Once again: The Social Security Trust Fund is neither a fiction nor bankrupt. That is a myth.

[allenwsmithphd]

125. The 1983 Social Security "Fix"

Amazingly, most Americans are not even aware of the Social Security Amendments of 1983, and how they laid the foundation for the greatest fraud ever perpetrated against the American people by their own government. In 1982, President Reagan appointed Alan Greenspan to head up a commission to study Social Security and make recommendations for changes. The Greenspan Commission warned that Social Security would face major funding problems when the baby boomers began to retire in 2010. To avoid those problems, the Commission proposed a hefty payroll tax hike that would require the baby boomers to prepay the cost of their own retirement. Prior generations had been responsible only for paying the cost of their parents’ retirement benefits. However, once the Greenspan recommendations were enacted into law in 1983, the baby boomers were required to pay for theirs parents’ benefits, which was customary, plus pay enough additional tax to prepay most of the cost of their own benefits, which was not customary. The net result is that the baby boomers have already paid for their benefits.

The plan was to save the surplus revenue that would be generated by the 1983 tax increase, over the next 30 years and invest it in public-issue marketable U.S. Treasury bonds, which are the safest investment in the world. If that had been done, the trust fund would today hold $2.6 trillion of “good-as-gold” marketable U.S. Treasury Bonds, which could be sold by the Trustees, in the open market, at any time in order to raise cash with which to pay benefits. It was a good plan, but it was not followed. Because the Reagan income-tax cuts were unaffordable, by 1983, the Reagan administration was desperate for a new source of revenue. It would have been politically difficult for Reagan to have called for a repeal of his income tax cuts, so he found another way to solve his revenue problems. He appointed Alan Greenspan to chair a commission on Social Security solvency. Greenspan was very effective in convincing the public, and Congress, that it would be a noble thing to increase the payroll tax in order to build up a large reserve which could be used to fund benefits for the baby boomers. How could anyone oppose such a tax increase? Is it possible that Greenspan’s later appointment to the coveted post of Federal Reserve Chairman was a partial payback for the role Greenspan played in solving Ronald Reagan’s revenue problem?

There is no way to know whether Reagan and Greenspan intentionally planned for things to work out the way they did, or whether the looting of the trust fund just evolved naturally. But what actually happened to the $2.6 trillion in surplus Social Security revenue, generated by the 1983 payroll tax increase, is indisputable. Every dollar of that money was deposited into the general fund and used for general government operating expenses. None of it was saved or invested in anything. The government simply took the money and replaced it with non-marketable government IOUs that are worthless in terms of paying benefits to anyone. Over the past 30 years, the government has misled the public into believing that those IOUs are real bonds, just like the one’s held by the Chinese and others. But they are not real bonds. They are IOU’s that are an accounting record of the spending of $2.6 trillion in Social Security money which was mostly used to fund the Reagan income tax cut. In essence, taxes paid by working Americans through the regressive payroll tax were used to replace the revenue lost by giving income tax cuts to the very rich.

Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
Email: [email protected]
Phone: [phone]
Website: www.thebiglie.net

P.S. If you would like more information on the “great Social Security theft,” please visit my website at www.thebiglie.net where you can download a free copy of my book, “The Looting of Social Security: New release of the book “they” didn’t want you to read.”