would buy down the privately held debt, there being plenty of it by this time. Dr. Bosworth said get rid of that operating deficit. Save this money, buy back your debt. Get free of the Japanese and the Germans and you will be better off.

On the other hand, sir, in that same hearing, Robert J. Myers, a man of great distinction, who was chief actuary of the Social Security system, and National Commission on Social Security Reform in 1982--came before us a sad, but truthful man. He said, `Gentlemen, go back to pay-as-you-go financing. Because, gentlemen, you are never going to save the surplus.

The old Presbyterian belief, you might say, that temptation is never overcome. The flesh is weak, the spirit notwithstanding. Give it back before it becomes a habit you cannot break.

Well, Mr. President, I have evolved from one who believed in the innate goodness of human nature or the political system, to one who believes in the fallibility of all things human. I began believing that we should keep the surplus and save it. I come to you on this floor and say we are not saving. Elemental justice requires us to give the money back.

We have talked about the extraordinary action we are going to take. We are going to save $500 billion over the next 5 years. The Social Security, surplus over the next 5 years is $496 billion. We are not saving anything, save for that surplus. And that is not general revenue. It is pension contributions.

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:

[Page: S14756]

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.

This was given to us in January of 1989 at the outset of this Congress. The report said, if a current operating balance cannot be maintained and reserves cannot be saved in a meaningful way, then go back to pay-as-you-go once reserve levels reach about 100 to 150 percent of annual outlays.

Under the legislation that is before us today, we would maintain those reserve levels. I can give you the exact numbers, Mr. President,
I ask unanimous consent, if I may do that, that it be printed in the Record at this point.

There being no objection, the material was ordered to be printed in the Record, as follows:

1991 1992 1993 1994 1995 1996
Tax rate (percent) 6.06 5.9 5.7 5.5 5.3 5.1
Cost 1 $3.9 $11.0 $20.4 $31.4 $43.9 $60.0
Fund ratio 2 (percent) 93 110 125 137 146 152
Taxable Max.
Current 54,300 57,300 60,300 63,600 66,900 70,500
Proposed 55,500 60,000 65,400 71,400 78,000 85,500

[Footnote] 1 For fiscal years, in billions.
[Footnote] 2 Reserve at start of calendar year as percent of year's outlays.

With the Social Security tax cut that we propose for fiscal 1991, we will end the year with a fund ratio of 93 percent. The following year it would be 110, then 125, 137, 146, and 152 at the end of fiscal year 1996.

So we will have done exactly what the GAO said to do almost 2 years ago. It said do one of two things: You can balance the current operating budget so that money is saved, or return to pay as you go. That is the advice to the Congress of the Comptroller General.

In the beginning of 1989, the National Economic Commission made its report to the newly inaugurated President George Bush. This was a bipartisan commission, established by statute. Two immensely experienced, able men, Drew Lewis and Robert Strauss, cochaired the bipartisan group. I was a member. Very able men were members: the Honorable William Gray, Lee Iacocca, Lane Kirkland, Dean Kleckner, Paul Laxalt, Felix Rohatyn, Donald Rumsfeld, and Caspar Weinberger; and David Mathiasen, from the Bureau of the Budget, was our executive director.

Mr. President, I do not want to make an issue of it, but we are told that the budget deficit for the fiscal year 1991 is $292 billion and next year it will be $294 billion. Well, on page 36 of the National Economic Commission Report, it estimated that for this year the deficit will be $289 billion, and for next year it will be $293 billion.
We told the President the deficit would be $300 billion as far as the eye could see. We were right. But then we said something else, Mr. President. With respect to the central issue, which was what we would do with the Social Security surplus, we said balance the operating budget, use the surplus to buy down the privately held Treasury debt.

If you do not balance the operating budget do not think you can use the money for general revenues. We said that with great clarity. I made it clear in the report. Shall I read it? I will take the liberty of reading it.

Let no one suppose Congress will much longer allow a payroll tax to be used to service a $2 to $3 trillion debt, owed in vastly disproportionate amounts by wealthy individuals and institutions. It already requires nearly one-half the revenues of the income tax to pay the interest. This surely is the largest transfer of wealth from labor to capital in the history of our political arithmetic.
That is a term of Alexander Hamilton, `political arithmetic.'

