Will the Tax Deal Kill Social Security?

So this could be a pourposeful plot to distroy Social Security, undercover of giving us a break. A plan to cause it real fiscal trouble.
And doesn’t it always seem that when fixing Social Security is mentioned, the fix is always to reduce benifits in one way or another

Mr. Gandel said, “The truth is Social Security is not nearly as deep in the red as many people think. The federal program used to fund itself and then some through the payroll tax. That mostly ended this year when it had to dip into its trust fund for $40 billion to help pay benefits.”
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FICA does not pay for Social Security. In a monetarily sovereign nation, taxes do not pay for spending. The U.S. is monetarily sovereign. If taxes fell to $0, this would not affect by even one penny, the federal government’s ability to spend.
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The so-called “Trust Fund” is an accounting fiction. The government spends by creating money ad hoc, which it can do endlessly.
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Because the federal government has the unlimited power to create dollars, it never can go bankrupt. And because the federal government cannot go bankrupt, no agency of the federal government can go bankrupt, unless Congress decides to let that happen. Neither Social Security nor Medicare could run out of dollars, even if FICA ended (which it should).
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The federal government is not like you and me. It cannot be judged by the same financial standards as you and me.
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Rodger Malcolm Mitchell

By the way, here are Ten Reasons to Eliminate FICA.
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Rodger Malcolm Mitchell

The more you look at the tax cuts the more you realize they are anything but good for the country. The only thing in the package that is stimulative, really stimulative, are the unemployment benefits. Everything else is an argument for Republicans to cut spending and benefits or hold the nation hostage.

Haven’t we been hearing about the demise of Social Security for the last 30 years? I’m confident the politicians will continue to find creative ways to keep the older voters happy.

Steve
http://www.TheChinaBusinessGuide.com

We should start by creating a sinking provision…. Wait wasn’t that they plan before our great politicians pushed it out into the general revenue?

We get it man! The Fed through the Treasury creates digital blips into infinity if they wanted to do so!

Oh yeah, they call it QE2!

SS is the only government program that actually pays its way. You stay away from it. The rest of the government borrows from it and are not self supporting. I have been paying in to it for 50 years and it would be like my annuity suddenly saying well sorry that is it. We quit paying out and oh ya thanks for all the money you put in. it would be like me stopping my business while it is still paying its way. Then I would have to go on the dole or borrow. If you are going to stop something stop the military or some such. We do not need to be the world cops anymore. Oh but of course I forget the military industrial complex has more power then the average SS payee.

by substituting the payroll tax cut for the making work pay tax credit, those families making less than $40,000 annually will actually get less of a tax cut than they did these past two years…on the other hand, those making over $95,000 who were ineligible for ‘making works pay’ will now get that extra 2% cut..

Time For Politicians to “MAN UP”

When two party agreements are entered into, the agreement’s success hinges on both parties living up to their end of the bargain. Today we’re having the wrong conversation regarding Social Security. President Reagan signed SS reform legislation in 1983 that created an agreement between the people and their government. At the official signing of the agreement, the President said, Social Security is “fixed for the next 75 years” – Remember? As per that agreement millions of average hard working Americans began overpaying their SS taxes by billions of dollars annually so another SS crisis conversation in 2011 wouldn’t be necessary – Remember?

More than likely you’re one of those hard working Americans who’ve generated 12.4 cents for the SS trust fund for every dollar you’ve earned. Remember the financial sacrifices this agreement caused you and your family to make? In spite of significant financial sacrifices and pain, you kept your end of the bargain – Remember? Now politicians are suggesting those same hard working Americans should sacrifice again by raising the SS retirement age, and adjusting future SS benefits. Wouldn’t you agree the other party to this agreement should start doing a little sacrificing by living up to their end of the bargain? The other party benefitted when 2.54 trillion dollars of potential SS trust fund retirement dollar assets were transferred from the SS trust fund to the general revenue fund, leaving behind 2.54 trillion in new debt. Politicians have used the people’s sacrificial retirement dollars to subsidize corporate and income tax rates, fund tax cuts, pay for wars, and mask the true size of annual federal budget deficits among other things. If a deal really is a deal, then the other party to this deal should “MAN UP” by living up to their end of the bargain.

This Social Security dialogue is not one working Americans can afford to ignore, this conversation must begin anew. The talking points must be fair and balanced and to the point, and the point is; working Americans have kept their end of the deal, now keep your end, and until you do, don’t ask us to sacrifice again. It’s time for those who’ve ridden the backs of average working Americans to their prosperity to “MAN UP” and fulfill their obligations. The “MAN UP” plan: http://www.slideboom.com/presentations/265156/Man-Up

When they show us the Pie diagrams of tax expenditures there we see Social Security /medicare eating up a big portion of the pie.
But it’s a dishonest representation because they mixed
in Social Security which is a program paid for it self specificaly for that pourpose, Another way they like to lay guilt down.
Alan Simpson a chair person on the deficit commision was interviewed in the hallway between meetings by a persistant reporter who asks the question about the surpluses for Social Security. Simpson reluctantly agreed on the surplus but that it has all been spent its gone. He said we would have to borrow money to pay back the borrowed SS funds.
So the real problem is they do not want to borrow money to pay back social security but what about other loans outstanding? Will they pay back Treasury Bills purchased say by China? That of course is untouchable.
Obama put togeather this commison with a good idea of its findings.Its Obamas design, he is going to cut Social Security and Democrats will make flowery impassioned speeches against it but enough of them will vote yes for it to pass.
Obama needs to go.

