Both America and the Soviet Union called the Soviet Union a socialist system but for different reasons. America called it a socialist system because it wanted to defame and demonize socialism. The Soviet Union called their government socialist because that was a popular and celebrated term in Europe, despite totalitarian control having nothing to do with true, democratic socialism (where workers are also the owners and have democratic control over their workplace and government).
In truth, as Noam Chomsky points out, the people of the Soviet Union had no control over the means of production or control over their lives and were essentially slaves. It would be the same as if Stalin came to power in America, created a fascist police state, used coercive force to protect criminal banks, evicted people unjustly from their homes, suppressed protests and broke up unions, then lavished massive subsidies on big companies, gave tax breaks to the rich, allowed large corporations to pay nothing in taxes while cutting programs to help the poor, rigged all their elections with the aid of corporate media, and then proudly called this a "free-market capitalist and democratic system that represents the will of the people."
In other words, just because politicians often appropriate popular words for their own twisted means, that doesn't make what they say true.
Stalin also pretended to support democracy, but if we can agree that the Soviet Union obviously wasn't an example of true democracy (nor what we have today in the US or most faux-representative governments), we should be able to agree that it wasn't an example of true socialism either.
Until workers are also the democratic owners of the businesses they work for and have direct democratic control over decisions made at city hall all the way to Congress (which means the right to self-determination at the local level and real freedom), it's not socialism, if you ask us. This was the original spirit of socialism, historically. It was a rejection of authoritarianism in government *and* authoritarianism in business (i.e. capitalism). Thanks to decades of marvelously successful propaganda, that original spirit has been replaced with a cartoon villain's version of socialism.
Noam Chomsky says it best though.
In Chomsky's own words...
"When the world's two great propaganda systems agree on some doctrine, it requires some intellectual effort to escape its shackles. One such doctrine is that the society created by Lenin and Trotsky and molded further by Stalin and his successors has some relation to socialism in some meaningful or historically accurate sense of this concept. In fact, if there is a relation, it is the relation of contradiction.
It is clear enough why both major propaganda systems insist upon this fantasy. Since its origins, the Soviet State has attempted to harness the energies of its own population and oppressed people elsewhere in the service of the men who took advantage of the popular ferment in Russia in 1917 to seize State power. One major ideological weapon employed to this end has been the claim that the State managers are leading their own society and the world towards the socialist ideal; an impossibility, as any socialist -- surely any serious Marxist -- should have understood at once (many did), and a lie of mammoth proportions as history has revealed since the earliest days of the Bolshevik regime. The taskmasters have attempted to gain legitimacy and support by exploiting the aura of socialist ideals and the respect that is rightly accorded them, to conceal their own ritual practice as they destroyed every vestige of socialism.
As for the world's second major propaganda system, association of socialism with the Soviet Union and its clients serves as a powerful ideological weapon to enforce conformity and obedience to the State capitalist institutions, to ensure that the necessity to rent oneself to the owners and managers of these institutions will be regarded as virtually a natural law, the only alternative to the 'socialist' dungeon.
The Soviet leadership thus portrays itself as socialist to protect its right to wield the club, and Western ideologists adopt the same pretense in order to forestall the threat of a more free and just society. This joint attack on socialism has been highly effective in undermining it in the modern period." - Noam Chomsky, The Soviet Union Versus Socialism
The clip above is from the 60-minute mark of the film Golden Rule: The Investment Theory of Politics (2009). Watch the full film here.
It's one of the best documentaries explaining the influence of money on politics.