Social Security Crisis: The Trust Fund is Already Empty

WINTER HAVEN, Fla.

Economist and author Allen W. Smith, Ph.D., argues that the biggest obstacle to getting clear debate on the Social Security problem is the misinformation that continues to be spread by the AARP and others who argue that the trust fund holds real assets. "It is amazing how many people, including some Social Security experts, still just don’t get it!" Smith said. "Weisbrot and Baker continue to spread the myth that, ’The Social Security trust fund will have more than $3.7 trillion in today’s dollars in 2018.’ Unless there is a change in policy, the trust fund will not have even $1 of real assets in 2018!"

Smith points out that David Walker, Comptroller General of the Government Accounting Office (GAO), while speaking at a Washington luncheon, co-hosted by Centrists.Org and the Alliance for Worker Retirement Security on January 21, 2005, said, "The left hand owes the right hand, and that has legal, political and moral significance. But it doesn’t have any economic significance whatsoever. There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down."

"If the Comptroller General of the GAO says there is ’nothing of real value’ in the trust fund, then there is nothing of real value," Smith said. "So what happened to the $3.7 trillion that so many people believe will be in the trust fund in 2018, or the $1.6 trillion that is supposed to already be in the trust fund today? The government has ’borrowed’ it and made no provision for repayment of this debt."

The Social Security surplus generated by the 1983 payroll tax increase was supposed to be used to pay down the public debt. This would have been accomplished by purchasing regular marketable Treasury bonds in the financial markets. If this had been done, the trust fund would contain real assets and it would be able to pay full benefits until 2042. However, Smith maintains that President George H.W. Bush began using the money as if it were general revenue, and non-marketable special issue government securities were issued. Smith says that President Clinton continued this practice, so every cent of the Social Security surplus that flowed in under both Bush Senior and Clinton was spent. This misuse of Social Security funds became a major campaign issue in 2000, and both George W. Bush and Al Gore pledged to end the looting. President Bush repeatedly promised not to touch the Social Security money. Finally, in his first State of the Union address, delivered on February 27, 2001, 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."

In casting their votes in the 2000 election, the American people, whether they voted for Gore or for Bush, were voting for a candidate who had solemnly pledged repeatedly that no Social Security money would be used for non-Social Security purposes. Smith argues that George W. Bush violated both that pledge and federal law when he spent every dollar of the $509 billion in Social Security surplus that was generated during his first term. "He continues to violate his pledge, and the law, each and every day as he spends the approximately $400 million in Social Security surplus that becomes available on a daily basis," said Smith.

Smith argues that the Bush privatization proposal is a Trojan horse to distract attention away from the looting of Social Security money. According to Smith, "Bush and Greenspan know that the government will face a major financial crisis beginning in 2018 when Social Security begins to run deficits, and the public discovers that there is nothing of value in the trust fund." Smith believes that "given the fact that Bush acknowledged the looting problem during the 2000 campaign, and made a solemn promise to the American people to end the practice, his misuse of Social Security money is a serious breach of the public trust," and Smith suggests that historians may refer to Bush’s misuse of Social Security funds as "Bush’s Watergate."

CONTACT: Barbara Rugel (863) 206-4431 or Allen W. Smith (863) 206-4292;
email: ironwoodas@aol.com
Website: http://www.lootingsocialsecurity.com

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Allen W. Smith, Ph.D.

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