I know this is counter-intuitive, but federal taxes do not pay for federal spending. Even if federal taxes were $0, this would not affect by one penny, the federal government’s ability to spend.
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FICA does not pay for Social Security benefits. FICA could be eliminated tomorrow, and the government could pay for double the benefits.
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There is a fundamental difference between the federal government (which is Monetarily Sovereign) vs state and local governments, businesses, you and me (none of which are Monetarily Sovereign). Failure to understand that difference makes these discussions sound like debates about how far a ship must sail before it falls off the edge of the world.
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Rodger Malcolm Mitchell

Am I the only one that sees this is a set up by the republicans to start cutting into social security reserves. Approve the tax break for the wealthy that increases the deficit 800 billion and then go into the new congress wheeling the AX to reduce the deficit and cut spending by cutting social security benefits.
I worked 40 years and along with my employers contributed to the plan. I want my money and I will get it.

No your not the only one to see it. But it would be a mistake to think the Democrats won’t sell you down the river too.
Last nights vote in the house on the tax issue 139 Dems voted with 138 Reps. to pass it. They went with Obama the head Democrate. No longer do I view him as pulling out a trump card and saving the day at the last minute. I now expect him to do the wrong thing, he will have to prove me wrong to change my mind. The whole scene now seems to be like the good cop/ bad cop act.
He could be beaten in a primary easily with the right candidate, don’t know now who that could be.
Obama seems to be heavily influenced by the governing practicality of the Clintons, and they appear to have bonded.
When Clinton was faced by Republican majorities he sided with them, NAFTA and welfare reform both conservative Republican agendas.
As of today Democrats still hold the majority in both house’s and yet this is the best he could do?
Times coming to throw the bum out.

I feel better having read all the SS support. Thank you. Now if i go down the tube I will know I have company on my side. If D.C. wasn’t so far way even I could be convinced to march!

Not the smartest thing to do, but given that SS is a Ponzi scheme whose end is in sight, I won’t be donating my newly acquired largess to the Government — I’ll be putting it into my own tax-deferred retirement funds.

So exactly where do our tax dollars go? Last I looked, they go into the Treasury, and then, according to you, they just sit there?

Er, what’s all this about Social Security’s “reserves”?

The SS “trust fund” consists of government debt; the reserves are an accounting fiction. FICA taxes go into the general revenue pot, and Social Security payments come out of it. The presence of absence of an accounting “reserve” makes no difference whatsoever to the government’s cash flow position.

The “Fair Tax” bill HR 25 addresses all of these concerns. It would be nice if Time Magazine did an in depth report on the “Fair Tax” that has been stuck in committee for the past 10 plus years. Seems as though Congress loves to dither with the tax code and we are all fools allowing them to take our income before we get it.

unclesmrgol,

Federal tax dollars are destroyed upon receipt. They are not saved or stored anywhere, and certainly not used for spending. By contrast, state and local tax dollars are saved in whatever bank the state or local government uses, and later are available for spending.
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Example: Let’s say you decided to pay your federal taxes with paper dollars. You send the dollars to the federal government, which inspects them. Those that are not in excellent condition are destroyed. The excellent ones are sent to the Federal Reserve Bank for distribution.
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Contrast this with state and local governments. Send them paper dollars and they will deposit all of them — dirty, torn, stained, whatever. They will not destroy any of them.
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Why the difference? The federal government is Monetarily Sovereign. It alone has the sovereign power to create unlimited amounts of money, and so has no need or use for tax money.
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The spending of a Monetarily Sovereign nation, is not constrained by taxes or by borrowing. It is constrained only by inflation.
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Rodger Malcolm Mitchell

A Ponzi scheme pays earlier investors with money deposited by later investors, and eventually runs out of money when it runs out of investors.
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Social Security is not a Ponzi scheme. It does not pay with “investors” money. That is, it does not pay with FICA taxes. And it cannot run out of money.
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If FICA were zero (as it should be), this would not reduce the federal government’s ability to support Social Security by even one cent.
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The federal government is Monetarily Sovereign. It cannot run out of money simply because it has the unlimited power to create money. Because the federal government cannot run out of money, no agency of the federal government can run out of money, unless Congress wills it. Social Security and Medicare, the two agencies frequently mentioned as being “in trouble,” will not run out of money unless Congress specifically cuts off the funds.
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To understand economics, one must understand Monetary Sovereignty.
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Rodger Malcolm Mitchell

The only reason this bill went through was the extension of unemployment benefits that was attached. I hate the way our Congress tackles some business.

I had to leave the workforce three years ago after many, many years (and I hate not working!), and now draw SSI Disability Income. I sincerely thank the USA for that!

I do not believe Social Security is in immediate danger, but we need to continue to make sure it is funded and provides for those in need. Most of us aren’t where we are because we want to be; we have no choice.

The “baby-boomers” are getting older, and we have to be ready. Keep your support behind Social Security!

“But even on its current course it will still be another 27 years before Social Security exhausts its current reserves and will actually be in financial trouble.”

This statement is true ONLY in theory. It would be true if the government had saved and invested the $2.5 trillion in surplus revenue, generated by the 1983 payroll tax hike. BUT THE GOVERNMENT DID NOT DO THAT. For the past 25 years, the government has diverted every dollar of surplus Social Security revenue into the general fund and spent it on such things as tax cuts for the rich, two wars, and other government programs. The IOUs in the trust fund are non-marketable and could not be sold to anyone, even for a penny on the dollar. In the Summary of the 2009 Social Security Trustees Report, a single sentence, buried deeply within the report, spills the truth about the so-called “trust fund bonds.” That sentence reads:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

The IOUs represent a claim against future tax collections–nothing more. Beginning in 2015, the cost of benefits will exceed payroll tax revenue, so the government will not be able to pay full benefits unless it raises taxes or finds some other source of revenue with which to begin paying back the money it “borrowed” from Social Security and spent on other programs.