But at least this is a graduated tax. By 1992 the trust fund reserves will have reached 100 percent of annual outlays. By 1994 the proportion will reach 150%.

If in the next 5 years no arrangements are made to save the future course of the funds, Congress, you may depend on it, will return to pay-as-you-go financing. This is not a threat.

This is addressed to the President of Congress:

[Page: S14757]

This is not a threat. It is a political reality and, indeed, an ethical imperative. The Nation struggled for a generation to ratify the 15th amendment--

Which is the graduated income tax--

We are not about to see it effectively repealed by a reform in the financing of Social Security.

That is the reform, about which I began these remarks, that took place in 1977. Mr. President, it is all in there. Everybody has been on notice, from the hearings in May of 1988, the GAO report of January 1989, and the National Economic Commission report of March 1, 1989. Then last December, on the last day of December, I went into the Press Gallery. I did not come to the floor. We were out of session. I said, `Very well, a year has gone by.

Nothing has happened. We have not shown any indication whatever that we would like to go to a balanced current operating budget. We are beginning to use these surpluses as if they were general revenues, which they are not. Therefore, I will introduce legislation at the beginning of the next session to return to pay-as-you-go.'

I did just that. I have waited 9 months to bring it to the floor and here we are today. I think that is a fairly orderly sequence of events. There is no surprise. There is every reason to think we might have done better had we taken a different course, but we have not. Indeed, the budget summit agreement announced in the Rose Garden on Sunday, a week or so ago, just counted Social Security trust funds as part of the revenue structure of the Federal Government. That is why people do not trust us.

I have been with this subject now a long time. Employees and employers see what we are doing here with the surpluses. That is why the AFL-CIO supports going back to pay-as-you-go. But none say it with greater vigor than the U.S. Chamber of Commerce. Employers are involved in this as much as employees.

Out in the nongovernmental world, what we are doing is seen as what it would be were it taking place in the nongovernmental world. You cannot take pension funds and use them for other purposes. You would go to jail. Is it any wonder we are not trusted?
The General Accounting Office are our auditors. They are there to speak of matters of propriety, not just efficiency.

There is another reason why we must return to pay-as-you-go. It is an important reason that involves the whole experience of the American workingman and workingwoman in the last 30 years: We are the first generation in American history for which there has been no real growth in income. It is hard to believe.

When I put it this way, I wonder how many people really will believe it. Median family income in the United States today is now back to the level of 1973. But even more striking, average weekly earnings are lower today than they were in the last year Dwight D. Eisenhower was President of the United States.

If I can say just by way of explanation and perhaps even apology, I was Assistant Secretary of Labor under Presidents Kennedy and Johnson and my responsibility was policy planning. The Bureau of Labor Statistics was there to help. So I followed labor statistics. It is just something I have done.
Average weekly earnings is one of those basic figures that we developed to see how factory workers were doing at the end of the week. The other figure we used was average hourly earnings.
This is from a recent report, this chart here, by the General Accounting Office, of average hourly earnings. I said that average weekly earnings are now lower than they were in the last year of the Eisenhower administration. In 1959, gross earnings were $163.78 and the Social Security was $4.09, so you had a $159.69 average weekly earning.

Thirty years go by and the average weekly earning is $154.01, $4 and change less, the difference being that Social Security has tripled.
In 1985 I gave a series of lectures on this, which Mr. Kevin Phillips in his very well received book, `The Politics of the Rich and Poor,' cites. I said:
As for the economy, the great divide that began to open in the early 1970's separating the postwar generation from its successor continued to widen. In 1985, median family income was about what it had been in 1970, down from 1973. This would be the longest stretch of flat income in the history of the European settlement of North America.

Here are average weekly earnings, Mr. President, from the GAO. If we go back, we find that average weekly earnings today are just what they were in the second year of President Kennedy's administration. At that time, wives went to work and people took extra jobs, so family income continued to rise for a few more years. Then in 1973, everything broke down. We still do not have the median family income of 1973. Mr. President, we would get back there if we would just vote for this bill today and start this process.

At least, do not withhold Social Security taxes from wages which have not increased in a generation, simply to pay interest to bond holders in Europe and Asia on the money we borrowed in the 1980's.

