The Truth About Social Security
by John F. McManus

When Federal Reserve Chairman Alan Greenspan testified on February 25, 2004 to the House Budget Committee, he avoided his customary obfuscation and discussed Social Security and Medicare in foreboding terms. Calling the ballooning indebtedness of these programs "sobering," he stated:

Within his remarks, the Fed chairman called for "changes" in the system that must "involve lowering claims or raising financial obligations." One way to lower claims, he offered, must begin with a recognition that people live longer and, therefore, "significant structural adjustments in the major retirement programs" should be initiated. He specifically suggested reducing cost-of-living increases and pushing up the retirement age.

Greenspan’s suggestions, like others proposed and acted upon in recent years, have always amounted to placing a band-aid on a mortal wound. Cato Institute’s Michael Tanner, the author of the recently released study Social Security and Its Discontents, claims that "a better measure of Social Security’s financial crisis is its actual cash deficit." When measured in constant 2004 dollars, "the total amount that its expenditures will exceed its revenue from 2018 on … is an astounding $26 trillion — $26,000,000,000,000.00."

President Bush, in keeping with standard Washington procedure, appointed a commission to study the problem. He even suggested allowing younger Americans to divert a minuscule portion of their Social Security taxes to an individual investment account. But the impending crisis remains: Taxes for Social Security have risen dramatically and the program’s payouts continue to escalate even faster. If our nation is ever to survive more than six decades of this form of socialism and vote-buying profligacy, Social Security must be reexamined from its inception, halted and phased out.

Since both Republican and Democratic Party officials refuse to tackle the problem realistically, Social Security will likely not become an issue in the 2004 presidential election — even though it should. Ignoring the looming emergency, however, won’t make it go away. And expecting current political leaders to address the completely unconstitutional nature of the entire program is unrealistic — unless an informed citizenry forces the issue to be addressed.

The Social Security tax currently stands at 6.2 percent of gross wages up to an annual income of $87,900; this tax must be matched by another 6.2 percent from employers. In addition, a Medicare tax demands an additional 1.45 percent of all income, also forcibly matched by one’s employer. Government’s take for each employed Social Security participant, therefore, amounts to 15.3 percent of what a job is worth to the employee/employer combination — a hefty chunk, particularly considering this tax is in addition to other payroll taxes. Had these amounts been demanded when Social Security was initiated, the program would never have been born.

Budget figures published by the Social Security Administration (SSA) project that the agency’s cost will be $524 billion in Fiscal 2004. This amount far exceeds the budget for the Defense Department, even including the war against Iraq. Payments are now sent to more than 50 million persons every month, close to 18 percent of the population, a figure that will begin rising dramatically in just a few years when the baby boomers retire.

The official SSA budget reports that collections will total $668 billion in Fiscal 2004. According to a variety of SSA publications, practically all of this revenue (minor exceptions include disbursements for Supplemental Security Income) is placed in Social Security "trust funds."

But therein lies an enormous deception. The Social Security "trust fund" doesn’t exist. SSA’s most fundamental claim amounts to a falsehood — a fact that has been confirmed by numerous prominent individuals.

For instance: An incredulous secretary of the treasury, William Simon, said in an article appearing in the November 3, 1976 issue of the Wall Street Journal that "as chief financial officer of the U.S. government … I am shocked by what I have learned about Social Security." He explained:

In a speech at Washington’s National Press Club on September 17, 2003, U.S. Comptroller General David M. Walker pointed to enormous liabilities that don’t show up on government ledger sheets. Specifically, he said, there are "several trillion dollars in non-marketable government securities in so-called ‘Trust Funds’":

Most Americans, sad to say, have not been apprised of this reality. Instead, Social Security: How It’s Financed, an official SSA publication, informs them that the program’s "tax revenues are deposited in the trust funds," and that what isn’t immediately paid out to beneficiaries "is invested daily in U.S. government bonds."

However, these bonds, which actually exist, are nothing but a paper claim on the U.S. government. To be worth anything, they must be redeemed with future tax revenues. Hence, the so-called trust funds are the equivalent of a man claiming as assets IOUs he writes to himself. And the grand ruse grows even larger when this same SSA publication claims that these bonds "earn the prevailing rate of interest."

Because the taxes collected from working Americans in the name of Social Security are and always have been general revenue, they are available to pay for foreign aid, salaries for bureaucrats, misuse of the nation’s military, and a host of unconstitutional federal programs relating to education, transportation, energy, etc. This is the reality of the so-called trust funds.