The government was supposed to have saved the surplus Social Security revenue and used it to buy real public-issue, marketable Treasury bonds in the open market. If that had been done, the trust fund would hold $2.5 trillion in “good-as-gold” marketable Treasury bonds that the S.S. trustees could sell as needed to pay full benefits to the baby boomers. But, instead of following the intent of the 1983 legislation, greedy politicians “borrowed” or “embezzled” (whichever word you prefer) the surplus money and used it as a giant slush fund for anything and everything.

I have been trying to alert the public to the great Social Security scam for more than a decade. I have now been warning about the Social Security fraud for longer than Harry Markopolos tried to warn the SEC about Bernie Madoff’s giant Ponzi fraud. If the SEC had listened to Markopolos when he first warned them, thousands of individuals and charitable organizations would have avoided being swindled out of billions of dollars, and Madoff’s son would probably still be alive. Similarly, if I had been taken seriously when I published my first book on Social Security and appeared on CNN to sound the warning in 2000, and the looting had been stopped in its tracks, the trust fund would today hold approximatley $1.5 trillion in real Treasury Bonds.

Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
Website: http://www.thebiglie.net
Email: ironwoodas@aol.com
Phone: 1-800-840-6812

I first stumbled onto what I call the great Social Security scam more than ten years ago, while doing research for my book. “The Alleged Budget Surplus, Social Security, and Voodoo Economics,” which was published in 2000. On September 27, 2000, I appeared on CNN Today with anchor Lou Waters, to discuss the book. I was so naive at that time that I thought that, once I exposed the fraud on national TV and through my book, there would be a public outcry against using Social Security revenue for non-Social Security purposes and the practice would come to an abrupt halt.

When I explained to Lou Waters that Social Security money was at that time being spent on other programs, instead of taking me seriously, he seemed amused. Finally, he asked me, “Are you a voice crying in the wilderness?” As things turned out, I was a voice crying in the wilderness in 2000, and I continue to be such a voice three books and a decade later. During most of my decade-long crusade, I have been treated about the same as I would have been if I were claiming to have taken a ride in a purple UFO with little green men. I have been ridiculed and called a “chicken little,” and other choice names. My book “The Looting of Social Security which was published by a New York publisher in 2004 was mysteriously pulled from the market several weeks after I appeared on CNBC and publicly criticized Fed Chairman Alan Greenspan. I was one of two invited guests on the morning CNBC news program, to respond to Greenspan’s call, the previous day, for cuts in Social Security benefits. I held my book in front of the camera and said, “Alan Greenspan should be ashamed of himself for what he is not telling the American people.” In so doing I apparently drove the final nail into the coffin of my new book. It just mysteriously disappeared from bookstores across the country and was listed as “unavailable” by Amazon.com.

I tried to get the publisher to revert the publishing rights to the book back to me, so that I could publish it elsewhere, but the publisher refused, and it took me three years to regain the rights to the book. My effort to alert the public to the indisputable fact that the government has, for the past 25 years, diverted all surplus Social Security contributions to the general fund, where it could be spent on whatever unscrupulous politicians chose to spend it on, has met with much resistance. The AARP and the NCPSSM have fought me every step of the way, despite the fact that I have been a member of both organization for years and have actively sought their cooperation in exposing the truth about the trust fund. Neither organization will communicate with me in any way. I have used opportunities like this posting to challenge them to publicly debate me on the issue but they never respond. My goals for Social Security are the same as theirs. I want to protect and preserve Social Security as we now know it, and I am strongly opposed to any attempt to privatize the program. I have been researching Social Security funding for the past ten years, and I have published 4 books on the subject. I am desperately trying to help save Social Security through public education. Why are the AARP, the NCPSSM, and government officials so opposed to educating the public on the true status of the Social Security trust fund?

Allen W. Smith, Ph.D.
Website: http://www.thebiglie.net
Email: ironwoodas@aol.com
Phone: 1-800-840-6812

Remarkably, during the six years since my book, “The Looting of Social Security” became unavailable, the story of the looting of the Social Security trust fund has still not been widely reported by the mainstream media. Readers would be just as shocked by the revelations of this book today, as they would have been if they had been given the opportunity to read the book six years ago.

One major journalist has come to see the Social Security scam clearly. He is Allan Sloan, Fortune’s Senior Editor at Large. In his August 10, 2010 Washington Post column, Allan Sloan quoted me and referred to my 2009 book, “THE BIG LIE: How Our Government Hoodwinked the Public, Emptied the Social Security Trust Fund and caused The Great Economic Collapse,” Once Sloan broke the ice, he was followed by other journalists. Excerpts from the articles of three of those writers appear below:
“Doesn’t the Social Security trust fund cover that? No, silly. All those years of surplus in Social Security were recorded in a book entry dubbed the “trust fund, but the non-marketable special Treasury bonds that make up the fund don’t represent any assets that can be cashed in to pay benefits.”–Eric Schurenberg from CBS Money Watch, August 19, 2010

“Your payroll taxes go into a bottomless hole. So where did all that FICA money go? Down the drain of federal spending on everything. It’s certainly not sitting in an account waiting to pay your retirement benefits.”—Terry Savage, Chicago Sun-Times, September 6, 2010

“For more than 25 years, while working people were told that they were paying extra taxes to ensure their retirement security, that surplus tax revenue was actually being siphoned off to run general government operations…In reality, the trust fund contains government IOUs that taxpayers today and tomorrow will have to redeem probably through paying higher taxes” –Jay Bookman, Atlanta Journal-Constitution, September 7, 2010

The fact is that $2.5 trillion of the Social Security surplus revenue has been diverted from the Social Security program and used for whatever unscrupulous politicians chose to spend it on. None of this money was saved, or invested in anything. Money can be spent or saved. If it is saved, it can also be invested, but, if it is all spent, there is nothing left to invest. This $2.5 trillion Social Security heist by the United States government may well be the “fraud of the century!”

