The Real Crisis		The Trust Fund Contains No Real Assets  There seems to be a major misunderstanding as to what was supposed to happen as a result of the 1983 Social Security tax increases, and what actually happened.  Below are comparisons of “what was supposed to happen” and “what actually happened.”       What Was Supposed to Happen to the Revenue Generated by 1983 Social Security Tax Increase       Investment The funds were supposed to be invested in already existing government securities in order to pay down the publicly-held debt dollar for dollar with Social Security surpluses.  Since current law required that the money be invested in government securities, the closest thing to putting it in the bank was to use the money to pay down the public debt during the surplus years and then borrow the money back when it was needed beginning in 2018.   Long-term Effect If this practice had been followed, the public debt would now be lower by $1.5 trillion, ($5.6 trillion instead of the current $7.1 trillion) and interest earned on the investment would have been reinvested in additional securities held by the public. The federal government would have spent $1.5 trillion less unless they had raised taxes to fund additional spending.  Asset Value If the money had been invested in marketable government securities, the securities could have been cashed in whenever needed without any additional government action. The fund would be truly capable of paying full benefits until 2042. Interest Received on Investment Actual interest payments would have been made which would have been invested in additional marketable government securities.                What Actually Happened to the Revenue Generated by the 1983 Social Security Tax Increase           Investment The funds were not invested in any existing marketable securities.  Instead, the government treated the revenue from the tax increase as if it were new spending authority.  The government used every dollar to fund other spending programs and tax cuts, and not a dollar was paid down on the public debt. Long-term Effect The government spent $1.5 trillion more than it could have spent without the existence of the Social Security surplus.  The public debt is now $1.5 trillion higher than it would have been if the government had not had access to the Social Security money.  Instead of having received real interest payments, the trust fund has only non-marketable special issue securities which are nothing more than bookkeeping entries telling how much interest the government owes (but has not paid) to Social Security.   Asset Value The $1.5 trillion of government special-issue securities which the trust fund holds are non-marketable and thus are worthless until and unless the government at some point in the future decides to repay the money it has “borrowed.”  They cannot be sold at any price.  Beginning in 2018 when the Social Security trust fund will start running annual deficits, full benefits cannot be paid unless the government chooses to begin paying back the money it owes.  Interest Received on Investment The Social Security trust fund has not received a dime in interest payments.  All it has is the bookkeeping entries that tell how much the government was supposed to have paid in interest.  In the truest sense, the money is not really invested.  It has just been taken by the governments and replaced with non-marketable government securities that are the equivalent of a note that a bank robber might leave in the vault telling how much money he has taken.                We, the American people, have been played for fools and suckers by our government over the past two decades.  Every president, and most members of Congress from both political parties, have knowingly and willingly participated in major fraud against the American public for partisan political reasons.  The large Social Security surpluses generated by the 1983 tax increase allowed politicians to spend massive amounts of additional money without having to suffer the consequences of raising taxes.  The true size of the federal budget deficit has been masked in an effort to fool the public.  For example, the true size of the 2004 on-budget deficit (excluding Social Security) is reported by the OMB as $639 billion.  The Social Security surplus for 2004 is $164 billion.  By subtracting the Social Security surplus from the on-budget deficit (a practice that is prohibited by the 1990 Budget Enforcement Act) they arrive at a deficit number of $475 billion.  This is the number that is reported to the public which is $164 billion less than the real deficit.       The points that I am making are not newly recognized facts.  The government has known what it was doing from the very beginning.  We know this because the Congressional Record records the efforts of a few honest members of Congress who repeatedly battled against the fraudulent practices of their colleagues.  Below are excerpts from a speech made on the Senate floor by South Carolina Senator Ernest “Fritz”Hollings on October 13, 1989:   “We arrive at that fanciful…projection only by indulging in enough fraud and larceny and malfeasance to land an ordinary citizen in the penitentiary.  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.  Excess Social Security tax revenues will be $65 billion in 1990 alone—boosted by yet another rise in the Social Security tax rate, slated to kick in January 1.  By 1993, the annual Social Security surplus will soar to $99 billion.   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.  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.    I say it is time to stop playing games with Social Security and the government’s finances.  It is time to use honest budget numbers and to make honest budget choices.  By all means, let us begin by putting Social Security truly in trust and totally off budget.”    These words were uttered by Senator Hollings more than 14 years ago during the early days of the looting.  There is no doubt that government officials knew exactly what they were doing to the future of Social Security by looting those funds.  But they just thumbed their noses at the public and continued their illegal looting.  This makes my blood boil, and I think it would anger most Americans if they only knew what was going on.  But for some reason the AARP doesn’t seem bothered by this atrocity.  In order to fix Social Security, it would be necessary to repeal George W. Bush’s unaffordable tax cuts.  Is it possible that the leadership of the AARP would prefer to keep their tax cuts even if it meant letting Social Security go down the drain?  I hope not, but they continue to refuse to take a stand on Social Security restitution.  Perhaps they need to be pressured by their members.       Why the Government Is Unlikely to Repay The Looted Social Security Money                  Many people seem to be missing the primary point as to why the government is likely to default on its debt to Social Security at some point in the future unless action is taken now.  It is not a question of “will” or “will not.”  It is a question of “can” or “cannot.”  The amount of money that the government would have to pay from its general revenue fund to repay its debt to Social Security on an annual basis just to keep Social Security afloat on a year-by-year basis is staggering.  I can’t see future presidents and Congresses being willing to commit political suicide by enacting massive tax increases to correct problems from previous administrations.  It also may not be possible for the government to borrow the money at reasonable interest rates to pay the huge sums.  As the United States becomes increasingly dependent on foreign lenders to fund our huge deficits, our credit rating in the view of the rest of the world declines.                The data below are taken from Table VI.F9 of the 2004 Social Security Trustees Report—the same report that the AARP cites as proof that Social Security has sufficient assets to pay full benefits until 2042.       Receipts, Outlays, and Surplus or Deficit of the Combined OASI and DI Trust Funds, in Current Dollars for Selected Years (In Billions of Dollars)   Calendar Year Payroll Tax Revenue Total Benefit Cost Surplus or Deficit Action Required by Government in Order for Full Social Security Benefits to be Paid. 2015   973.1   926.8   46.3 surplus  No action required.  Social Security fund will still be running a surplus.     2020 1,213.9 1,299.4   85.5 deficit Government must repay $85.5 billion to Social Security.     2025 1,501.1 1,782.2  281.1 deficit Government must repay $281.1 billion to Social Security.     2030 1,852.1 2,364.0  511.9 deficit Government must repay $511.9 billion to Social Security.     2035 2,285.3 3,032.3  747.0 deficit Government must repay $747.0 billion to Social Security.   2040 2,817.9 3,777.7  959.8 deficit Government must repay $959.8 billion to Social Security.     Source: Table VI.F9. 2004 OASDI Trustees Report   Note that in the year 2035 the government would have to spend $747 billion to pay enough back interest and principle on their debt to Social Security so that full benefits could be paid.  That is approximately 1/3 of the entire 2004 budget of $2.27 trillion which does not contain a single dollar for this soon-to-be line item.  In 2040 (still within the time frame that the AARP says the fund will be able to pay full benefits), the government will have to come up with nearly $1 trillion to pay this new line item.  That is more than double what we have budgeted for national defense in 2004!   When we talk about what the government will or will not do at different time periods, we are talking about different groups of people.  Who will be the president in 2035?  What will be the makeup of the Congress in that year?  This will be determined by the voters who may feel very differently then than voters feel today.   Suppose one political party favors big tax increases in order for the government to honor its past commitment