Customer Reviews

The Looting of Social Security: How the Government is Draining America's Retirement Account

5 star:		(4)
4 star:		(2)
3 star:		(0)
2 star:		(1)
1 star:		(4)

 

 

It is very difficult to navigate toward clarity on economic issues based on the information given in the media. Books recounting the full picture in slow motion have an advantage over the soundbite versions that clearly don't sink in. Disinformation tends to succeed, and as the author points out, basic economic education being a scarce commodity, even journalists and politicians themselves are confused, an important point to remember. It's a fact of life that even a well-educated person must reckon with his proneness to being disinformed and this appalling short account of history of the Social Security crisis since 1983 is a more than useful expose of the sorry history here.
Beyond that tale which has been told before, mostly in vain, it is also a cutting expose of the current monumental swindle going on with the Bush manipulations of the budget and deficit, also with a clear fingerpointing at the blunder/lie behind Clinton's myth of the budget surplus that handed the Bush gang a golden opportunity to front their conservative sabotage. Clinton's dose of sanity rescuing the system from the Reagon/Bush disaster got frittered away in one stroke by the new round of the voodoo artists, right in front of our eyes. The sheer impudent and premeditated brazenness of the tactics takes one's breath away, and it is no surprise we have been treated to near flood of books about the Bush Lies. The saddest thing is that voters can't grasp their own self-interest.
It is good that while partisan in one way the author clearly traces the onset of 'voodoo economics' as far back as the Johnson presidency, and in telling the whole history of this and Reaganomics he brings out something we don't always notice, that competent economists have documented in some alarm every stage of the whole business, only to be shunted aside by presidents listening only to their political advisers.
The portrait of the future of Social Security and the future deficit is very alarming and one is left baffled at these politicians in their malevolence. A contract with America ought to read 'a contract on America' as in mafia hit language.
The book is slightly repetitive, perhaps written in a hurry, but very much worth reading. In most fields malpractice is an indictable offense. Apparently presidents are to be an exception. Enough's enough.

Smith is absolutely correct in his main contention, which is that Bush II paid for his tax cuts by using the Social Security surplus. This is all the more appalling when you consider that Social Security is a regressive tax (it only applies to the first $85,000 of everyone's income, including Bill Gates), while the Bush II tax cuts mostly benefit the rich. David Cay Johnston makes a similar point in his excellent book, Perfectly Legal. And can anyone doubt that the right wing will use this to bolster its claims that Social Security is "broke," paving the way for privatization or other ways to dismantle it?
I see from reviews here that the freeper attack dogs are nervous about this line of argument. Sadly, their (his?) understanding of economics does not match their (his or her?) passion. Yo, Reader from California: anyone who reads reviews for a book such as this knows that it's not the "Democrats' fault" that the Reagan and Bush II tax cuts led to deficits. Reagan wanted his huge increase in military spending, and Bush II enjoys a Republican House and Senate. And Micsca (are you the same person as "Reader" -- same state, same posting date, same dogma): your vaunted increase in tax revenues several years after the Reagan tax cuts was due merely to a growing population and workforce. Yet the tax cuts caused revenues to be lower than they would have been. Which Smith clearly explains and which you would know if you had actually read the book. Why bother to spin such nonsense to an educated audience? [Note -- the poster(s) referred to above appear(s) to have edited his(their) post to change the posting name and location.]
As for the rants about supply side economics, I have a degree from one of the 10 best graduate schools in this country, and supply side economics is dead. The only "data" showing that it works come from nordic countries that had marginal tax rates over 70% -- not our country at all.
Brookings and other economists have pointed out that the Bush tax cuts make up the same percent of our economy (GDP) as would be required to fix both Social Security and Medicare. Drag corporations back from their overseas tax havens (the 35% statutory rate is a joke), and where's the problem?
The book was a little repetitive, but I give it 5 stars because I revile these freeper "assassination" attempts.

This book reveals how, since the 1983 "fix" of Social Security, a Social Security Trust Fund was created because of a significant raise in FICA taxes aimed at preparing Social Security for the retiring baby boomers. Instead the surplus money that started appearing in 1985 was immediately diverted to pay for tax cuts, that favored the wealthy, paid for unfunded wars and Medicare Part D, along with other government expenses. As the money was emptied special bonds which were basically government IOU's were put in the fund so that now all that remains are the IOU's that amount to approximately 2.5 trillion dollars not including the interest that the money would have earned.
This should be mandatory reading for all Americans especially now that Social Security is being threatened with massive cuts.