Allen W. Smith, Ph.D.
Website: http://www.thebiglie.net

Doctor Smith,

Unfortunately, you do not understand Monetary Sovereignty. If you did, you would know:
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–The United States has been monetarily sovereign since 1971, when we went off the gold standard.
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–A monetarily sovereign nation has the unlimited ability to create money. For that reason, spending by a monetarily sovereign nation is constrained neither by taxes nor by borrowing. It creates money ad hoc by spending money.
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For that reason, a Monetarily Sovereign nation cannot be forced into bankruptcy. Nor can any agency of a Monetarily Sovereign nation be forced into bankruptcy. This includes the Department of Defense, Congress, the Supreme Court, the White House, Social Security, Medicare and all of the other thousand federal agencies.
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Federal spending is not constrained by taxes or borrowing, but rather by inflation. Social Security and Medicare spending is not constrained by FICA receipts. If FICA were zero, SS and Medicare benefits could be tripled, and still the government would have no difficulty supporting SS and Medicare.
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I urge you to familiarize yourself with the implications of Monetary Sovereignty, which is the foundation for economics.
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Rodger Malcolm Mitchell

Rodger Malcolm:

This is the sixth post on this forum in which you have exposed your ingorance about economics by claiming to have special wisdom. I have a Ph.D. degree in economics, and I taught economics, including money and banking and monetary policy, at the university level for a quarter-century. I am also the author of seven books, most of which include coverage of the Federal Reserve System and monetary policy.

Please read and digest the paragraph on monetary sovereignty below from the IMF perspective. Then please try to find a very elementary book on economics, such as my book, “Demystifying Economics: The Book That Makes Economics Accessible to Everyone,” and try to learn a few basic principles of Economics.

Current Legal Aspects of Monetary
Sovereignty
FRANÇOIS GIANVITI

Current Legal Aspects of Monetary Sovereignty
As most countries are now members of the IMF, it may be said
that full monetary sovereignty exists only in those few countries that
are not members of the IMF. In addition to being members of the
IMF, some countries are members of regional monetary unions that
have limited their monetary sovereignty even beyond the limitations
imposed by the IMF’s Articles. For instance, in the European Monetary
Union, a common currency has replaced the national currencies.
Similarly, the West African and the Central African Monetary Unions
have their respective common currencies; the member states do not
issue separate national currencies. These African unions are even
more integrated than the European Monetary Union; for example,
they have no national central banks, and they have a common system
of exchange controls for their financial relations with countries outside
each union. Accordingly, there are today different levels of
monetary sovereignty.

Of course, the United States has the legal authority to mass produce money. But the legal authority is not enough. There are economic, political, and international considerations that make it impossible for them to do so.

Dr. Smith: I have no doubt that the money has been spent, that said lets look at our options.
We could lay down and accept that its gone, won’t return, we won’t get it.
Or we might look at its history as you have done and decide its worth fighting for.
Its all a matter of will and influence. Personally I don’t care how they get the money to pay social security but they better come up with it.
If our national debt was down to just the money to run social security we would be in fine shape. But sacraficing s.s for the sake of the economy is foolish, would not our government continue to spend more than they have as they have done. But this is the lie they tell us.
How many times can they raise the age to receive SS?
Many people don’t live that long and some who work in physical jobs cannot continue that until 70 years of age. And people today 20 years old will not want to participate in funding ss when they feel it will be gone.
We have to let our politicians know anything less is unacceptable do so at your peril, and elect some who understand this concept.
Thanks for the work you put into this problem but don’t give up yet, remeber the saying when one door closes another opens. We can do it and must do it.

Thanks for your nice post. I am not about to give up after ten years of relentless effort to alert the public to the fact that the government has been improperly, and illegally, spending Social Security money for wars and other government programs for the past 25 years. This fraudulent activity has taken place under Presidents Reagan, George H. W. Bush, Bill Clinton, George W. Bush, and Barack Obama. In my opinion it is the greatest fraud every perpetrated against the American people by their government.

When I first stumbled onto the practice while doing research more than ten years ago, I wouldn’t allow myself to believe it without doing a lot more research to make sure that I was right. I just did not want to believe that the American government was spending the surplus Social Security contributions of working Americans without either their permission or their knowledge. But that is exactly what was happening and is continuing to happen to this day. Once I discovered that the media was not going to take the issue seriously, I set out to bring change through the political system. In the summer of 2000, I sent copies of my book, and many letters, to Vice President Al Gore. I urged Gore to break ranks with Bill Clinton, who had looted the trust fund for eight years, and make a pledge that if elected he would end the looting. I sent materials and letters to Gore through various channels of communication in the hope that some of them would actually get to the Vice President. I made one last effort on the evening before Gore was to accept the nomination. I called my Florida Senator’s office and talked with one of Senator Graham’s assistants. He told me that Senator Graham was at the convention and that he had direct access to Gore. I explained my past efforts to the assistant and requested that Senator Graham talk directly with Gore about my proposal and make sure that he give serious consideration to acknowledging the looting and promising to end it. The assistant assured me that they would get the message to Gore.