If we enact the Social Security tax cut proposal then one two-earner family can, by fiscal year 1996, add $1,500 to their income.

Starting January 1, 1991, just weeks away, we could add $150 annually to the income of the two-earner family. It is not a lot; but it is instant, recognizable, and available cash. That Mr. President, is what this issue is about. That is the decision we are going to make today.

I thank the Chair for his great courtesy and attention. My friend, the Senator from Nevada, is coming to the floor and will shortly be asking to speak.

What I wanted to continue with is this plight of Americans whose earnings have not risen in the last generation. We do not have a word for this, Mr. President. It is not like unemployment, which we have a name for; or recession, which we have a name for. We do not have a name for a generation with no improvement in living standards.

The economists have many explanations, and it is not hard to know what some of them are. Our productivity slowed from 1.2 percent during the 1980's. What this meant was that living standards would double every 50 years instead of 25, which had been our previous experience for the very longest time. But these are wholly new experiences to us. Indeed, now 74 percent of Americans pay more Social Security contributions than income tax.

As Kevin Phillips remarks, at the end of the last decade, people in the bottom 80 percent of income levels lost ground. They did not just keep up and hang on; they lost ground. They know it. It happened to them. They wonder if we know it. Do we know that they know we are spending their Social Security benefits as if they were general revenue?
I will say one last time; Average weekly earnings in the United States are lower today than they were under President Eisenhower. We have no experience of this. We cannot cope with it. We reject it because it has not happened to law school graduates and it has not happened to the liberal arts sorts.

There has been a very clear movement in the highest reaches. When Kevin Phillips writes about the politics of the rich and poor, he is talking about them. And these people are Americans, too, and there are more of them, thank God, as Lincoln said.
It is bad enough that real income has grown by $3 a generation, $3 a week, but we grabbed it back in Social Security contributions, so we are actually $4 and change lower.

That is the makings of turbulence in society. Do not be surprised at some of the turbulence coming out of the American electorate today. These are men and women who see their children are not as well off as they are.

Bob Michael at John Hopkins has done studies of people growing from youth to middle age. He crunched a lot of numbers and asked what happened to the average male who was 25 to 35 in the 1950's, 1960's, and 1970's? Indeed, what did happen? For that male in the 1950's, income went up 117 percent; in the 1960's, 112 percent; in the 1970's, 17 percent. Nothing happened.

I can speak from my own experience after World War II. At age 25, I had subway fare; age 35, I had a stationwagon, a beautiful wife, and three kids. I did not own the car exactly, but I drove it. I knew something happened to me. It was clear. I was a different person.

Today, Americans three-quarters of whom pay more in Social Security tax contributions than in Federal income tax, have not experienced an increase in real wages. We worsen their burden by levying the most regressive of all taxes on their wages, and using the revenues as general revenue.

I see my distinguished friend is on the floor. I will just then wrap up by saying two things. I say again, Mr. President, in January of 1989, the beginning of this Congress, the General Accounting Office recommended either going back to a current balanced budget and saving this money, or returning to pay as you go.

The Natiional Economic Commission report on March 1, 1989, made to newly elected President said exactly the same thing: Get a balanced current operating budget, or go back to pay as you go. We are nowhere near a balanced current operating budget. Indeed. the deficit is $292, $294 billion. By returning to pay-as-you-go financing, we are only doing what we were told we should do under the circumstances.

Mr. President, I express my great appreciation to my colleague and friend from Nevada. He has a quiet, effective way of putting things. I can see why he was so successful an advocate. We are dealing with such elemental issues of trust and the relationship of people to their government. If they cannot trust that, then what can they trust?

We have just had passed out for us the Democratic Policy Committee legislative bulletin. I have to say I am appalled. I really am appalled. I knew our party was in trouble, but I did not know how much trouble. It asks what the effect of this bill will be. It says it will diminish fund reserves by almost $4 billion in fiscal year 1991 and it will diminish fund reserves by more than $170 billion over the next 6 years.

There are no reserves. They have all been embezzled. They have been spent.

Our policy staff, honestly, somehow believe there are reserves. What there are in IOU's from the Treasury. This money has been spent as general revenue, as the Senator from South Carolina says. I prayed for them with the Democratic Party and I hope the Republicans pray for us as well.

