US government spending Social Security revenue on wars and other government programs without making provisions for repaying the money.
Last Wednesday, the Congressional Budget Office confirmed Smith's worst fears when they reported that the Social Security surpluses of the past 25 years are behind us, and we have entered a period of permanent Social Security deficits. This means that full Social Security benefits cannot be paid this year, or in the years ahead, from payroll tax revenue, alone.
The surpluses of the past 25 years should have been used to purchase public-issue, marketable Treasury bonds in the open market. If this had been done, the trust fund would today hold $2.6 trillion in "good-as-gold" marketable Treasury bonds. These bonds could have been resold in the open market and used to pay full benefits until 2037. But, instead of saving and investing the money, the government spent every dollar and replaced it with non-marketable IOUs, which are nothing more than claims against future tax collections. According to Smith, Senator Ernest Hollings (D-SC), tried to stop the raiding of the trust fund more than 21 years ago. In a Senate speech on October 13, 1989, Hollings issued the following warning:
"...the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund...in the next century...the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate bank notes."
Smith says the trust fund contains only the IOUs, which cannot be sold or used to pay benefits. The IOUs are a legitimate debt that the government has an obligation to repay, but the government has made no provisions for repaying the spent Social Security money. Given the current dire financial state of the federal budget, it will not be easy to find the money to redeem enough IOUs to pay full benefits.
Dr. Smith, author of "The Looting of Social Security" and "The Big Lie: How Our Government Hoodwinked the Public, Emptied the S.S. Trust Fund, and caused The Great Economic Collapse," says the government has been misleading the public for a quarter-century into believing the surplus Social Security contributions were being saved and invested, when in fact they were being diverted into the general fund and spent on whatever the government chose to spend them on.