I can’t be absolutely sure that I was the source of Gore’s Social Security “lockbox” proposal, but I think I may have been. The important point is that Gore did acknowledge that the trust fund was being looted and he pledged to end the practice. Not to be outdone by Gore, George W. Bush made a similar pledge to end the looting. The only problem was that Bush became the new president and he reneged on his promise. Bush looted and spent every dollar of the aproximately $1.5 trillion in Social Security surplus revenue that came in during his presidency.

WHAT BOGGLES MY MIND more than anything else is that both Gore and Bush acknowledged that the Social Security trust fund was being looted in 2000. Nothing has changed since then. The practice continues unchanged to this very day. Yet, the AARP, the NCPSSM, the Social Security Administration, and government officials today claim that the money was “invested” and that there is enough to pay full benefits until 2037. That is just not true. The trust fund holds no real assets that can be converted into money with which to pay benefits. Are all these people all innocently naive? Or are all of them deliberately trying to mislead the American people. WHAT DO YOU THINK?

. What happened to most of the Social Security money was that it was used to pay for tax cuts for the rich.

Ronald Reagan, Alan Greenspan, and the Great Social Security Heist

When Ronald Reagan became President in 1981, he abandoned the traditional economic policies, under which the United States had operated for the previous 40 years, and launched the nation in a dangerous new direction. As Newsweek magazine put it in its March 2, 1981 issue, “Reagan thus gambled the future—his own, his party’s, and in some measure the nation’s—on a perilous and largely untested new course called supply-side economics.”

Essentially, Reagan switched the federal government from what he critically called, a “tax and spend” policy, to a “borrow and spend” policy, where the government continued its heavy spending, but used borrowed money instead of tax revenue to pay the bills. The results were catastrophic. Although it had taken the United States more than 200 years to accumulate the first $1 trillion of national debt, it took only five years under Reagan to add the second one trillion dollars to the debt. By the end of the 12 years of the Reagan-Bush administrations, the national debt had quadrupled to $4 trillion!

Ronald Reagan and Alan Greenspan pulled off one of the greatest frauds ever perpetrated against the American people in the history of this great nation, and the underlying scam is still alive and well, more than a quarter century later. It represents the very foundation upon which the economic malpractice that led the nation to the great economic collapse of 2008 was built. Ronald Reagan was a cunning politician, but he didn’t know much about economics. Alan Greenspan was an economist, who had no reluctance to work with a politician on a plan that would further the cause of the right-wing goals that both he and President Reagan shared.

Both Reagan and Greenspan saw big government as an evil, and they saw big business as a virtue. They both had despised the progressive policies of Roosevelt, Kennedy and Johnson, and they wanted to turn back the pages of time. They came up with the perfect strategy for the redistribution of income and wealth from the working class to the rich. Since we don’t know the nature of the private conversations that took place between Reagan and Greenspan, as well as between their aides, we cannot be sure whether the events that would follow over the next three decades were specifically planned by Reagan and Greenspan, or whether they were just the natural result of the actions the two men played such a big role in. Either way, both Reagan and Greenspan are revered by most conservatives and hated by most liberals.

If Reagan had campaigned for the presidency by promising big tax cuts for the rich and pledging to make up for the lost revenue by imposing substantial tax increases on the working class, he would probably not have been elected. But that is exactly what Reagan did, with the help of Alan Greenspan. Consider the following sequence of events:

1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on Social Security Reform (aka The Greenspan Commission)

2)The Greenspan Commission Recommended a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn down during the years after Social Security began running deficits.

3)The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.

4)As soon as the first surpluses began to role in, in 1985, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything. The surplus Social Security revenue, that was paid by working Americans, was used to replace the lost revenue from Reagan’s big income tax cuts that went primarily to the rich.

5)In 1987, President Reagan nominated Greenspan as the successor to Paul Volker as chairman of the Federal Reserve Board. Greenspan continued as Fed Chairman until January 31, 2006. (One can only speculate on whether the coveted Fed Chairmanship represented, at least in part, a payback for Greenspan’s role in initiating the Social Security surplus revenue.)

6)In 1990, Senator Daniel Patrick Moynihan of New York, a member of the Greenspan Commission, and one of the strongest advocates the the 1983 legislation, became outraged when he learned that first Reagan, and then President George H.W. Bush used the surplus Social Security revenue to pay for other government programs instead of saving and investing it for the baby boomers. Moynihan locked horns with President Bush and introduced legislation to repeal the 1983 payroll tax hike. Moynihan’s view was that if the government could not keep its hands out of the Social Security cookie jar, the jar should be emptied, so there would be no surplus Social Security revenue for the government to raid. Although the Moynihan proposal was supported by the conservative Heritage Foundation, the liberal Institute of Policy Studies, and the U.S. Chamber of Commerce, it was vigorously opposed by the Bush administration. President Bush would have no part of repealing the payroll tax hike. He was not about to give up his huge secret slush fund.

The practice of using every dollar of the surplus Social Security revenue for general government spending continues to this day. The 1983 payroll tax hike has generated approximately $2.5 trillion in surplus Social Security revenue which is supposed to be in the trust fund for use in paying for the retirement benefits of the baby boomers. But the trust fund is empty! It contains no real assets. As a result, beginning in 2016, the government will be unable to pay full benefits without a tax increase. Money can be spent or it can be saved. But you can’t do both. Absolutely none of the $2.5 trillion was saved or invested in anything.

