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Reserves To Finance Government Operations

Another New York Times article further reveals how the public perceived Social Security. This one appeared on April 3rd under the subcaption "Plan (So­cial Security) is for the Ultimate Financing Of The Government From Big Security Fund":

"Payments into the Old Age Reserve account would carry an estimated average interest rate of 3 percent and it was explained that the government would come even­tually to draw upon the reserve for financing its opera­tions instead of through issuance of bonds and notes.

Committee members hope to be able to show that interest for government money will thus go to the aver­age citizen contribution to the old-age benefit fund in­stead of fiduciary investors.

As for details of the pension plan contributors to the fund would not be eligible for old-age benefits until reaching 65, and no disbursements would be made be­fore 1942. The minimum benefit to persons eligible to retire would be $15 a month and the maximum $25 a month. Their status would be determined according to whether an individual's earnings failed to reach or ex­ceeded $3,000 during the period of his contributions.

Actuarial considerations supplied the committee show that a total income of $4,000 during the contribu­tion period would produce a monthly benefit of $15.83; and income of $6,000 $16.67; an income of $10,000, $20.83; and an income of $15,000, $25 a month.

If an employee began contributing at the age of 20 and continued until he was 65 on an income of $2,000 annually, actuarial calculations are that he would be eligible for monthly benefits of $68.75." (emphasis added)

There is no question that Social Security was sold to the American public on the basis that it was to be a

sound, actuarially funded "insurance" plan and not the unfunded "pay-as-you-go" Ponzi scheme it admittedly is today (see Figure 41). Indeed the public in 1935 was led to believe (by Congress) that the Social Security trust fund would be so huge that it would actually be used to support the Federal government8 (not the other way around!), with the plan's participants earning the interest that the government customarily paid to its bond holders. Today, on the other hand, the public is warned that Social Security benefit payments may have to be subsidized and paid out of "general revenue".9

While the public began paying "into" Social Secur­ity in 1937, benefits did not begin until January 1, 1942.10 The reason for the 5 year delay was to create the illusion that a "reserve" was being built up from which benefits were to be paid.

The $64,000 Question

Today, 36,000,000 Americans (approximately 15% of the population) receive Social Security checks each

8 It did, but not in a manner understood or contemplated by the public. See pages 217-218, Appendix A.

9 There is, of course, no other source out of which Social Security payments can be made. So such "warnings" are totally misleading.

10 The first Social Security check #00-000-001 for $22.54 was sent to Miss Ida M. Fuller, a bookkeeper/secretary from Ludlow, Vermont. Miss Fuller started to pay Social Security taxes in 1937. In 1950 she received her first increase and her new check amounted to $41.30. As of 1974 her check was $105.00 per month after deductions for medicare and she had passed her 100th birthday. In January, 1975 she received her last check of $109.27. Over the years Miss Fuller collected $20,000 in Social Security benefits. She paid in only $22.50.

month from the Federal government. Suppose in 1935 the U.S. Congress had proposed immediately putting the same proportion of the nation on Social Security, drawing comparable benefits to those received by to­day's recipients. This would have meant immediately sending 19,000,000 Americans Social Security checks (or 15% of America's 1935 population of 127,000,000). How would such a proposition have been received by the nation in 1935? Anyone proposing such an idea would have been looked upon as a complete screwball! Why? The public would have asked, "How could such commitments be met? There is no trust fund out of which such benefits can be paid!"



1. Social Security was sold to the nation in 1935 as "Old Age Insurance" and not as a pay-as-you-go scheme.

2. The "insurance reserve" projected by 1980 was $50 billion which was then equivalent to 15 years of

federal receipts. In reality, by 1983 this "insurance reserve" was $2.6 billion in the red.11

3. Social Security "contributions" began in 1937 but benefits did not start until 1942. This created the illusion that benefits were being paid out of an accu­mulating "insurance reserve".

4. Today 36,000,000 (or 15% of the population) receive a monthly Social Security check and there is no "reserve" or "trust fund" to support these payments.

5. In 1935 Congress never would have passed (nor would the public have accepted) a bill which would send Social Security checks to 19,000,000 Amer­icans since, at that time, there was obviously no "insurance" reserve from which such payments could be made. It is not any more legal — nor makes any more sense — to do the same thing today!

11 And had an unfunded liability in excess of $5 trillion — or five times bigger than the reported national debt. See pages 89-91, The Biggest Con.


An Analysis Of Government Studies:

Proof That Government Cannot

Be Trusted

In January, 1983 the National Committee on So­cial Security Reform (established by President Reagan on December 16,1981) issued its long-awaited report. Commenting on the Committee's recommendations in his State of the Union message, President Reagan noted that, "As 1983 began the system (Social Security) stood on the brink of disaster.. .".He then proceeded to assure the nation that Committee members had apparently submerged their own political differences to come up with recommendations that could "save Social Security".