Since the program’s inception in 1935, Social Security’s cost has risen dramatically because the recipients (on the average) are living longer, the number of recipients has grown, and benefits have increased. As large numbers of the baby boomer generation begin to retire, the number of beneficiaries will zoom and the number paying Social Security taxes will shrink.

In 1940, the ratio of payees to recipients was 300 to 1. Ten years later, the ratio dropped to 16 to 1. At the dawn of the 21st century, it became 3 to 1. In only a few more years, it will fall to 2 to 1. That is, two workers will be taxed to pay benefits for one Social Security recipient. Anyone retiring now, of course, never shouldered anywhere near the burden facing today’s young people. Only time will tell if young Americans, who had nothing to say about being saddled with such a burden, will continue to pay for it.

Faced with this problem, what can be expected of our leaders who boast of their commitment to "protect Social Security"? Their most obvious course of action is the one frequently exercised in the past: Raise Social Security taxes. Other options include excluding some who expect to be recipients; raising the retirement age; or decreasing promised benefits for all recipients. But the only genuine solution is to recognize that the program is fundamentally flawed and must be phased out in favor of private alternatives. However, this phaseout will not be easy. And how the nation got into its present bind must be understood if getting out of it is ever going to be accomplished.

The Great Depression was undoubtedly one of our nation’s greatest crises. During the depth of that bleak period, 22 million employable Americans were out of work. Assuming office in 1933, President Franklin Delano Roosevelt promptly ushered in a flood of socialistic legislation known as the New Deal. Its most famous creation is Social Security.

In the spring of 1934, the new president signed an Executive Order creating a Committee on Economic Security (CES) whose purpose was clear: Produce a plan to deal with "economic insecurity." By January 1935, FDR approved a CES proposal calling for a Social Security program and sent it to Congress.

Not known at the time was that FDR sought to emulate Germany’s Otto von Bismarck, who had candidly admitted employing a welfare scheme to force the people into dependency on government. The Iron Chancellor actually boasted, "Whoever has a pension for his old age is … far easier to handle [and will become] a servant in the chancellery or at court."

The self-defeating logic of Social Security is destructive of the family in other ways, in that it imposes further financial hardships through higher taxation on families, making it more economically difficult to have children. With a disincentive to have children, there is a smaller future workforce to be plundered for the system. Demographically speaking, this is part of the reason for what has happened to the United States.

Ironically, prior to becoming president, FDR had strongly denounced the concept of Social Security. While serving as New York’s governor in 1930, he delivered a radio address condemning "social welfare" and "insurance" as matters in which "Washington should not be encouraged to interfere." Once in the White House, however, he reversed course and began promoting a program eerily identical to that sought by U.S. Communist Party leader William Z. Foster. In his 1932 book Toward Soviet America, Foster called for "a system of social insurance against unemployment, old age, sickness, accidents, etc."

From its outset, the Social Security Administration has been mired in falsehood. For instance, the Federal Insurance Contributions Act (FICA) of 1935 created two categories of taxation, one for old age and one for the disabled. Payroll deductions carry the designation "FICA" on each paycheck. But Social Security isn’t an "insurance" program and the dollars taken from a person’s salary are hardly "contributions." This tax is also sometimes referred to as Old Age, Survivors and Disability Insurance (OASDI), a repeat of the lie about "insurance." Even today, the Medicare tax, usually spoken of in the same breath as Social Security, is called "hospital insurance," which perpetuates the use of non-threatening but deceptive terms.

The initial costs for this sweeping measure, enacted without serious congressional opposition in April 1935, were expected to be borne by middle class Americans who formed the small business backbone of the nation. Adding tax burdens to this sector of the population was hardly a sensible strategy in the face of widespread unemployment — unless, of course, it was done by design. If addressing the problem of out-of-work Americans had really been the goal, a reduction in taxes on small and middle-size firms, where most of the nation’s jobs could be found, should have been enacted. Obviously, combating joblessness wasn’t the real purpose.

Among the few who accurately labeled the measure both dangerous and unconstitutional, Representative David A. Reed (R-N.Y.) stood tall. He not only recognized the program for what it was, he aimed significant barbs at his colleagues for allowing themselves to become "a spineless rubber stamp [for] a dictatorial Executive." He berated them for allowing the president "to usurp the functions of Congress [and] evade the spirit and intent of the federal Constitution." The measure before them, he warned prophetically, "would bring about such a regimentation of industrial workers under the thumb of government as has never been attempted even in Russia."