Allen W. Smith, Ph.D.
Website: http://www.thebiglie.net

Dr. Smith,

Thank you for your impressive resume. I do not claim special wisdom. Would you like to see the impressive resumes of the neo-Chartalists and Modern Monetary Theory economists who agree with me?
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You said, “. . . the United States has the legal authority to mass produce money. But the legal authority is not enough. There are economic, political, and international considerations that make it impossible for them to do so.”
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If ever you had taken the trouble to read the one-page article at: Monetary Sovereignty you would have seen this paragraph:
“The unlimited ability to create money is an uncontested fact for monetarily sovereign nations, although at any given time, a nation may or may not choose to use that ability. Economic growth, inflation, deflation, recession, depression and social factors may influence a nation’s decision to create money. A monetarily sovereign nation even can choose to declare bankruptcy, for various reasons, but this would be an arbitrary matter of choice.”
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Unfortunately, lack of knowledge about Monetary Sovereignty causes people to make false statements like your: “For the past 25 years, the government has diverted every dollar of surplus Social Security revenue into the general fund and spent it on such things as tax cuts for the rich, two wars, and other government programs.”
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Wrong. The federal government does not spend tax money. Federal spending creates money ad hoc. Social Security does not lack money because of any federal “diverting.” Nor does the Department of Defense, the Supreme Court, the White House, Congress, Medicare or any other of the thousand federal agencies lack money because of “diverting.” The government spends money as it wishes. Federal spending is constrained neither by taxing nor borrowing.
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And another false statement: The Social Security Trustee’s Report that says,“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”
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Wrong. The federal government does not need to finance anything through taxation and/or spending reduction and/or borrowing. Taxes and borrowing could fall to zero, and the government could finance double the SS benefits.
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And yet another false statement your made: “The government was supposed to have saved the surplus Social Security revenue and used it to buy real public-issue, marketable Treasury bonds in the open market.”
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Wrong, again. The federal government does not “save” revenue. It destroys tax money upon receipt and it creates spending money ad hoc. Visualize paying your income taxes with dollar bills. The Treasury would inspect those bills and destroy any that are torn or dirty. Then it would print new bills to replace them. It can print as many bills as it wishes any time it wishes. It is Monetarily Sovereign.
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Contrast this with Greece, Italy, Illinois, California, Cook County, Chicago, you and me. None of us are Monetarily Sovereign, so we do not have the unlimited ability to create money.
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Being Monetarily Sovereign is the reason the U.S. never has bounced a check, even through the worst recessions and the Great Depression. The U.S. can support any size debt. Discussing economics without understanding Monetary Sovereignty is like discussing how far a ship can sail before falling off the edge, without understanding the world is spherical.
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I feel bad you have devoted your life to a philosophy that became obsolete in 1971, the end of the gold standard. But perhaps it’s not too late. I found Monetary Sovereignty 15 years ago, when I was 60. If you still are willing to learn, read the paragraph titled “Conclusions” at Chartalism.

Good luck,

Rodger Malcolm Mitchell

I invite all those who wish to understand Monetary Sovereignty to read the one page article at: Chartalism . Although I differ with the Chartalists on several points, the foundation of Chartalism is identical with the foundation of Monetary Sovereignty.
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Even if you vehemently disagree, you’ll find the ten minutes of reading to be well worth your time.
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Rodger Malcolm Mitchell

A strong case can be made that our Social Security system is what sustains our successful American democracy. It keeps tens of millions of people out of poverty past age 62. It pumps hundreds of billions into our economy month after month, year after year. Minimize SS now, or privatize it into the jungle of Wall Street control, and our society will slide into a very insecure future, sooner rather than later.

jcluma,
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You’re correct that Social Security is helpful, but not as helpful as it seems. While it does pump hundreds of billions into our economy, FICA pumps about $900 billion out of our economy.
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Congress just passed a bill to reduce FICA temporarily. It is a tiny step in the right direction. However, FICA should be eliminated permanently. See: Ten Reasons to Eliminate FICA.
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Rodger Malcolm Mitchell

Will the government default on its debt to Social Security?

The government was supposed to use the surplus Social Security revenue to purchase public issue, marketable U.S. Treasury bonds in the open market. If they had done so, the trust fund would today hold $2.5 trillion in, marketable Treasury bonds, which the Social Security trustees could resell in the open markets any time they needed additional funds with which to pay benefits. These are the type of bonds that Bill Gates, the Chinese government, and pension funds hold. These real Treasury bonds are as good as gold, and they are default proof. Our government can never, and will never, default on any of its public issue, marketable bonds because doing so would create panic in the financial markets and tarnish the reputation of the United States forever. So, if the trust fund held such bonds, the government could not default on them. But, unfortunately, the government did not invest a single dollar in such bonds.

The government can default on its debt to Social Security because that debt is not in the form of real marketable bonds. If the government chooses to default, its action would have almost no impact on world financial markets, and most foreign countries would view the matter as a domestic issue between the U.S. government and its citizens.

Some people say “BY LAW, the government has to pay me full benefits because of the FICA taxes that I have paid.” But they are wrong. One of the least known facts about Social Security is that, although the government does have a moral obligation to pay Social Security benefits to those who have earned them, the government does not have a legal obligation to do so. In a 1960 ruling by the United States Supreme Court, the court ruled that nobody has a “contractual earned right“ to Social Security benefits. Section 1104 of the 1935 Social Security Act specifically states, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” According to the above strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security. Some did not take the language seriously because they thought it was probably unconstitutional. However, in 1960, in the case of Fleming v. Nestor, the Supreme Court upheld the denial of benefits to Nestor, even though he had contributed to the program for 19 years and was already receiving benefits In its ruling, the Supreme Court established the principle that entitlement to Social Security benefits “is not a contractual right.”