Smith is correct that counting the social security trust fund surplus as part of the federal government's general revenue ,in order to mask the size of the budget deficit, is dishonest .Although Smith correctly mentions that it was President Johnson who started this practice,he doesn't emphasize it sufficiently,in my opinion.Johnson implemented Kennedy's mistaken and misguided tax cut plan(similar to the error filled tax cut plan of Warren Harding and Andrew Mellon in 1922) of 1964 at precisely the same time that he was planning massive increases in federal spending to fight the Vietnam War and the War on Poverty.Johnson started the practice of including the social security surplus in the federal budget revenues to hide and mask from the American people the size of the budget deficits he was creating.[It will be noted her that J M Keynes was an opponent of deficit financing.Deficit financing is part of the functional finance approach of the American Keynesian-Neoclassical Synthesis economist Abba Lerner.Keynes expressed severe disagreement with Lerner's approach in 1944.Nor was Keynes in favor of income tax cuts.The only tax Keynes would cut would have been the social security tax for workers only].The Reagan and Bush presidencies have simply copied the approach of Kennedy-Johnson but on a much,much larger and much more damaging scale,increasing the national debt by a factor of 9.Smith should have stated the problem in the following fashion:The deficit finance problem of excessive tax cuts ,combined with excessive spending and borrowing,was started by Liberals and then greatly exacerbated by the Supplyside-Libertarianism of the Reagan and Bush Presidencies.It is time to return to the safe,sane,and sound fiscal and monetary policies of the Eisenhower Administration.

In The Looting Of Social Security: How The Government Is Draining America's Retirement Account, author Allen W. Smith draws upon his background in economics to reveal how ever single penny generated by the 1983 Social Security tax increase (specifically intended to deal with the anticipated social security financial shortfalls when the "babyboom" generation reaches retirement age) has been spent in a scandal that will make the Enron and Worlcom debacles look like a day at the beach. This wholesale pillaging of the Social Security Trust Fund is an horrific fraud that is the complicit result of actions taken by Ronald Reagan, George H. W. Bush, George W. Bush, and collaborative members of the federal congress. Smith reveals what the disastrous impact of these cavalier practices will have on the retirement experiences for millions of Baby Boomers unless immediate and draconian actions are taken to abort the looting and restore fiscal soundness to this soon-to-be bankrupt fund. If you are a member of the baby boom generation, then you need to read Allen Smith's The Looting Of Social Security -- and do it before the November presidential elections come around again.

This book, THE LOOTING OF SOCIAL SECURITY by Allen W. Smith, Ph.D., has a lot of facts right, but it is incredibly stupid to call something a gigantic fraud when everyone knows that it is going on, people are powerless to stop it, and people will vote for politicians who promise to give everyone tax cuts whenever it looks like the government will have some surplus. Smith knows that real surpluses are extremely rare; according to facts listed in the Social Security Chronology on pages xi through xiv, only two years since The Budget Enforcement Act of 1990 made it illegal to include Social Security in calculating budget deficits and surpluses had an on-budget surplus. Those years were 1999 and 2000. Accounting trickery is not something that most people comprehend when it is applied to something larger than a lockbox, and the subtitle, How the Government is Draining America's Retirement Account, requires knowledge of quantities that are beyond comprehension, unlikely to be paid in any year in which they are due, because the only amount that is associated with that drain is the gigantic national debt, which had grown to more than 4 trillion dollars by the end of the first time a Bush had been president.

Smith is not fond of tax cuts, which he believes are likely to intentionally create a financial crisis to force benefit cuts that most people would not support. 1999 and 2000 were extraordinary years, at the peak of a business cycle and with the lowest unemployment in 30 years, and the national debt of more than 6 trillion dollars in 2001 was not actually growing, but would never shrink unless real budget surpluses and payroll taxes designated for social security funds could be used to reduce that debt. Some households in 1999 had already received a $40,000-plus average tax cut compared to the percentage of income the richest one percent paid in 1977, when rates were higher but incomes were actually lower, due to an almighty dollar that was losing value in the instability race with interest rates that dooms all comparisons eventually. $40,000 won't seem like much next year, but in 1999 the entire average before-tax income of the middle fifth of households was projected to be $38,700 per household. If most of those people aren't making more than that now, they are probably borrowing more money than ever, as the expansion of credit keeps the economy going, and they will really need more money when interest rates rise. That tax cuts are such a big issue politically tends to show that America is tending toward plutocracy, which you can look up in the dictionary or in the index of this book.