I thank the distinguished chairman of the Committee on Commerce. He knows I completely agree with him on the matter of the budgetary arrangements for Social Security. I sponsored his legislation; I think he sponsored ours. I do not know whether we will get to that triple veto or not, but we will not give up, and we may be here when some of them are gone. Sometimes that is the only way to manage these transitions.

Three-quarters of the population pay more in social security tax than in income tax, and we as an institution, a very silent institution in some parts of this Chamber, say nothing.

The Social Security tax is elementally a tax on labor. It hits labor-intensive small industries hardest. If you want to increase the supply of a certain product, you reduce the levies on it.

Michael Boskin, now chairman of the Council of Economic Advisers; Gary Hufbauer; and a whole series of economists have testified that if the social security tax were reduced, employment would increase, and consequently payroll tax revenues would increase. Gary Hufbauer at Georgetown has estimated that returning to pay-as-you-go financing would create a million jobs--1 million jobs--in 4 years' time We will see. What do you say we do it and find out?

There is no one in this Chamber who better understands, represents, and embodies the qualities of integrity, openness and firmness as the Senator from Nebraska. I so much appreciate what he has said. Can I ask the Senator if he is aware of the strong support this measure has from the National Federation of Independent Businesses? Some 500,000 businesses have sent out postcards calling this a key small business vote, because self-employed businessmen and small store operations must pay tax on their labor whether or not they are doing well.

A return to pay-as-you-go financing will impact positively on the success of the small business sector, and they see it. This is not just a matter of working people. It is employers, as well.

The Senator is exactly correct. The proportion is 74 percent. Three quarters of the American people pay more Social Security contributions than income tax, but their Social Security contributions are used as if they were general tax revenues.

Sen. Exon(excerpts)
I strongly support the Moynihan proposal to gradually--I emphasis `gradually'--roll back the Social Security collections for several, but one important, reason: The thievery from the Social Security trust fund must stop, and it must stop now. The American people are just now learning that there is very little trust and very little fund in the Social Security trust fund.

In reality the trust fund is merely a bookkeeping creation to collect more money in one door and immediately spend it out another door. When the grand old generation goes to the Social Security trust fund cash register and opens the drawer, they will find no money as they had presumed, only a very large and ever-increasing stack of IOU's from the Federal Government.

Mr. President, I say it is better to leave Social Security payments in the pockets of working Americans than it is to permit the present larceny to continue for even one additional day. Yes, you will hear opponents of this proposition say it will add to the deficit. What they are really saying is that the trust funds should pay for the day-to-day operations of the Federal Government. What they should say, what they should recognize, and what all should recognize is that this is a ruse.

We have significantly increased the taxes on the working people of America, not to make Social Security solvent in future years, but to fool them into the belief that they are paying into a trust fund when in actuality it is just another very regressive form of taxation that is not being employed for the purpose for which it was assessed.

Mr. President, the American people must understand that there is no surplus in the Social Security trust fund; just a pile of IOU's. The so-called surplus in reality is a deficit. It is a deficit which working men and women will be asked to repay with interest 10, 20, and 30 years from now. When the Social Security trust fund was created, it was designed to operate on a pay-as-you-go basis. That is the way it should be run today. If it were operated as intended, current and future retirees would not be adversely affected. They are very critically being adversely affected under the present system. In fact, their interests would be strengthened because the ability to spend the trust funds on the day-to-day operations of the Government would be limited.

In like manner, workers will benefit because the 1990 tax increase can be rolled back and future increases will be made unnecessary until at least the turn of the century. The ability to meet the long-term future obligations of the Social Security trust fund depends entirely on the future prosperity of this Nation. Borrowing from the trust fund today only guarantees general tax increases in the future to pay for the long-term interest-bearing bonds created by the current practice.

The Moynihan tax rollback plan will not only strengthen the system, but it will also end the game of hide the deficit. Much has been made this week of the record $300 billion deficit that the Nation faces in this fiscal year. Mr. President, over and over and over again, the American people are being told a lie as to what the real deficit is.