Nevertheless, on April 19, 1935, the House passed the measure by the lopsided vote of 372-33 and the Senate supinely followed with its approval. On August 14 of the same year, during a grandiose signing ceremony, Roosevelt labeled the Act "historic for all time" and "the cornerstone in a structure which is being built but is by no means complete." The structure he was erecting was socialism, the antithesis of limited government and free enterprise enshrined in the U.S. Constitution.

Almost immediately, predictable challenges to Social Security made their way into the courts. Though the program survived those challenges, the arguments made clear the true nature of the program, including the fact that there were no trust funds.

In the first of two major efforts to overturn the measure, Alabama’s Steward Machine Company sued to void an unemployment compensation tax of a mere $46.14 imposed by the Act. The company’s lawyers argued that the tax was unconstitutional because it violated the Ninth and Tenth Amendments limiting federal powers.

A federal district court ruled that Steward’s complaint had no merit and dismissed it. Steward appealed and the Fifth Circuit Court of Appeals refused to overturn the ruling. The company appealed further to the Supreme Court in Steward v. Davis 301 U.S.C. 548, Harwell G. Davis being a Collector of Internal Revenue.

Almost simultaneously, George P. Davis (no relation to Harwell G. Davis) of Boston filed suit claiming that two companies in which he held stock should not have to pay the Social Security and unemployment compensation taxes mandated by the Act. He maintained that these taxes were not authorized by the Constitution, that they amounted to a usurpation of the rights of the states, and that they imposed a monetary burden on the firms in which he had invested.

Davis received an unfavorable judgment from a lower federal court but he appealed the decision and the First Circuit Court of Appeals in Boston reversed the lower court’s ruling on April 14, 1937. Had the First Circuit’s decision prevailed, the Social Security Act would have been voided. But, as expected, the federal government’s Commissioner of Internal Revenue, Guy T. Helvering, appealed that ruling to the Supreme Court in Helvering v. Davis 301 U.S.C. 619.

Lawyers for George P. Davis narrowed their strategy before the Supreme Court to two main arguments. They insisted, as had Steward Machine Company’s attorneys, that the Social Security Act unconstitutionally imposed taxes for "a particular purpose," not for the constitutionally acceptable goal of acquiring revenue for the general welfare of the United States as a whole. The Bostonian’s attorneys pointed to the Constitution’s grant of power "to lay and collect taxes, duties, imposts and excises to pay the debts and provide for the common defence and general welfare of the United States." Distributing Social Security revenues only to some Americans, they insisted, was not constitutionally permissible. Their second argument challenged the federal government’s claim that the tax upon employers should be considered an excise tax, as mentioned in this same clause of the Constitution.

The high court’s justices listened intently as they always do, but their rulings ignored the eminently sound arguments placed before them. On May 24, 1937, the Supreme Court upheld the Fifth Circuit’s dismissal of Steward’s claims and, relying in part on that decision, ruled against the claims made by Mr. Davis. The Social Security Act that should have been voided won approval by a 7 to 2 vote.

Incredibly, the government’s lawyers rebutted Davis’s argument that Social Security unconstitutionally benefited specific Americans by admitting that trust funds don’t exist. "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."

Despite this admission in 1937, government officials at virtually every level have propounded the trust fund myth for generations. But, beyond what the government lawyers held about these taxes, the High Court’s justices confirmed this point even more emphatically. In the body of its Helvering ruling, the Supreme Court stated:

Can the truth about the non-existence of any Social Security trust funds be stated more clearly? Or more authoritatively?

While seeking to blunt Mr. Davis’s challenge, the government’s lawyers claimed further that he had no standing to sue because an employer is "merely a withholding agent … a collecting agent or stakeholder" of the government. Their argument, therefore, clearly held that a private citizen can be pressed into service as the government’s accounting and collection "agent." And the court accepted this view without comment and thereby established an entirely new category of government power.

Finding such authority in the Constitution is, of course, impossible. Instead, finding a prohibition against "involuntary servitude," which is what the government’s assumed power entails, appears in the 13th Amendment. But the Social Security Act has never been challenged on this point. In 1941, after respectability for this type of enforced servitude had been established, Congress extended it to require employers to withhold and deliver income taxes to the government.

When addressing the Davis claim that tax revenues shall not be disbursed for a select few, the court had to skirt the true meaning of "welfare." Perry’s Royal Standard English Dictionary, published in January 1788, was the first English language dictionary in our nation. Its three-word definition for "welfare" reads: "happiness, success, prosperity." It is totally wrong, therefore, to attach any thought of charity or government relief to the meaning of "welfare" as it was obviously understood in 1788. When the nation’s Founders approved federal taxing power for the "general welfare of the United States," they were not authorizing federal handouts.