Smith even uses this point of view to explain Iraq. "President Bush talks of bringing democracy to Iraq and other countries. Is he really . . . Or is it plutocracy that he really wants to impose on foreign nations?" (p. 165).

More than a year ago, Peter G. Peterson, President of the Concord Coalition, was complaining about a $10 trillion projected deficit swing, when "right now the long-term deficit outlook is even worse than the 10-year outlook." (April 30, 2003, p. 167). Paul O'Neill is also mentioned on pages 149-150 in connection with a study that showed future deficits roughly equivalent to 10 times the publicly held national debt, four years of U.S. economic output or more than 94 percent of all U.S. household assets. O'Neill was fired in December 2002, and the study was in a New York Times article on May 29, 2003, so it shouldn't be surprising if more people lose their jobs before the government informs any papers about any crisis of a financial nature.

The Social Security fund is expected to take in more money than it pays out until 2018. Smith thinks it is possible that Congress will then pass huge increases in the debt ceiling to borrow enough money to pay off its debts to Social Security. This would increase the public debt, taking money from the global economy to pay off something which is now called a government IOU, so interest rates might be pushed up a bit to compete with other likely borrowers of real money. With the gigantic national debt that will be due then, amounts needed for social security will be enormous. When the IOUs run out in 2042, social security revenue might pay 72 percent of benefits due.

Smith has been a professor of economics and has written newspaper columns. Trying to tell Americans anything gets a good head start when the ideas are simple. "Apparently George W. Bush intends to impose his low-tax, low-service philosophy on all of the American people, whether they want it or not. He is trying to starve the government into turning its back on responsibilities it has held for decades." (p. 192). Against such an agenda, Smith can only whimper, "And I am one of those extreme radicals who believe that the wealthy should not be able to use their wealth to buy political power." (p. 193). Plutocracy has to be worse than the current state of the Bush Administration for wealthy people to agree with that one, but a few rock stars might be humble enough to keep from running for office if they ask their fans how many people would want to vote for them. Rock stars aren't even in this book, but Smith is poor enough to admit, "there is no Santa Claus for those of us beyond a certain age. But we so much want to believe in Santa Claus, the tooth fairy, and the Easter bunny . . ." (p. 194).

The Social Security Tax was challenged in the Supreme Court shortly after it was passed into law. The government's lawyers argued...

"These are true taxes," they stated, "their purpose simply being to raise revenue.... The proceeds are paid into the Treasury as internal revenue collections, available for the general support of the government."

They HAD to take that position, to keep the tax from being struck down on constitutional grounds.

The court ruled in favor of the government. In the summary, the court stated...

"The proceeds of both taxes (SS and unemployment) are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way."

There is not, and never has been a true SS trust fund or "retirement account" to loot. Any excess funds are replaced by government bonds (IOU's) and the money deposited in the general spending account. That's the way the system was designed.

This book has 2 sides: the title, and the liberal rant. On the one hand, the case is clearly made that several sucessive congresses and presidents have engaged in short-sighted and fiscally destructive practices by borrowing from the SS Trust Fund to spend on current programs. For this, future America will have tough times. On the other hand, the author has engaged in typical liberal rant and subjective attacks on the current president that make up about 75% of this small book. This rant contains mis-representation of economic facts such as: total ommision of underlying factors for the 90's boom such as the spending wave of the baby-boom generation, understating the effect of oil prices on economic trends, and ommision of the impact of the business cycle when it suits the author's politics. The major failing however, is a complete absence of footnotes, and only a few select references of any kind. Still, despite the attack nature of this book, the truth of the soon-to-be insolvent SS Trust Fund is an extremely important subject, and should be of great concern for all Americans.

Smith does very little to identify the entire story of social security. He fails to identify the ever increasing additions to the population that paid into the fund;(It originally included only blue colar workers, then as the fund got into financial trouble another category of workers were added to bolster the fund. The military was brought in in 1957 and federal workers in 1984 as the fund continued to get into financial trouble.) He puts all the blame on Presidents Reagan, George H.W. Bush and George W. Bush and attempts to give credit to Clinton for trying to salvage the ponzi scheme. He fails to identify other fiscal impacts that impacted the national budget deficits. Essentialy poorly researched and misleading.

Smith should be soundly ridiculed for his blatant misrepresentation of history and economics. This book does not further the cause economic education, but rather furthers the misunderstanding of economics and the problem with the Social Security system.

