War Against Social Security

KINGSTON, NY, 3 March 2011 — Expensive wars and trillion dollar annual military/security budgets, bailouts and tax cuts for the mega-rich, and high unemployment and a shrunken tax base from jobs offshoring threaten price stability, the dollar’s role as reserve currency, and the financial viability of government in the United States.


These real causes of the federal, state and local budget deficit crisis are being covered up by dishonest pundits and politicians, who have placed the blame instead on retirees and the poor. Social Security and Medicare have been selected as the scapegoats for a sinking economy that has been plundered to the point of collapse by Wall Street and the military/security complex.

Far from being the reason that the U.S. government is bankrupt, the Social Security payroll tax over the years 1984-2009 has contributed $2 trillion more to government revenues than has been spent on Social Security and Medicare benefits, as the U.S. government’s own annual Social Security Reports make clear. The government took the $2 trillion from the Social Security Trust Fund, stuck non-marketable IOUs in its place, and spent the money, thus reducing its need to tax or borrow by $2 trillion over the period.

If we add to this revenue contribution from the earmarked payroll tax the additional fact that this $2 trillion and the $800 billion in interest that would have accrued did not have to be financed with Treasury bond issues, the outstanding federal debt in the hands of the pubic is $2.8 trillion lower today than it would have been. In other words, there are $2.8 trillion fewer Treasury bonds in the market, because the politicians plundered the surplus Social Security revenues. 

Social Security is most certainly not bankrupting the government. The Social Security crisis exists, because the government stole the money in the Trust Funds. For Social Security to continue in the black under the present formula, the Treasury will have to add $2.8 trillion to its financing needs in order to restore the Trust Funds.

The government does not want to add another $2.8 trillion to a $14 trillion public debt that is growing by trillion dollar deficits as far as the eye can see. The government prefers to blame the crisis on “improvident” retirees and the poor and to cut the pension and health benefits for which people paid 15% of their wages during their working lifetime.

Critics of Social Security claim that even if the government repays the money it stole, eventually the Trust Funds will be used up and Social Security would then require a hike in the payroll tax or become dependent on general revenues. This is true only under the current formula that is used to compute the real growth of benefits over time. The formula that is used causes the real value of Social Security pensions to rise too much through time, given demographic and other assumptions. By adjusting the formula to slow the real growth of future benefits, Social Security can remain solvent indefinitely under the current rate of payroll tax.

In 1981 the Treasury had the solution worked out. However, other parts of the government and the 1983 Greenspan Social Security Commission had agendas different from ensuring a healthy Social Security system. One agenda came from Wall Street’s demand for immediate revenues to reduce budget deficits. The government responded by accelerating already scheduled payroll tax increases and beginning in 1984 by taxing the Social Security benefits of retirees with private incomes in excess of $25,000 for an individual and $32,000 for a couple. Taxing benefits is a way of cutting them.

To make a long story short, the 1983 Social Security “fix” produced surplus revenues for several decades, but left the long-run problem intact.

The Treasury’s solution, or a version of it, would still work today three decades later. Regardless, the financial recklessness of the U.S. government still leaves us stuck with a government desperate for revenues and determined to cut Social Security and Medicare benefits in order to divert the payroll tax revenues to other purposes.

The policies of the U.S. government continue to enlarge the number of Americans with nothing to lose. Washington is bringing Egypt and Libya to America.

by Paul Craig Roberts