You will remember just in January of this year the President came forth with his budget proposal to the joint session of Congress. He had a plan that would get us down somewhere around a $64 billion deficit by the end of the fiscal year. Then shortly thereafter, when a degree--I emphasize `a degree'--of responsibility and honesty set it, well, maybe it would only be $100 billion. Then it crept up to $180 billion. Just a few weeks ago it was raised to $300 billion, which is a common phrase that we hear today. Indeed, the President, in his most recent address to the Congress, set it at $232 billion. That was a matter of 40, 50 days ago. It has gone from $232 billion now up to $300 billion.

But, Mr. President, none of these figures could be further from the truth. It is another reason that at least we should not fool the people by proceeding with this proposition that somehow, through tomfoolery and embezzlement, they are being unfairly taxed, told that it would save the Social Security system in the future, when actually the money is being realistically treated just as any other receipt of the Federal Government. It would be more honest and straightforward to have adjustments made in the Tax Code, if that be necessary, rather than to continue with this tomfoolery and dishonest practice.

Approving the Moynihan proposal is the first step toward fairness for the working people and security for the seniors, a strengthening of the trust fund and at long, long last fiscal honesty in budget and financial policies of the United States of America.
Let me ask this question, it may be that the Senator from New York has touched on it. I believe, though, that we have accurate information that indicates the dishonesty of this whole practice, and the regressiveness of the present system by the fact that a very, very high percentage of the people in the United States today pay more in withholding taxes than they do in income taxes. That is directly opposite to the intent of Social Security.

Sen. Sanford(Excerpts)
Certainly the first way was simply to take Social Security off budget, to build a protective wall that would prevent Social Security from being used as if it were general revenue. I introduced legislation to do this several years ago.

Then I incorporated this concept in a broader bill, S. 101, that would require a separable accounting of all retirement funds. And now, the distinguished Senator from New York has come up with the idea that we ought to take a new approach and return the program back to pay-as-you-go.

It was hard for me to understand why it is difficult to sell other Senators on this concept and why it was virtually impossible to get the administration to support the thought that we might be doing something wrong in the way we handle Social Security funds. They fundamentally disagree with my concepts and, I think, the concepts historically of what Social Security is.

The administration talks about how much we have increased taxes over the last 10 years--how tax income has grown. They claim that we have plenty of taxes and taxes are increasing. Obviously, they are not talking about taxes for general purposes; they are counting Social Security taxes as if they were general revenue. So the whole mindset is wrong--the mindset that the Social Security payroll tax is just another source of general revenue tax income for another entitlement program.

By the strict technical definition of entitlements in that somebody is entitled to something, it is indeed an entitlement. But using the word as it is generally used in budget matters and politically, it means something we are providing as a grant from the Government. Food stamps, for example, is an entitlement based on need.

Social Security is not based on need. It was not conceived as a program handout and the payroll tax was not conceived as just another tax for general purposes. The notion is wrong that we can hold it back, hold it up, cut off COLA's, because this is just another Federal grant program; not so.

The distinguished Senator from New York does not really go back quite as far as I do. I campaigned for Franklin Roosevelt. I remember very well the creation of Social Security. I remember the despair that people had prior to Social Security as they looked to old age, dependent as they would be on children or dependent on charity or dependent on what we then called the county home where people without any income and without family were sent.

All over my State were old county homes. They have long since been converted into art centers or child care centers or into television stations or something useful. But they existed before the enactment of Social Security.

We got away from all that despair with Social Security. I remember the hope, the promise that older people would no longer be living in the kind of poverty that we saw in the 1920's and 1930's, before Social Security.

As we look at the sweep of history and the tremendous advances of new deal legislation, Social Security may very well be the most remarkable piece of legislation to come out of Franklin Roosevelt's remarkable administration.

So this is not a charity program funded by a general revenue tax. The payroll tax is, by all definition, a premium paid for retirement benefits, and the benefits received are not handouts. Social Security is just as sound a policy for retirement as a one you might have bought from the Metropolitan Insurance Co. It is a retirement policy.

So we need to change this concept that this is just another Federal program; that we can take Social Security funds and spend it the way we want to spend it; we can do what we want to with the benefits of Social Security.

This is a retirement program and it has to be treated as a retirement program. We can no longer misuse Social Security trust funds just for our own convenience. We have deceived the public with budget trickery long enough. Fundamentally, what we have to drive home with this legislation and other legislation is that it is time to be honest in Government in the way we treat our funds and our budget accounting.