Commenting on the President's remarks in the March, 1983 issue of The Schiff Report, I said: "He (Reagan) encouraged the nation to believe that this pyramid scheme could be 'saved'. He took special pride in pointing out that 'pundits and experts predicted that the party divisions and conflicting interests would pre­vent the commission from agreeing on a plan to save Social Security.' Since Social Security is nothing but a chain letter, the Commission's plan to 'save' the system

amounted to nothing more than a scheme to get more immediate chain so the politicians could postpone the day when that which must inevitably hit the fan, hits the fan!"

President Reagan's "Committee" was but another government committee in a long line of committees that have, over the years, sought to "save" or "streng­then" Social Security, but to no avail. Despite numer­ous "hearings", studies and reports, President Reagan stated that as of the beginning of 1983 Social Security "stood on the brink of disaster". This particular Com­mittee's report and suggestions will prove to be no more helpful in "saving" Social Security than were prior committees and reports. All the latest report does is confirm the uselessness (as far as the public is con­cerned) of government committees, since the only sensi­ble conclusions this committee could have reached (based upon its own findings) were: 1) Social Security is over; 2) this politically inspired socialistic experiment is a failure; 3) the sooner the public realizes it, the better off the nation will be; 4) terminating this "experi­ment" will undoubtedly create hardships, but that these hardships cannot be avoided; and 5) the longer the nation persists in believing that Social Security is viable, the greater the ultimate injury to the nation will be.

Such conclusions are inescapable! Look at just a few of the many charts and tables which this study produced. Figures 26,27,28 and 29 are reproductions of the graphs that appear on pages 24, 25, 26 and 29 (statement 7) of the Committee's report. Given these graphs, is there anybody in his right mind who can still believe this "program" can be "saved"? The growth rate of Social Security expenditures now appears virtually

as a straight vertical line, shooting right up into the ionosphere!

Figure 27 shows that between 1942 and 1955 ex­penditures increased at a gradual, 5% rate. By 1955 the rate increased to 10%. By 1965 the rate had reached 30% and, by 1970, benefit reductions were obviously required in order to restrain this disastrous rate of accelerating Social Security payments. But what ac­tion did our lawmakers take? Instead of adopting mea­sures to retard this obviously unacceptable rate of in­creasing expenditures, they actually adopted measures which would accelerate it! Sure enough, by 1970, the rate reached 70% and by 1980 it had climbed to 75%!

The U.S. Congress Acts (Ineffectively) Only When A Crisis Develops

The table on page (7)-29 (Figure 29) shows that by 1983 the OASI trust fund was short $2.6 billion, while the other two "funds" only had $19 billion, or enough to last 8 weeks. Even though the U.S. Congress finally passed legislation (in 1983) to modestly reduce Social Security benefits, it is important for the public to understand that it did so only after the OASI Fund had completely run out of money! This is proof that the U.S. Congress never acts to prevent a problem from happen­ing but, rather, acts only after the problem has reached crisis proportions.1 These cuts, incidentally, were far

1 The same situation occurred in connection with the so-called "energy crisis" which the Federal government created. This "crisis" was predictable (and thus preventable) long before the 1973 gas lines. See Chapter 6 of The Biggest Con, "The Energy Crisis — How the U.S. Government Planned It".





* OASI refers to Old/Age Survivors Insurance; DI refers to Disability Insurance; and HI refers to Hospital Insurance.

too little and came far too late to be of any real help in "saving" this basket case.

Useless Government Committees

An analysis of government hearings and reports with respect to Social Security is included in this chap­ter to provide clear, unassailable proof that the Amer­ican public cannot, in any way, trust the United States Congress or any of its committees. This, of course, ap­plies equally to the executive branch of government. An analysis of these committee hearings and studies clear­ly suggests that the U.S. Congress is largely composed of incompetents, while the committees they create are composed of individuals who apparently haven't the foggiest idea of what they are studying or what the data they collect means.*

Based upon the following admission by Senator Armstrong (one of the Committee members who also serves as Chairman of the Senate subcommittee on Social Security), no other conclusion is possible.

The Committee's Most Important "Achievement*

"The most important single achievement of the Commission," said Armstrong, "under the patient con­siderate and scholarly leadership of Chairman Greens­pan, has been to marshall a concensus for admitting the problem". To provide confirmation for his incisive

8 And it apparently makes no difference which political party is in control. From a practical standpoint there is about as much political difference between Democrats and Republicans as there is between the New York Yankees and the Boston Red Sox. Some differences have to be manufactured, of course, other­wise the political game could not be played at all.

observation, Armstrong quotes the Washington Post as saying, "The first step toward solving any problem is to get people to admit the problem exists. The National Commission on Social Security Reform, meeting this week in Washington, has already made a huge con­tribution by getting its members of different political persuasion to agree that Social Security problems are real, urgent, and within reason measurable."3 (em­phasis added in both quotes)

Well, if that was the Committee's most important "achievement", it certainly wasted a bundle of the tax­payer's money.4 The OASI "trust fund", remember, was flat broke in October of 1982; and if that single event didn't prove to the U.S. Congress that Social Security problems were "real" and "urgent", then what do U.S. Congressmen use for brains?

