During the past three decades the American people have been kept in the dark about the true status of the Social Security program. Politicians, from both political parties, give out false and conflicting information on a regular basis, and nobody knows who to believe. At the Republican presidential debate, held in Boulder, Colorado, on the night of October 28, 2015, New Jersey governor, Chris Christie, shocked a lot of people when he said, “Let me be honest with the people who are watching at home. The government has lied to you and they have stolen from you. They told you that your Social Security money is in a trust fund. All that’s in the trust fund is a pile of IOUs for money they spent on something else a long time ago.”
As an economist, who has devoted the past 15 years of my life to researching and writing about Social Security’s financial problems, I was not at all shocked by Governor Christie’s words. He just told it like it is, just as I have been doing for the past 15 years. There is no question about the truth of Christie’s assertion that the trust fund holds no real assets. Anyone can prove that point by simply checking the annual budgets of the federal government for the years 1984 to 2010, when the surpluses ended. These budgets make it clear that all of the surplus Social Security revenue was spent, and none of it was saved. In each year, the government spent all of its general revenue, plus all of the surplus Social Security revenue, and still had borrow money to make ends meet.
Every high-level government official, and every member of Congress, knows the trust fund is empty, and most of them participated in emptying it. But the truth about the trust fund has been kept from the general public for the past 30 years. It is recognized as a taboo subject by most of the media, and anyone who claims the trust fund is empty is ridiculed. Once Christie broke with tradition by telling the truth about the empty trust fund he was the victim of verbal assault by both politicians and many media outlets.
As the government spent the Social Security surplus money, the actual money was replaced with IOUs, which the government calls “special issues of the Treasury.” The public has been led to believe that the IOUs are real bonds, just like the marketable Treasury bonds held by China, and our other creditors. But the IOUs are not at all like the marketable Treasury bonds. They cannot be sold or used to pay benefits. They represent only an accounting record of how much Social Security money has been spent on other things.
In 2015, the cost of paying full Social Security benefits was $84 billion more than Social Security revenue and the gap between revenue and benefit costs will become larger and larger in the years ahead. Since there is nothing of value in the trust fund, the government must borrow the needed money from China, or one of our other creditors, to fill the gap between costs and benefits. The ability of the United States government to borrow money is not without limits. If in a future year the government is unable to borrow the money it needs to fill the gap, Social Security benefits will have to be reduced.
If the surplus Social Security revenue, generated by the 1983 payroll tax hike had been saved and invested in marketable U.S. Treasury bonds, there would be $2.7 trillion of “good-as-gold” marketable Treasury bonds in the trust fund which could have been resold to raise money with which to pay benefits to the baby boomers. But none of the surplus money was saved and invested. Every dollar of the surplus Social Security revenue was channeled directly into the general fund where it was spent as general revenue on whatever the government chose to spend it on. The bottom line is that the trust fund holds nothing of value which can be sold to raise money. The $2.7 trillion, that was supposed to be available for paying benefits to the boomers, was instead looted by the government and spent for non-Social Security purposes.
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