Using the trust funds of Social Security to mask the true size of our deficit is bad enough, Mr. President, but we do not stop at that. We carry the deceit even further. We spend the money, all of the reserves building up in the Social Security trust funds intended to help pay for the baby boomers' retirement, we use all of that for general revenue purposes. Taxes paid into Social Security trust funds by hard-working people throughout the country, taxes they believe are being held in trust for their retirement, are actually being spent for general revenue purposes, just as if they were general purposes taxes.

To add insult to injury, we do not pay that money back to the trust funds. Instead, we leave IOU's that will have to be paid in the future when the amount of benefits being paid exceeds the FICA tax being collected.

Under this scheme, many of our young workers are paying for their Social Security retirement today, more than they need to pay, money they could be using for other purposes, as a hedge against an uncertain future. They are paying in today and they will pay again later in order to put that money back so they can draw their benefits.

This is a pay-now/pay-again-later policy. This is the policy that the administration is trying to protect in opposing this legislation.
The Federal Government, as hardly need be said, is running a deficit, running a debt. That debt is now climbing to $4 trillion. We do not have any money in the till to pay back the Social Security reserves that we have spent and continue to spend.
Is this thievery? It is close to it. Some take issue with the use of the word thievery and with the word embezzlement when describing our use of Social Security reserves.

It is. If a private corporation used its retirement pension funds to pay operating costs and substituted IOU's, it would bring down the wrath of the SEC and the employees concerned would go to prison, and ought to.

We make the laws. We allow this type of accounting. We allow this type of embezzlement, if you will, in the Federal Government. We have not yet declared it illegal. I think we should, and I think we will with the legislation.

The time has come to account properly for all Federal expenditures and receipts. We are not handling any of the Federal retirement trust funds in an honest manner. Honesty is a very simple proposition. Every person in America ought to understand honesty. We are not being honest. We are being deceitful in simply not telling the truth. We are piling up IOU's all of the time, IOU's in all Federal retirement programs now totaling more than $650 billion. Money we owe, but we do not have the money to pay back.

I have also wondered, if I might put in a parenthetical, not only should we take retirement funds off budget, not only should we build a protective wall to keep greedy hands from reaching into this reserve funds, not only should we make Social Security a pay-as-you-go proposition, but I do not think we ought to leave much of this money in Government bonds. Other countries have taken other approaches.

I cite an example of my own experience. A university with its endowment funds would not think of putting all of its funds in any one kind of security, let alone Government bonds. They spread out the risk. It is a peculiar thing that people probably do not stop to think about, how secure Government bonds have been and probably still are. But there is nothing behind a U.S. Government bond except the right to tax.

State bonds, municipal bonds, I suppose corporate bonds have collateral behind them. We do not have that in the Federal Government. We simply have the right to levy additional taxes.

So I would hope we could look down the road at a broader, sounder, more rewarding, investment policy for Social Security trust funds, that we will hold in trust for the beneficiaries. I think that is a good idea down the road. But first, ought to get rid of all of our damaging, deceptive accounting gimmicks and stop the improper use of these funds and be fair to employees and employers who pay the Social Security payroll tax.

We should enact Senator Moynihan's bill. We need only a safety net, a cushion of reserves of 18 months, to make certain that the program is secure. We cannot properly account for and protect Social Security surpluses; we cannot do it. We are spending it improperly with no way to pay it back. Therefore, it only makes sense, it is only fair play, to cut off the excess and to make Social Security a pay-as-you-go plan.

Mr. President, Social Security as we know it today, as I said earlier, is a pay now, pay again later retirement plan. We would be far better served with a pay-as-you-go retirement plan. No one should be comfortable in continuing to pretend that we are saving for the future. We are not. This is the point Senator Moynihan is making with his proposal to cut the Social Security payroll tax. If we are not going to save it for the beneficiaries, if we are going to continue spending it for general revenue purposes, we should roll back the payroll tax, lift the tax burden from the young working men and women and for the companies for which they work.

It is for this reason, Mr. President, that I am delighted to be a cosponsor and supporter of Senator Moynihan's proposal. I certainly hope that we will all understand that the time for action is now.

Sen. Reid(Excerpts)
Mr. President, I have listened to the discussion of the senior Senator from New York today on a subject that deserves attention. As a result of his activity in these past many months, we are not focusing on a subject we should have focused on a while ago. I appreciate the work done by the Senator from New York on this legislation.