A More Accurate Study (At No Cost To Taxpayers) Was Available

Appendix B contains the entire Chapter 4 of my book, The B iggest ConHow the Government is Fleec­ing You, which I wrote in 1974 (published in 1976), and certainly qualifies as a "study" of Social Security. In addition, Appendix B contains the recommendation that I made concerning what (I believed) had to be done with Social Security at that time. Those recommenda­tions are equally valid today. My analysis certainly proves the U.S. Congress should have known at least 10

8 Report of the National Commission on Social Security Reform — January, 1983; pages 3 and 4, Statement (7).

4 Committee's report cost taxpayers between $625,000 and $1.2 million, which was the projected cost of running the Committee for one year.

years ago that Social Security problems were "real" and "urgent" and that Congressional action was needed in order to prevent a looming problem from getting worse. My 1974 study pointed out that Social Security liabilities for fiscal 1973 were $2.1 trillion and had increased over the previous year's liabilities by more than $300 billion. This one year's increase, I pointed out, exceeded the Federal government's entire revenue for that year! I also pointed out that Social Security's unfunded liabilities were 5 times greater than the en­tire reported national debt. If this didn't indicate a problem 10 years ago, I don't know what would. And, of course, if/ figured out the problem in a matter of a few hours, why couldn't the Federal government (with all of its "experts") have done the same?

One Million Dollars To Prove The Obvious

By 1973 it should have been obvious that the growth of Social Security expenditures was already out of hand. Why couldn't the U.S. Congress recognize or admit the problem 10 years ago and start to take re­sponsible action then? The President has a Council of Economic Advisors who, in turn, have a large staff paid for by American taxpayers. Each branch of Congress has its own standing sub-committee on Social Security, and both houses participate in a Joint Committee on Economics which continually has had hearings on So­cial Security over the last 10 years. In addition, each year the Trustees of Social Security issue their own Annual Report. Yet, despite all this high-priced "ta­lent", the U.S. Congress apparently didn't know the OASI "trust fund" would be dead broke by October 1982?!

Wasting The Taxpayer's Money

Figures 30 - 35 are the full text taken from pages J-21,22,23,25,26 and 27 of the report. They deal with Social Security's "Long Range Cost Situation". The Committee apparently thought it vitally important to examine (in detail) Social Security's estimated income and outgo to the year 2050. The Committee determined, for example, that the difference between income and outgo between the years 2045 and 2050 would be ap­proximately .0.9/100 of 1% based on "alternative II-B" assumptions, as opposed to a gap of .94/100 of 1% using "alternative III" assumptions. Before reading this ex­citing stuff, you should also be aware of the following excerpt that appeared on page J-13 of the report which commented on a 1978 government report that made similar projections:

Actual Experience in 1978-81 as Compared with Estimates Made in 1977

The 1978 OASDI Trustees Report stated that the 1977 Amendments would "restore the financial soundness of the cash benefit program throughout the remainder of this century and into the early years of the next one." It was further stated that, beginning in 1981, the short-range and medium-range annual deficits of the trust funds would be eliminated. However, this did not occur — because of the adverse economic condi­tions during 1979-81, when prices rose more rapidly than wages and unemployment was substantially higher than anticipated (and despite the actual disability experience being more favor­able than had been estimated to occur).

The intermediate cost estimates for the OASDI Trust Funds that were made in 1977 for the law as then amended showed decreases in the fund balance in 1978-80 (a total drop of $8.0 billion), but a significant build-up in 1981 ($7.4 billion). In actual­ity, there were decreases of $9.4 billion in 1978-80 and of $1.9 billion in 1981. The pessimistic estimate made in 1977 showed

_____________FIGURE 32 (continued)_________


1982-2006 12.01 11.37 +.64 12.73 -.72

2007-31 12.40 14.08 -1.68 17.84 -5.44

2032-56 12.40 16.81 -4.41 25.66 -13.26

1982-2QS6 12.27 14.09 -1.82 18.74 -«.47

a/ For employer and employee combined.

b/ Tax rate minus cost rate. Positive differences are referred to as cash-flow surpluses, and negative differences as deficits.

NOTE; These estimates do not take Into account the effect of the Tax

---- Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248). If

this had been done, the cost rates would have been slightly lower.

SOURCE: Tables 27 and 29 of the 1982 OA5DI Trustees Report. Appendix J, page 23


In the period following 2010, under the intermediate cost estimate, the OASDI tax rate tends to fall short of the cost rate by an increasing margin — beginning in 2030, by almost 41/z% of taxable payroll. Under the pessimistic cost estimate, the excess of the cost rate over the tax rate steadily increases, until it reaches somewhat over 15% of taxable payroll. On the other hand, under the optimistic cost estimate, the OASDI tax rate exceeds the cost rate until about 2025; it is lower for the next 10 years, but once again is higher (by about 1% of taxable payroll at the end of the 75-year valuation period).

Over the entire 75-year valuation period, the average OAS­DI cost rate exceeds the average combined employer-employee tax rate by 1.82% of taxable payroll in the intermediate cost estimate of the 1982 Trustees Report (see Table 6).9 It may be noted that 1.82% of the total taxable payroll in 1982 was about $25 billion per year.

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