And you thought you could trust them to give it back?

A reader — one of many similar — recently wrote in to complain “They tell us that Social Security and Medicare are broken. The fact is the government used that money for wars and should have left the money in the so-called lock box. … I’m incensed that those programs are called entitlements. I paid into both, and I am entitled.”

She’s entitled … so we should stop calling them “entitlements”?

Beneath this linguistic confusion surely lurks a thought — a thought probably shared by many Americans: that Social Security is an insurance program. American workers are required to pay “premiums” into the program, while their employers match those “contributions” — all diverted from what the worker could otherwise take home and invest for him or herself.

An annuity is thus formed, an “investment yielding periodic payments during the annuitant’s lifetime, for a stated number of years, or in perpetuity,” administered by the federal government, which thus incurs an obligation to pay it all back.

It’s a lovely idea, and there’s no doubt politicians going back at least as far as Franklin Roosevelt have gone to considerable pains to convince Americans this is exactly what’s going on. It’s so less warm and cozy, after all, to say the “Social Security tax” was just another general purpose tax, spent as it came in on wars and Solyndra subsidies and locking up pot smokers, while in the meantime Social Security CHECKS are nothing but welfare payments to the unemployed elderly, directly transferred from the paychecks of today’s young workers — as long as we have some left.

The notion that “It’s insurance …it’s an annuity” is far more attractive, the only teensy problem being that it’s not true.

A maiden lady from Vermont named Ida May Fuller — a classmate of Calvin Coolidge — received the first Social Security check, check number 00-000-001, in the amount of $22.54, dated Jan. 31, 1940. She had paid into the system for a mere three years before filing for benefits. Because “contributions” at the time were mere pocket change compared to today’s levies, most such early recipients lived long enough to receive far more than they paid in.

How did the government do this? By investing those nickel-and-dime “premiums” in oil wells or railroad bonds or soybean futures that happened to skyrocket in value? Nothing of the sort. Social Security was a Ponzi scheme from the start, transferring payments from those who signed up later to those who were first on board, allowing the whole shebang to be marketed as Pie in the Sky Till You Die.

No one went to Aunt Ida after she’s received her first few checks, after all, and said “Sorry, you’ve now gotten back everything you paid in.”

Whether participating in Social Security withholding is actually mandatory is a topic for another day. I’ll just point out that it says at the top of the form W-4 “Request for Withholdings,” not “Registration for Mandatory Withholdings.” It’s far more convenient for courts to be able to toss out questions of what you were “at liberty” to do or not do, you see, if they can say, “You voluntarily subjected yourself to the terms and conditions of the program when you voluntary signed these forms; no one held a gun to your head.”

We certainly understand there’s no little pile of money stored in some obscure Washington pigeonhole with our name on it. Otherwise any participant who dies a few months after reaching age 65 would have a whole lot left in his or her “account.” Can you make out a will to leave the remainder of the funds in that personalized Social Security “account” to your surviving spouse or child? Or course not.

But it’s worse than that. It’s not even a guaranteed annuity.

At http://www.ssa.gov/history/nestor.html, the official Social Security Web site, we learn: “There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law. Section 1104 of the 1935 Act … specifically said: ‘The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.’ Even so, some have thought that this reservation was in some way unconstitutional. This is the issue finally settled by Flemming v. Nestor.

“In this 1960 Supreme Court decision, Nestor’s denial of benefits was upheld even though he had contributed to the program for 19 years and was already receiving benefits,” the government explains. “Under a 1954 law, Social Security benefits were denied to persons deported for, among other things, having been a member of the Communist party. Accordingly, Mr. Nestor’s benefits were terminated. He appealed the termination arguing, among other claims, that promised Social Security benefits were a contract and that Congress could not renege on that contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right. …”

You can look it up: Flemming v. Nestor 363 U.S. 603; No. 54, decided June 20, 1960.

Writing for the court, Mr. Justice Harlan held: “The noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose rights to benefits are based on his contractual premium payments.”

Translating that into even plainer English, legislative attorneys Kathleen S. Swendiman and Thomas J. Nicola of the Congressional Research Service reported (at www.aging.senate.gov/crs/ss2.pdf) on Aug. 11, 2010:

“Congress’s authority to modify provisions of the Social Security program was affirmed in the 1960 Supreme Court decision in Flemming v. Nestor, wherein the Court held that an individual does not have an accrued ‘property right’ in his or her Social Security benefits. The Court has made clear in subsequent court decisions that the payment of Social Security taxes conveys no contractual rights to Social Security benefits. …

“The Social Security Act states that Social Security benefits shall be paid only from the Social Security Trust Funds, and the act appropriates all payroll taxes to pay benefits. Although the legal right of beneficiaries to receive full benefits would not be extinguished by an insufficient amount of funds in the Social Security Trust Funds, it appears that beneficiaries would have to wait until the Trust Funds receive an amount sufficient to pay full benefits in the case of a shortfall. …”

So our letter writers, as it turns out, have nothing to worry about: Uncle Sam is only going to send out as much as comes in, regardless of what you “contributed,” back in the days when the revenues from your “Social Security taxes” were being used to finance wars in Vietnam, the Sinai, Iraq, or whatever other hellhole the boys in the Military-Industrial Complex came up with for their weapons testing.

It’s not an “entitlement.” Because, as it turns out, they’re free to reduce the benefits, or simply send you nothing at all.

Men from the government took your money … and you thought you could trust them to give it back?

One Comment to “And you thought you could trust them to give it back?”

  1. R.R. Schoettker Says:

    Many thanks for this article. I have been trying to make the same point in personal conversations with acquaintances for a number of years and have found that it is a truth that the vast majority haven’t the slightest interest in hearing, much less accepting. To acknowledge that the only way to get back what was stolen by a thief who spent what they took the day they robbed you is by requesting them to steal again for you seems beyond the ethical capacity of those who can’t recognize the old logical fallacy of two wrongs not making a right.

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