I would like to talk about the Social Security trust fund in a number of other difficult perspectives for a few minutes this morning.

The Senator from New York has done an outstanding job talking about his legislation and the overall history of Social Security.

I practiced law before coming to the Senate. Like most attorneys who have an office practice where they deal with clients who have problems, I had a trust fund set up for my clients. If there were ever a time where money came into my office that was my clients' money, that money had to go into a trust fund.

Mr. President, before that money was distributed out of that trust fund, we had to make sure that money went to the client. That money could not be used to make car payments for me, house payments for me, or buy a present for one of my children. That money could only be used for the purpose for which it was placed in that trust fund.

The same basic rule should apply to the Social Security trust fund. Those moneys should be used only for the purpose for which the money is collected. If, when I practiced law, I violated that trust, I could be subject to disbarment. I could be subject to administrative procedures being taken against me by the Bar Association. In fact, I could be criminally prosecuted by the district attorney.

In the instance of the Social Security trust fund, those moneys are used for purposes other than for Social Security recipients, and that is wrong. But here in Congress, we have become pretty careless and callous in what we do with trust fund moneys.

We do the same thing with the highway trust fund moneys. Five cents from every gallon of gas that we buy goes toward a trust fund for roads, highways, and bridges, but in fact we do not use that money for those purposes. We have violated that highway trust fund and used those moneys for other purposes; namely, to make the debt look smaller, just like we use the Social Security trust fund moneys. That is wrong. We should not do that.

That is what this discussion is all about. 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 President, who is a party in this violation of trust, along with Members of Congress, is not being brought before a Bar Association for purposes of disbarment or some type of administrative remedy.

There is no prosecuting authority saying, Mr. President, what you have done is illegal. But the fact is it is wrong; what has taken place is wrong.
Mr. President, I also want to talk about some other part of this legislation that is I think a problem as it relates to seniors. There is not a town hall meeting that any of us hold anyplace in the United States, there is not a gathering that takes place where there is a single senior citizen present, that the words, `notch babies' does not arise.
Claude Pepper was the congressional advocate for changing this problem. But since his passing, there really has not been a lot of discussion in these Chambers about the notch inequity.

I recently introduced a bill to address a problem separate and apart from what the Senator from New York has spoken of and separate and apart perhaps from the problem that I discussed about the violating of the trust funds. It is a problem that is in keeping with how Social Security moneys have been handled. This is the so-called notch inequity.
Mr. President, like many of you and your constituents, I have been frustrated that Congress has failed to act year after year to address this glaring inequity in Social Security benefits of those born between 1917 and 1926. I introduced my legislation with the intent of bringing the notch issue before the Senate for a vote.

I am pleased that there are a number of other Senators who share my sentiments and will at an appropriate time offer an amendment to solve this notch inequity. I believe the amendment that will be offered, modeled after a bill that Senator Sanford originally offered, S. 1212, offers a reasonable and a responsible solution to the notch issue.

When the notch babies worked and paid into Social Security, they were promised, like everyone who paid into the trust funds, they would be treated equitably. Yet, these 7 million Americans born between 1917 and 1921 are not being treated fairly and certainly not equally.

No one, I believe, Mr. President, in their right mind can justify radically different benefit checks for two people who have identical earning histories yet happened to have been born a day apart, one in 1916 and one in 1917. In some cases people received hundreds of dollars less than someone a day or a week older for no other reason than having the wrong birth date in the wrong year.

This is not equal treatment under the law. It is outrageous and I really believe un-American. The 1972 Social Security amendments changed the way Social Security benefits were calculated. The intention of Congress, I believe, was good, to see that benefit levels compensated for inflation. However, the changes were too drastic and would have resulted in people earning more in Social Security than they did before they retired. This problem would have driven Social Security into bankruptcy.

Five years later, in 1977, Congress again tried to fix the Social Security benefit formulas. Again, the measures taken were too extreme. But remember, in 1977, this was at a period of time when people were beginning to think that the Social Security trust fund was going to go broke. It was not until 1983 that President Reagan, Claude Pepper, Senator Moynihan, and others got together and fixed Social Security.

