Under the pretense that the same money can be both spent and saved, the government comes up with the story that it merely "borrowed" or "invested" these surpluses. As fast as the money is spent, the pirates issue "certificates of indebtedness" to the Social Security trust funds. Certificates that are later rolled over into special obligation nonmarketable bonds.

The trust fund is paid annual compound interest against the balance from the previous year. The rate of interest is figured on a five year model of interest paid legitimate long terms bonds sold on the "Bond Market." The result is as follows:

HOW IT BEGAN

During the mid-thirties, in the midst of the Great Depression, it took the Supreme Court two years to decide that it was legal for the federal government to enter the private enterprise business of running an insurance company known as Social Security. Specifically, that it was legal for the government to forcibly collect one percent of every worker’s wages to establish a supplemental retirement insurance business that would guarantee that anyone who worked in America for at least ten years would never end up in the very real poor house. (See: History of payroll taxes) 

This was not an easy decision for the Supreme Court, and the dissenting arguments by about a third of the judges are well worth everyone’s attention, but it was also a time when it was obvious that a majority of the American people had little or nothing set aside for a rainy decade, to sustain them through an extended recession, much the same condition we have today as the average American working family now has a negative savings rate for the first time since 1933.

Unfortunately, the terms of the original Social Security Act of 1935 allow the Secretary of the Treasury to determine what is done with any surplus payroll tax collected by the government. One, but only one, of the options is that he “may” invest this surplus in U.S. Treasury securities. No one has successfully challenged this part of a very loosely written law and the government that is profiting by it has never chosen an alternative form of investment.

What’s ridiculous and, in fact, a crime is that the federal government has invented a type of Treasury instrument called “special” nonmarketable bonds that mean the very same people who contributed “surpluses” are also responsible for buying back their own money, plus interest. Coupled with black hole debit accounts that have little resemblance to real trust funds, this has resulted in what I call the “Pay-It-Again Sam scam.”

In 1983, the government changed this malappropriation from petty theft that hardly anyone had noticed for 35 years – into grand larceny. It is now, and ever shall be unless the people do something about it, the greatest economic swindle the world has ever seen. Taxpayers who have contributed billions in surpluses now owe their own supplemental insurance program, Social Security, more than $2 trillion. And it’s growing all the time.

In order to understand what happened in 1983, we need to look at an exploded section of this same line chart:

Starting in 1975 and continuing for seven years in a row, Social Security had to turn to its trust fund every year to pay benefits. This drove Congress ballistic because it meant money had to be taken out of the Treasury's General Fund of budgeted taxpayer dollars or borrowed money in order to pay the retired and disabled.

In 1981-82, Reasan appointed the Greenspan Commission to "save" Social Security. In January of 1983, they delivered a report that dealt largely with small issues and said Social Security was alright. Of course, the report was long and in typical Greenspeak. Few read it.

However, Senators Bob Dole and Daniel Patrick Moynihan had served on the Greenspan Committee and they got together to propose raising payroll taxes as a way to "save" Social Security. Within a month, Congress passed the legislation raising payroll taxes way beyond anything even remotely necessary. It took three or four years for these raises to go into full effect.

One of the sad things is that by the time Congress enacted this "emergency" legislation the economy had recovered, jobs were plentiful, and there was no need for it. Payroll tax revenue was back to normal and we would have all been better off if they had left it alone as Greenspan recommended. The other politicians, however, believed that Dole and Moynihan knew what they were talking about because they had served on the commission that met once a month for a year. Why study the lengthy report, we'll just enact Dole and Moynihan's recommendations. (See: Moynihan speech at Harvard)

Since taking office in 2001, George W. Bush has doubled the Social Security trust fund. In 2001, the two trusts, Federal Old Age & Survivors Insurance and Federal Liability Insurance, stood at $1.007 trillion. Today it stands at $2.049 trillion.