As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.

Beware of the goals of some members of Obama’s Fiscal Commission. They will almost certainly push for Social Security cuts, even though Social Security has not contributed a dime toward the large budget deficits and the skyrocketing national debt. Much of the surplus revenue, generated by the 1983 payroll tax hike, was used to offset the lost revenue resulting from the large unaffordable income tax cuts under Reagan and George W. Bush. To but it bluntly, the government stole the Social Security contributions of working Americans and used the money for tax cuts to the wealthiest Americans. It is not an exaggeration to use words like “stolen” and “embezzlement” to describe the Social Security fraud. Both words have been used by United States Senators in speeches on the senate floor in describing the Social Security scam. The word “borrowed” can be accurately used only for the looting that took place prior to enactment of the 1990 Budget Enforcement Act. That law made it illegal for the government to use Social Security money for non-Social Security purposes. As a result, the government has been violating federal law for the past two decades as it participated in what I consider to be the greatest fraud every perpetrated against the American people by their government.

Just because the government can legally default on its debt to Social Security doesn’t mean that it can politically do so. THE AMERICAN PEOPLE MUST DEMAND THAT ALL OF THE MONEY BE REPAID WITH INTEREST. I DON’T UNDERSTAND WHY THE AARP IS NOT MAKING THIS SAME DEMAND. It has 38 million members and I am one of them. There must be a lot of other AARP members who will read this post as well as many members of the NCPSSM. Why are these organizations that claim to represent the interests of their members not speaking out and demanding that the looted Social Security money be repaid? If it is because they don’t believe the looting took place, it is time for them to pull their heads out from under the sand and wake up to reality.

I have been trying to expose the Social Security fraud for more than a decade, but there is great opposition to having the truth come out. I could use help and support in my effort. If you are interested, please visit my website and consider contacting me.

Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
Website: http://www.thebiglie.net
Email: ironwoodas@aol.com
Phone: 1-800-840-6812

Note to Professor Smith and all those who subscribe to economic theories that became obsolete in 1971, the end of the gold standard. Check out Warren Mosler’s book, “Seven Deadly Innocent Frauds of Economic Policy”
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You can read it free by going to: Seven Deadly Frauds of Economic Policy
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Though my book, FREE MONEY was written in 1998, and Warren’s was written in 2010, you might enjoy seeing how two writings, separated by 12 years, express similar ideas about Monetary Sovereignty.

Rodger Malcolm Mitchell

Mr. Rodger Malcolm Mitchell, with all due respects, you just don’t know what you are writing about….you keep saying here over and over that the USA is a monetary sovereign nation and as such has the ability to keep on printing money indefinitely with absolutely no negative side effects like rampant inflation and gutting the US dollar to the point it becomes valueless.

This is simply not true…please just stop for a moment and think about it….if your theory was indeed the case, the 1930′s Great Depression wouldn’t have ever happened, because the US Government and the Federal Reserve would have just got off the gold standard back then like Nixon did in 1971, keep on printing money till the cows come home and would have saved the system….also in your dream scenario then the US Government wouldn’t need to collect any taxes from individuals nor sell Treasury Bonds to any investors,,, the states wouldn’t have to sell any state bonds to investors and the municipalities wouldn’t have to issue any municipal bonds….because the good old Federal Reserve’s “helicopter” Ben Bernanke would just take off in his helicopter and would make new dollars rain all over the USA every day and night…. “Helicopter” Bernanke would just keep on taking care of all their expenses by keeping on printing ever more and more unbacked paper dollars, there would be no need for federal, state nor municipal taxation, citizens would be able to keep all the money they earned without having to pay any taxes whatsoever to the three levels government….it would be like paradise on earth….The US Federal Reserve would simply keep on printing more money out of thin air and thus would be able to completely pay all of the 14 trillion national debt, would be able to pay all the states and municipal debts, and and be able to run the Federal government and all its agencies just by printing more money….

Moreover it would also be able to pay for all the congressmen, senators and governors salaries, the Armed Forces salaries, the total Defence Budget, all the US federal, state and municipal Governments departments salaries and expenses etc…………

But, unfortunately Mr. Mitchell, such is not the case, because for the simple reason that if that was possible without any reverse negative side effects the USA and all other monetary sovereign entities in the world would already be doing it a long time ago, Please just think about it, it would be a paradise for politicians not having to levy any taxes whatsoever on the people who elect them….

Mr. Mitchell, I beg you that you take your head out of the sand, wake up from your make believe dream world, give your head a good shake and smell the coffee…..and the real truth of the matter is, any government, even in the grand USA, can only keep printing money for so long…if they do not stop printing more and more money rampant inflation eventually takes hold, the currency will devaluate and eventually becomes worthless….don’t believe me ? Just ask the Brazilians back in the 1970′s with 300% inflation monthly, the Argentines with 200% inflation monthly also back in the 1960′s and 70′s, the Lebanese in the early i980′s etc, with 500% inflation monthly, just look at Zimbabwe today with 600 % inflation monthly….what happens when there is indiscriminate money printing.

Any serious economist will tell you that if there are ever increasing too many dollars in circulation, the intrinsic value of every dollar will drop, and that is exactly what causes rampant inflation sir….did you ever notice how oil prices go up when the US dollar drops in value? Why do you think that the price of oil is now presently at more than $80 per barrel??? The exact same for all other commodities including the basic staples like food?? The basic laws of economics dictate that in order for a currency to retain its value, there has to be a limit to the money supply…..therefore if “helicopter” Bernanke keeps on printing money like crazy, the dollar will eventually collapse….did you ever asked yourself how come a currency in so much trouble like the euro, is still worth 33 cents more than your US dollar despite all the gloom and doom about its demise??? I will tell you why, Bernanke’s continued money printing is lowering the value of the US dollar relative to the euro…. in fact, we are already seeing the negative effects of excessive money printing….

