How Ronald Reagan and Alan Greenspan Pulled off the Greatest Fraud Ever Perpetrated against the American People

by Allen W. Smith / April 14th, 2010

David Leonhardt’s article,  “Yes, 47% of Households Owe No Taxes. Look Closer,” in Tuesday’s New York Times
was excellent, but it just scratches the tip of the iceberg of how the
rich have gained at the expense of the working class during the past
three decades.  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

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

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 proposed repealing 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 cookie jar should be emptied, so
there would be no surplus Social Security revenue for the government to
loot. President Bush would have no part of repealing the payroll tax
hike.  The “read-my-lips-no-new-taxes” president was not about to give
up his huge 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, the government will soon 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.  I have been laboring for more than a decade to
expose the great Social Security scam.  For more information, please
visit my website or contact me.

Allen W. Smith is a Professor of Economics, Emeritus, at Eastern
Illinois University. He is the author of seven books and has been
researching and writing about Social Security financing for the past
ten years. Read other articles by Allen, or visit Allen’s website.

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