In 1977, Congress again tried to fix the Social Security benefit formulas, but, I repeat, the measures taken were too extreme. The intention at that time was to reduce benefit levels by 6 to 10 percent for those born after 1916. A gradual 5-year transition was created. The first group affected by the change were those born between 1917 and 1921--people retiring between 1979 and 1983. That was the cut--1917 to 1921, and these are the people we call `notch babies.' In fact, those born after 1921 suffer as well.

But what went wrong in 1977? Again, faulty benefit formulas. The reductions were severe--not the 6 to 10 percent that was the goal. Many retirees suffered reductions up to 20 percent.

When someone is living on a fixed income, a 10- to 20-percent pension cut can really be a disaster. It is the difference, literally, between being able to buy groceries for every meal that month and not having money for a meal every day that month. It is not having enough money to pay, for example, a heating bill on time. It is not being able to take a bath when you want one because you are afraid the water bill and the heating bill to heat that water will be too high. You cannot pay the water bill sometimes.

In short, it is the difference between living with dignity and suffering in silence because nobody cares and Social Security does not make up the difference. That is what affected Social Security beneficiaries say at our town hall meetings.

So I rise today to advise the Senate that legislation is necessary to reverse this discrimination, and that legislation will be forthcoming. This legislation would return benefit levels to where they were intended to be. It would eliminate those severe reductions of 10 to 20 percent and bring them in line with what Congress intended--a mere 6- to 10-percent reduction.
I wish that we could replace all the missed Social Security earnings of the past 11 years, but there are people who say, and rightfully so, the system does not have the money to pay 13 years' worth of earnings to all retirees.

Keep in mind, if the moneys that are pouring into the Social Security trust fund were kept in the trust fund and not used for other purposes, there would be money for that.

The legislation would offer, however, a one-time payment of up to $1,000 per family to help cover the losses incurred under the current faulty benefit formula. The trust funds certainly can bear this limited reimbursement. The solution that will be offered by this legislation is simple, it is reasonable, and it will not bankrupt the system.

Remember, moneys are pouring into the Social Security System, as the Senator from New York has indicated. The legislation that we will offer subsequently will provide an alternative transition formula that more equitably returns benefit rates to a stable level. Many Social Security beneficiaries born in the years 1917 to 1926 will receive a bigger monthly Social Security check, and rightfully so.

In every instance this increase will not be very much, but not much can still mean a lot to those on fixed incomes. The increases are not much to those of us who have good steady incomes, but to that senior on a fixed income, as I indicated, it could be money for food, prescription drugs, medical bills, and may other necessities.

The cost of this proposal can be borne by the Social Security surpluses. By 1992, as has been indicated today, unless the current system is changed, the surpluses are expected to reach $350 billion at least. The notch legislation that will be offered will cost approximately $50 billion. Remember, it is no new tax. This would be over a 10-year period. Surely, we can see fit to use a small amount of the trust funds' tremendous resources to address this inequity.

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 follow closely the legislative activities generated by the Senator from New York. This is a debate that has been long overdue. But for his forceful advocacy of changing business as usual, we hear about business as usual.

I heard the President of the United States Saturday morning talk about how we do not want business as usual. Well, I say to you, Mr. President, through you to the President of the United States, we do not want business as usual with the Social Security trust funds. And that is why we are here. That is why we are here to talk about some of the inequities that have taken place in this country by using Social Security trust fund moneys for purposes other than for which they were intended.
I go back to when I practiced law. As I have indicated here already, had I used those trust fund moneys in my law business for purposes other than for which they were intended; namely, my clients, I could be subject to criminal prosecution, administrative proceedings taken against me by the Bar Association, and maybe even disciplinary action.

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.

Posted by ignorantusa at 1:54 PM EST
Post Comment | Permalink
Friday, 21 January 2005
Embezzling The SS Trust Fund
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.

On October 9, 1990, Senator Moynihan said this in a speech on the Senate floor, 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."

Congressional Record: January 9, 1990-Senator Moynihan

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. 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-Senator Heinz

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."

(Still quoting Sen. Hollings)
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.

Congressional Record: October 13, 1989-Senator Hollings

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.

Posted by ignorantusa at 3:27 AM EST
Post Comment | Permalink

Newer | Latest | Older