Social Security is an inter-generational Ponzi scheme, doomed to fail. The fact that the trust fund was looted doesn't change that the basic problem that Social Security is a Ponzi scheme, but Smith doesn't point that out. He infers that everything would be fine if only Congress didn't loot the trust fund.

Smith goes to great lengths to describe how the Social Security system is a Ponzi scheme. But he alludes that it is merely the looting of the Trust Fund that is the problem and that if only that didn't happen, then the Ponzi scheme would be okay. The Trust Fund was setup to merely delay the inevitable collapse of the Social Security system. Social Security has been a Ponzi scheme since the day it was enacted and will fail unless it is privatized. The only law enacted to attempt to stop Social Security from being a Ponzi scheme was to setup a trust fund. A Ponzi scheme is simply a type of pyramid scheme, which is illegal for anyone in the U.S. to use, except Congress.

Daniel Moynihan was the only Democrat that was vocal in his opposition to the theft of the trust fund. Smith makes is sound like Moynihan was blasting Bush when he was in fact criticizing his fellow Democrats who controlled Congress.

Smith credits Clinton with returning to "sound economic principles." I'm curious on which economic theory states that tax increases will spur the economy. I guess the "sound economic principles" are the discredited Keynesian economic theories that haven't worked.

Even Keynes knew that tax cuts could increase tax revenues. He just believed that inflation would grow faster than the tax revenues and the net effect would be harmful. Supply-siders believe that the economy and tax revenues will grow faster than inflation. (The data is in. Supply-siders were right.)

On page 1, he blast George W. Bush for Enron scandal. Apparently he doesn't know that Enron accounting fraud occurred during president Clinton presidency, not George W. Bush. How can a supposed economic professor not know this?

The author claims that the trust fund was raided from the mid-80's, but his own chart shows that it wasn't raided until 1989, after Reagan left office. But the outside cover claims the looting was partly caused by Reagan.

The author criticism George H.W. Bush on the 1990 budget by using the text of a speech by Sen. Fritz Hollings. That appears to be Professors Smiths' only data he presents to explain why he George H.W. Bush was a terrible president. The inane ramblings of Sen. Hollings do not present any factually data to support his argument that Bush's 1990 budget proposal was "the worst he had ever seen."

George H.W. Bush, not understanding classic economics just like Professor Smith, (George Bush coined the term "voodoo economics" in 1980) was concerned about the deficit and made a budget deal (1990) with the Democrat-controlled Congress. Bush agreed to a tax increase as long as there was $2 cut in spending for every $1 in tax increases. The Democrats passed the tax increase and Bush signed it. Then the Democrats reneged on their deal and never passed any spending cuts.

It is true that the system "worked" for a long time. That is, retirees for many years collected far more in benefits than they ever paid in while working. That's because the postwar baby boom supplied many more workers than there were retirees and politicians strove to buy votes from senior citizens by taxing workers ever more and raising benefits ever higher. But that party is about to end. Before long there will be about two workers for each retiree. Something will have to give. Will the working generation put up with dramatically higher payroll or income taxes to support the retired boomers? Or will they demand that other government spending be cut? As the government consumes more and more scarce resources, how will Americans respond to the resulting slower economic growth or even stagnation?

Smith could have mentioned that the only people in the U.S. that do not have to pay Social Security and Medicare are Congress itself. They have their own very lucrative, and fully funded pension system and healthcare program.

The author also somehow manages to make the claim that Roosevelt's policies actually help during the Great Depression, though there is only evidence to the contrary. Roosevelt's polices prolonged the Great Depression. His policies caused the 1937 collapse, as the stock market plunged even more rapidly than in 1929, and the economy sank into what became popularly known as the "Roosevelt recession," the first recession within a depression ever.

He does spend some time criticizing Clinton on his repeated lies about the budget surplus. He claims that "supply-side" economics came out of nowhere. In 1976, Herbert Stein coined the phrase "supply-side fiscalists" as a derogatory comment. Herbert Stein (father of Ben Stein), who encouraged Richard Nixon to raise the capital-gains tax in 1969, was also trained as a Keynesian economist, just like Smith.

Throughout history there are examples of increasing tax rates causing less revenue and decreasing tax rates increasing tax revenue. There is no doubt that this happens. The arguments should be merely on what the optimum rate rates are, and are the current tax rates above or below the optimum.

This is a horrible book. I spent more time in the review on Smith's failed economics ideas than on the looting of the trust fund because most of the book was on economics instead of the trust fund. A much better book is "The Social Security Fraud" by Abraham Ellis.