The Social Security payroll tax hike of 1983 generated $2.7 trillion in surplus revenue. The surplus was supposed to be saved and invested in marketable U.S. Treasury bonds, which could later be resold to raise money with which to pay benefits to the baby boomers. If this had been done, Social Security would not have major financial problems today, and it would not be a major political issue.
But, none of the surplus revenue was invested in marketable Treasury bonds, or anything else. The money was all deposited directly into the general fund of the Treasury and spent by the government on such things as wars, tax cuts for the rich, and other government programs. Money can be spent or saved. If it is saved, it can also be invested. But money cannot be both spent and invested. Once money is spent, there is nothing left to invest. All of the $2.7 trillion of Social Security revenue was spent, and none of it was saved or invested.
Contrary to frequent claims, Social Security does not have $2.7 trillion in reserve assets because the government raided, and spent, all of the $2.7 trillion in surplus Social Security revenue. Social Security doesn’t have a reserve to dig into. The money which was supposed to be in the trust fund is gone, and the only way to get it back is for the government to repay the raided money. Social Security has only its annual tax revenue, which has been insufficient to pay full benefits since 2010. The $2.7 trillion, which is alleged to be in the trust fund, no longer exists. The only thing in the trust fund is IOUs, which represent an accounting record of how much the government owes to Social Security. The IOUs are not real assets, and they cannot be converted into cash.
The cost of paying full Social Security benefits in 2015 was $84 billion more than Social Security’s 2015 annual tax receipts. How did the government make up for the gap? It had to borrow the $84 billion from China, or one of our other creditors, in order to pay full benefits. The public has been led to believe that Social Security sold IOUs (“bonds”) to make up the difference. But Social Security does not hold any real bonds that can be sold. Some suggest that the government can borrow the money to redeem the IOUs, but the government’s ability to borrow money is dependent upon the willingness of Congress to raise the debt limit.
If the intent of the 1983 legislation had been followed, there would be $2.7 trillion in “good-as-gold” marketable U.S. Treasury bonds which could be sold at any time. But the actual money was taken and replaced with non-marketable IOUs which cannot be sold. It is time for the American people to demand that the money raided from Social Security be repaid.
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