James Madison, rightly deemed the Father of the Constitution, rose during the very first session of Congress to supply his own definition of the constitutional term "general welfare." In total agreement with what Perry’s Dictionary stated, he maintained:

So how did the justices of 1937 address the matter of the meaning of "general welfare"? They listened to lawyers for both sides and then declared: "We find it unnecessary to make a choice between the arguments and so leave the question open." Incredible! By refusing to "make a choice," the court’s majority decision overturned George P. Davis’s victory in the Boston Appeals Court and voided the clear intent of the Founders that barred taxing some for the benefit of others. The majority knew that they couldn’t render a decision regarding this matter without concluding that the Act violated the Constitution. So they let the matter achieve respectability by refusing to address it.

Thus, one of the most important constitutional points raised in the entire case was ignored. The refusal to address the matter effectively empowered the federal government to dispense favors to any segment of society it chooses. As a result, federal "welfare" programs that have always been unconstitutional have escalated dramatically in number and in cost, just as James Madison feared.

Next, the court addressed the unemployment compensation feature of the Act. Classifying unemployment as a detriment to the nation as a whole, the justices decreed, "Congress may spend money to combat it because doing so would contribute to the ‘general welfare’ of the nation." Admitting that some "great statesmen in our history" would have disagreed with this opinion, the justices opined: "There is a middle ground or certainly a penumbra in which discretion is at large." (Emphasis added.) Dictionaries tell us that the word "penumbra" means "an imperfect or indefinite shadow, not the source of the light causing it."

When justices of the Supreme Court rely on an "an imperfect or indefinite shadow" to render a decision, and not the Constitution itself, they are demonstrating no respect whatsoever for the Constitution or even for the American people. And they are saying that, in the absence of any constitutional justification for what they desire, they will create it out of thin air.

In Helvering, the Supreme Court also concluded that old age pensions are a proper federal concern. The majority contended that if the states created differing programs, or even if such a program might be "put in force in one state and rejected in another," the dissimilarities would constitute "a bait to the needy and dependent elsewhere, encouraging them to migrate and seek a haven of repose. Only a power that is national can serve the interests of all." (Emphasis added.)

Viewed with the benefit of more than 60 years of hindsight, the imposition of the Social Security program constituted perhaps the greatest increase in the national government’s power and the greatest attack on the rights of the states in our nation’s history. From the federal system given us by wise and farsighted men, our nation has been saddled with an increasingly dominant national system, something the Founding Fathers worked so diligently to prevent.

Social Security became law in 1935. Supposedly, it guaranteed that a person who had been paying into the system would receive whatever had been taken from him even if, for some reason such as early death, he hadn’t received any benefits. In such a case, his estate would receive a sum equal to whatever he had paid into the program. But this guarantee has been voided.

Over the years, SSA has regularly proclaimed that its benefits are guaranteed with the "full faith and trust of the United States government." The 2000 edition of the SSA’s Retirement Benefits booklet does hint at future problems, but it states that "Congress has the time it needs to make changes...." And it reassures readers: "You can count on Social Security being there when you need it."

Interestingly, the 2003 Retirement Benefits booklet substitutes far more guarded language in the very same portion of its text. It now reads:

The bottom line is that government has power to change any part of the program at its discretion. It can raise benefits, lower benefits, even cancel benefits. It can raise taxes, lower taxes, or cancel taxes. Whatever laws one Congress passes do not bind a future Congress. Regarding payments to the taxpayers, there are no ironclad guarantees. It is an enduring myth, but a myth nevertheless, that a worker has a legal right to Social Security benefits. The Social Security program, built on lies and on legislative and judicial treachery, must be abolished.

Current U.S. leaders cannot be ignorant of what we have presented. Yet, many still maintain that Social Security is essential and that its "trust funds" must be protected, or rescued, or even beefed up with new tax revenues. Nor can the solution be found in the suggestion that Social Security funds be invested in the stock market, which would ultimately lead to federal domination of the markets.

Self-serving politicians continue to support a Social Security program that could, by itself, destroy this nation. America’s future, therefore, is in the hands of the people who must become better informed about Social Security and then apply informed pressure on the elected representatives.

The choice is simple: Elected officials must either begin dismantling Social Security or they should be voted out of office. It’s time to grant Social Security its own retirement.