So Ben Bernanke so far has avoided a rampant devaluation of the dollar with his excessive money printing, but truly I tell you, if Bernanke doesn’t stop his crazy money printing, the US dollar will be completely gutted before you know it…just because “Helicopter” Ben Bernanke got away with it so far, that doesn’t mean that he is going to keep on getting away with it forever…. like I said, the signs are already there as all major currencies in the world are rising in value against the US dollar….. because a lot of this new dollars are going overseas to strenghten other currencies while weakening the US dollar….and all this money printing is doing nothing for the US economy….but you, just like an ostrich, got your head so deeply buried in the dirt that you just can’t see the light sir….

And the above is exactly the fundamental reason why the US Federal Reserve in the past hasn’t abused its ability to keep on printing ever more money even as though like you correctly wrote, it can do so… further never before in the whole history of the USA there has ever been such a massive increase in the money supply in such a short period of time.. in fact, in this present great recession, just in the last two years Ben Bernanke has doubled the US money supply from where it was since the end of World War Two, so we are in brand new uncharted waters…. Mr. Rodger Malcolm Mitchell, if I was you I wouldn’t be so sure that my boat will never sink.

So please Mr. Rodger Malcolm Mitchell, please stop dreaming believing the the US just because its dollar is still the world’s reserve currency is immune the the basic laws of economic supply and demand and to this kind of inflation and dollar devaluation…because in fact it isn’t and the day of reckoning is approaching faster than you think and will hit you by surprise the least you expect it.

Joseph Mateus, with no fancy big PHD title, but telling the truth.

Mr. Rodger Malcolm Mitchell, you also wrote that the total collapse of the German Mark back in 1923 was caused by inflation, not excessive money printing…well please tell me, can an egg be produced without the chicken??? With all due respects, your are totally wrong sir….

In fact what happened in Germany back in 1923 was that excessive rampant money printing at that time by the German Central Bank starting in 1920 caused the inflation in the first place….and not the other way around like you wrote….the fact is that the German Government was so indebted to the Allies in war (World War One) reparations payments that its central bank started to print German marks day and night indiscriminately in order to be able to meet its war reparations obligations, which in turn caused a big bout of inflation….

And yes, contrary to what you believe, the German government did respond to this rapid rise in inflation by increasing the interest rates, but couldn’t raise money fast enough to pay its debts, moreover with the rise in interest rates the economy started collapsing…with government revenues dwindling because of rising unemployment….so they had to lower the interest rates….and so they just kept on printing more and more marks to keep paying the war reparations obligations and trying to lift the economy until finally it all imploded in their faces and the German mark collapsed completely with 1000% a month inflation to the point where it cost 10 million marks to buy a loaf of bread….and I am sure you know the rest of the story, all the hunger, misery destitution and deprivation that the German people had to suffer and endure in the next few years, eating rats and out of garbage cans.

Therefore Mr. Rodger Malcolm Mitchell, don’t be so cocky and arrogant don’t keep on writing here that just because the US is a monetary sovereign federal nation it just can keep on printing unbacked dollars indefinitely out of thin air to be able to pay all its bills and that it can never go broke because of its ability to print money at will, that is false, insidious, pernicious and misleading at best …..

And please don’t be so sure that this same monetary collapse in Germany back in 1923 will never happen in the grand USA, because mark my words, the USA despite having the dollar has the world reserve currency is not immune to the basic economic laws of supply and demand….when the time comes that there will be way too many dollars in circulation throughout the world the US dollar will sink like the Titanic, the infamous ship that its makers said it would never never never sink….just like you keep on writing here that the Federal Reserve can just keep on printing new dollar at will forever and the dollar will never sink, because just like the Titanic, it will also sink big time.

And when the US dollar collapses its status as the world reserve currency will not do it absolutely any good nor will it help it, as a matter of fact when the US dollar collapses so will its title as the worlds reserve currency and the world will just go to another main currency based on a gold standard, that is all…

So please believe you me, if the the US Government and federal reserve don’t reverse course fast and stop spending and printing money like drunken sailors, you can be sure that the US dollar will be finished.

Mr. Rodger Malcolm Mitchell, please turn yourself around, stop being upside down, put your feet back in the ground and your head back up in the air, give your head a good shake, wake up from your make believe dream world, smell the coffee, smarten up and get on the ball.

Joseph Mateus, with no big fancy PhD title but telling the truth

” . . . you keep saying here over and over that the USA is a monetary sovereign nation and as such has the ability to keep on printing money indefinitely with absolutely no negative side effects like rampant inflation and gutting the US dollar to the point it becomes valueless”

Never said that. In fact, I repeatedly have said the federal government’s ability to spend is constrained neither by taxes nor by borrowing, but only by inflation.
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Your entire diatribe is based on your false assumption.
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Rodger Malcolm Mitchell

Social Security killed Social Security. It was an unsustainable program that never should have happened in the first place. Trying to blame Social Security’s imminent failure on anything else is ignorant and irresponsible.

Isn’t the AARP just a front for United Heath Inc? I think there should be and opt-out option, or have those folks making mad cash pay into to as well.

Intergenerational debt is killing the future grow of the US economy.

Found this and thought it interesting.

Thomas Jefferson on intergenerational debt and the government.

See: http://www.amorian.org/2010/02/07/jefferson-on-intergenerational-debt/