Social Security has serious problems, but it can still be saved, in its present form, if the correct actions are taken. The government must make provisions for repaying the $2.7 trillion debt that it owes to the trust fund. Since 2010, Social Security has been unable to pay full benefits without borrowing a substantial amount of money from China or one of our other creditors. It cannot continue to do that indefinitely.
The Social Security trust fund is empty. The money that is alleged to be in the trust fund has already been spent by the government for non-Social Security purposes. This basic truth has been stated repeatedly by public officials who are in a position to know.
On March 16, 2011, Sen. Tom Coburn, R-Okla., said during a Senate speech, “Congresses under both Republican and Democrat control, both Republican and Democrat presidents, have stolen money from Social Security and spent it. The money’s gone. It’s been used for another purpose.”
House Speaker John Boehner unintentionally let the cat out of the bag on Oct. 6, 2013 when he said on ABC’S This Week, “It’s not like there’s money in Social Security or Medicare. The government, over the past 30 years, has spent it all.”
The government doesn’t have $2.7 trillion stashed away for paying Social Security benefits to the baby boomers. It doesn’t even have enough money to pay full benefits for 2014, without borrowing from China or one of our other creditors. Even President George W. Bush acknowledged the awful truth about the trust fund on April 5, 2005 during a speech at West Virginia University at Parkersburg.
“There is no trust fund, just IOUs that I saw firsthand that future generations will pay — will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs,” President Bush said.
The IOUs in the trust fund are an accounting record of how much Social Security money has been spent for other things. They are not marketable bonds, like those held by China and our other creditors. They cannot be used to pay benefits, and they cannot be converted into cash. The fact that the government spent all of the surplus Social Security revenue on non-Social Security programs is a shocking, almost unbelievable, fact. But still, it is a fact, proven by the federal budget numbers.
None of the surplus Social Security revenue was saved. Let me show you how to verify this fact for yourself. Go to the statistical tables in Appendix B of the 2013 Economic Report of the President. Table B-78 displays data for total government receipts and outlays for each year from 1946 through 2013. The third column of the table presents the actual surplus or deficit for each year.
If the government had saved $2.7 trillion of its revenue for Social Security during this period, it would be clearly visible in the budget numbers. We would see $2.7 trillion more in government receipts than what the government spent for the period. But, when we add up all the receipts and outlays for the period, 1984-2009, we find that the total revenue of the government for the period was $39.7 trillion. The total expenditures for the period were $45.3 trillion.
The inescapable fact is that the government spent $5.6 trillion more than it took in for the years 1984-2009. The government clearly did not save any money during the period, for Social Security, or for anything else. The government spent all of its own revenue, plus the $2.7 trillion in surplus Social Security revenue, plus $2.9 trillion of additional money borrowed from the public.
If the government would repay the $2.7 trillion of debt that it owes to the trust fund, Social Security would no longer have urgent, short-run problems. It would be able to pay full benefits for another 20 years without any other action. But members of Congress have shown little evidence that they plan to repay the looted money, now or ever. Instead, they are advocating cutting Social Security benefits so the looted money will not have to be repaid.
Despite the fact that Congress, the president and other government officials know the trust fund money has been spent, most members of the public do not have a clue. Most people continue to believe that the trust fund holds $2.7 trillion in real marketable bonds. But, the trust fund holds no real assets, because the money has already been spent for non-Social Security purposes.
(Editor’s note: Allen W. Smith, author of “SOCIAL SECURITY: Will It Be There For You?” (http://tinyurl.com/lu5f7aa), has devoted much of his adult life to promoting economic education. He taught economics for 30 years before retiring from Eastern Illinois University in 1998 to become a full-time writer. “Understanding Inflation and Unemployment,” Smith’s first book, became an alternate selection of Fortune Book Club when it was published in 1976. “Understanding Economics,” (Random House; 1986), was used in more than 600 schools in 48 states. In recent years, Smith has focused his research and writing on government finance and Social Security.)